The Vendor Management Office: Recent Comments

Comment on VENDOR: Sorry, But Here's an Invoice From Last Year We Forgot to Send. YOU: Wwwwhat?!

Stephen Guth — Mon, 26 Jul 2010 17:01:29 GMT

Touche!

Comment on VENDOR: Sorry, But Here's an Invoice From Last Year We Forgot to Send. YOU: Wwwwhat?!

Chris Lemens — Mon, 26 Jul 2010 16:56:46 GMT

How about "be happy that you got an interest-free loan for a year, then ask yourself why your systems didn't catch it either"?

Chris

Comment on The New Fangled SaaS Contract Template (Updated)

Michael Hagerman — Tue, 20 Jul 2010 21:16:36 GMT

Not sure where Mr. Guth got off to. I a fellow instructor of his at the University of Maryland as well as a contracts manager dealing with such agreements. From what I've seen, there's no "silver bullet" per se for vendor failure risk. From a buyer's perspective, we sure need to get creative and find one!

In some cases, I've seen legal counsel (I am a lawyer but do not function as one) try to insert source code escrows with an expansion to include hardware instructions, etc. That of course is probably of limited usefulness. After all we outsourced the solution to enable us to NOT have that type of expertise on the payroll anymore, right?

Unless the Bankruptcy Code got revised without their telling me, your options with an independent IT consulting firm are pretty limited, depending on the type of bankruptcy.

If the company is in Chapter 11, it's in theory still a going concern that is - in theory - still providing the services. The biggest threat of course is a Chapter 7 dissolution bankruptcy. In that case, though, you have to work through the bankruptcy trustee to obtain access to systems, hardware, etc. Your IT consultant would have to be allowed in, a dubious proposition subject to the approval of the trustee and possibly the Bankruptcy Court.

In my opinion, the only truly effective backup plan is due diligence up front, and constant vendor monitoring during the contract. That of course implies (a) you have negotiated the right to terminate for convenience, and (b) you contractually require the vendor to provide audit access and financial reports. Thus, if alarm bells are triggered by financial problems, you can take steps to find out what's wrong and possibly transition to a new vendor.

Comment on Test Your Procurement Skills: Reps and Warranties and Disclaimers, Oh My!

Larry Sparkman — Mon, 14 Jun 2010 17:50:31 GMT

Definitely "cold & prickly"; although not unusual at all. The "other than as set forth herein" usually provides some measure of comfort, to the extent that you have good issue circumvention guarantees, a lengthy warranty period, and payments for software and some services dependant on acceptance of typical SDLC deliverables. I really don’t like the last sentence and always include a clause that expressly warrants no disabling code, or other "trojan horse" devices.

I could read this as customer hosted software or SaaS as previously noted, but if it is SaaS, this language would be in such stark contrast with my SLA's for Uptime, Performance, and Functional affirmations as to potentially render them impotent and unenforceable. If software, some states consider software delivered electronically to be "intangible" and therefore not subject to sales taxes. Buyers should review their State's DOR guidelines for applicability.

I really liked your prior article on keeping the lawyer away from your deal. Although I didn’t share it word for word (don’t know them that well yet), we are (thankfully) working our deals largely in this manner. We are quite fortunate in that our legal resources are astute, pragmatic, and without pretense or formality. Keep up the good work.

Comment on Test Your Procurement Skills: Reps and Warranties and Disclaimers, Oh My!

Stephen Guth — Mon, 07 Jun 2010 20:15:14 GMT

Hi Charles,

Excellent feedback and information!

Best,
Stephen

Comment on Test Your Procurement Skills: Reps and Warranties and Disclaimers, Oh My!

Stephen Guth — Mon, 07 Jun 2010 20:14:13 GMT

I agree!

Comment on Test Your Procurement Skills: Reps and Warranties and Disclaimers, Oh My!

Charles — Mon, 07 Jun 2010 15:24:13 GMT

There is an awful lot to dislike in this provision, and the language belies the suitability, reliability, and usefulness of what looks like a "SaaS" (software as a service) agreement. As I am sure you are already well aware, in a SaaS solution, the functionality is hosted on the vendor's servers, and therefore the security and availability of the servers, the proper installation, configuration, and maintenance of the SaaS and the servers, and the proper functioning of the system all depend entirely upon the vendor. This provision potentially provides the vendor a complete pass on responsibility and liability.

I would expect that there is an SLA in the agreement. If so, what does the SLA cover, and what are the SLA metrics? I am confident that the sales people made lots of promises about the reliability and robustness of their solution. They should live up to those express warranties. I would also expect and require that the vendor host the SaaS in a hardened data center environment where redundancy for power, Internet access, fail-over servers, etc. exists. Moreover, the vendor systems must be hardened against intrusion and infection by viruses and malware.

In light of this language, have you addressed the issue of continued data availability by requiring the vendor to provide periodic backups (daily or weekly) of your data in an open standard format, either directly to you or a designated data escrow agent? If they cannot guarantee the security of their system (whether through hacking or viruses) or availability across the Internet (excluding access issues beyond their reasonable control), and they disclaim all damages associated therewith, they are really creating a tremendous liability issue for you – especially if there is a data breach. I wonder what the limitation of liability and indemnification provisions state.

Comment on Test Your Procurement Skills: Reps and Warranties and Disclaimers, Oh My!

Charles Dominick SPSM — Mon, 07 Jun 2010 13:37:36 GMT

It's quite common to see disclaimers of implied warranties, but disclaimers of express warranties?

It's almost insulting that someone would have the gall to include something like that.

Comment on Test Your Procurement Skills: Reps and Warranties and Disclaimers, Oh My!

Stephen Guth — Mon, 07 Jun 2010 00:43:33 GMT

Jeff,

You're right on!

Stephen

Comment on Test Your Procurement Skills: Reps and Warranties and Disclaimers, Oh My!

Jeff G — Sat, 05 Jun 2010 00:25:22 GMT

Well, your problem is this sentence:

"ALL CONDITIONS, REPRESENTATIONS, AND WARRANTIES, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, ARE HEREBY DISCLAIMED TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW BY SUPPLIER AND ITS LICENSORS."

What the right hand giveth, the left hand taketh away.

So, to directly answer your question: cold and prickly.

Oh, and as a footnote, I also don't like a disclaimer on "truth".