Daniel Elizalde, PMP
How to Successfully Negotiate Your Project ContractsDaniel Elizalde, PMP@delizalde | ManagersBuild.com
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
Why contracts are critical
71% of IT Projects are EITHER over budget, over schedule, or deliver incomplete scope.
Source: Standish Group (2004). CHAOS Report.
Via contracts PMs can enforce these constraints and reduce Risk!
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
Agenda
• Key Rules for Contract Negotiations
• Common Contracts – Definitions & Top 3 Wachouts– NDA– MSA– SOW – CO
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
Key Rules for Contract Negotiation
1. Stay involved from start to finish.
2. Everything is negotiable. Everything.
3. Always have everything in writing.
4. Negotiate when you are still friends.
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
…
NDA
MSA
SOW 1
CO 1
CO 2
SOW 2 SOW n
Frequently Used ContractsNon-Disclosure Agreement
Master Services Agreement
Change Order
Scope of Work
Daniel Elizalde, PMP
Non-Disclosure Agreement (NDA)
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
NDA | Non-disclosure Agreement
Agreement to not disclose proprietary info with anybody outside the companies.
– Client: protect trade secrets & plans – Vendor: protect procedures & “secret sauce”
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
NDA | Key Watchouts
1. Sign an NDA before sharing too much product/ project info
2. Company vs Individual NDAs
3. Who has signing authority?
Daniel Elizalde, PMP
Master Services Agreement (MSA)
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
MSA | Master Services Agreement
MSA (a.k.a. Master Contract) defines how two companies will do business together
• Umbrella contract – governs every SOW
• Negotiations and redlines can take weeks or even months
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
MSA | Key Watchouts
1. Ownership of IP.
2. Payment terms.
3. Limitation of Liability.
Daniel Elizalde, PMP
Statement of Work (SOW)
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
SOW | Statement Of Work
SOWs define the details of what will be provided in an engagement, including:
• Deliverables• Timelines• Payment amount• Milestones• Invoicing
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
Two Main Types of SOWs
Time & Materials Fixed PriceOverview Client pays for hours worked.
Vendor does not commit to deliverables
Client pays a fixed amount for specific deliverables
When to use Scope is vague Scope is clearly defined
Who bares the risk Client Vendor
Invoicing Recurring (e.g. every 2 weeks) Based on acceptance of milestones
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
T&M SOWs | Key Watchouts for Clients
1. Be careful of “bait-and-switch”.
2. If possible, buy materials on your own.
3. Demand frequent updates.
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
T&M SOWs | Key Watchouts for Vendors
1. Be flexible, but keep an eye on the scope.
2. Client has never worked with Vendors before.
3. Client wants specific deliverables.
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
T&M SOWs | Example – Too Specific
“…the deliverables include wireframes, visual comps, and an HTML prototype…”
vs.
“…deliverables can include items like wireframes, visual comps, and prototypes as time-permitting by the number of hours allocated in this SOW…”
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
Fixed Price SOWs | Key Watchouts for Clients
1. Low bids = red flag.
2. Ensure realistic review times.
3. Define clear deliverables.
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
Fixed Price SOW | Example – Clear Deliverable
“…the application will run on mobile devices…”
vs.
“…the application will run on iOS phones, models 4 and up…”
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
Fixed Price SOWs | Key Watchouts for Vendors
1. Define the number of review cycles.
2. Agree on an objective and measurable acceptance plan.
3. Define invoicing that’s beneficial to you.
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
Fixed Price SOWs | Invoicing Schedule
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
Hybrid Projects
It’s OK to combine SOW types…
Discovery Implementation
Fixed PriceT&M
Daniel Elizalde, PMP
Change Order (CO)
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
Change Orders
Change Orders document any deviations from the current SOW
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
Change Order | Key Watchouts
1. Be clear and explicit.
2. Bundle changes to expedite approval.
3. Keep it in writing.
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
Change Orders | Example – Zero Dollar
“…OK, I agree to the change. Since it’s nothing major, no need to modify the SOW. We have a great relationship…”
Daniel Elizalde, PMP @delizalde | ManagersBuild.comDaniel Elizalde, PMP
Thank You!
ManagersBuild.comDaniel Elizalde, PMP
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