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Key Considerations

■ Executive description of engagement. Write a sentence or two describing in plain, nontechnical English what the deal is about, including a clear statement establishing the business advantage to be gained by entering into the contract. For example, “The license of a new expense tracking application designed to identify duplicate expenses more readily. Expected cost savings are projected to be $500,000 per year.” This type of description helps all those involved in the process immediately understand the nature of the transaction.

■ Useful life. Establish the anticipated duration of the contract, including desired renewal terms. In particular, if professional services will be rendered, what is the expected duration of those services (e.g., if software will be implemented, the duration of that implementation)? Will services take only a few weeks or will the services extend over many months? The longer the term of services, the greater the need for contractual protections relating to project management and cost control. Similarly, if a license is being granted, is the software being licensed for a term of years or perpetually? If for a term of years, the agreement should address renewal rights and the costs for renewal, including price protection for those renewals. Technology is constantly involving. In many cases, leading-edge products today are yesterday’s news in just a few years. This is why many technology agreements generally have relatively short initial terms (e.g., 2-5 years). The customer needs the ability to move to the next “big thing” and not be tied to outdated technology.

■ Expected fees. Describe the compensation due to the vendor over the life of the contract, including a breakdown of all first-year fees (e.g., license, professional services, implementation, customization, hardware, and telecommunications fees). If the fees cannot be completely defined at the outset, good faithestimates should be provided. If estimates are not possible, evaluation of the deal is likely premature. Even a “ball-park” figure can greatly assist in determining the approach to the contract. As a general rule, the larger the engagement, the greater the leeway the vendor will have in entertaining proposed revisions to its contract or in considering the customer’s form agreement. That is, while it may be completely inappropriate for a customer to attempt to use its own form agreement for a $10,000 off-the-shelf software license, it may be entirely appropriate to use the customer’s form in larger transactions.

■ Understand the solution. Make sure the vendor’s solution is fully understood. Is it a software application that is locally installed on the customer’s own systems? Is it a cloud solution residing on the vendor’s own servers? Does the vendor have no technology infrastructure and its cloud solution is actually hosted using a third-party hosting facility? Is the vendor’s solution a combination of locally installed software and cloud services? All too frequently, these basic questions are not answered before review of the proposed contract is commenced.


■ Consider how critical this service or product is to the company.

■ Is this a customer-facing application?

■ Where will the services/hosting be performed?

■ Is the vendor located offshore?

■ Will the vendor use offshore partners or affiliates?

■ Does the vendor require the use of subcontractors? If so, who are the intended subcontractors?

■ Will the vendor be performing services onsite or at its own facilities?

■ Will the vendor be providing hosting services of any kind (e.g., Cloud Computing, SaaS, ASP)?

Intellectual Property Issues

■ Will the vendor render any development or customization services resulting in the creation of intellectual property that the customer will want to own?

- If not owned by the customer, at minimum, should there be a period of time when the vendor cannot share the intellectual property with the customer’s competitors or in the customer’s industry? This type of “cooling off” provision will ensure the customer doesn’t foot the bill for its competitors to gain an advantage over it.

■ Will the vendor have access to any highly sensitive company intellectual property?

Personal Information Privacy and Security

■ Will the vendor have access to or possession of sensitive, regulated personally identifiable information? If so, what information will be at risk?

  • - Will the vendor have access to sensitive personal information, such as financial account information, health information or Social Security Numbers?
  • - What are the applicable legal and regulatory requirements?
  • - Will the data be transmitted across international borders?

Information Security

■ Will the vendor have access to or store confidential, proprietary, or sensitive information and data of the customer? If so, what information will the vendor have access to or store?

■ Is the vendor providing a cloud computing-based service or hosting services? This can raise the criticality level significantly depending on nature of information stored and controlled by the vendor.

■ Will the customer retain a copy of backup data stored or hosted by the vendor, or will it rely on the vendor as the sole custodian?

Other Unique Issues

■ Tire deal memo should also identify any other unique issues to the proposed transaction, including but not limited to:

  • - Unique business risks (e.g., the vendor’s financial wherewithal is suspect, the vendor has been the subject of recent litigation, the vendor has recently had a data security breach)
  • - Unusual performance constraints (e.g., project must be completed within a defined period of time, the project is business critical, project is part of a larger technology initiative that relies on this component)
  • - Tire engagement raises substantial regulatory or compliance issues.


By investing a minimal amount of time to marshal basic deal information at the outset of any new engagement, businesses can be far more prepared to negotiate their vendor agreements effectively. Understanding and assessing this information will ensure vendor agreements are appropriate to the relevant transaction and that negotiation time and expenses are minimized.

Example Deal Memo

Confidential/Company Proprietary

Vendor Name:


Primary Vendor Contact:

Executive Overview of Transaction:

Transaction/Technology Life Span:

Projected Fees for Life of Engagement:

Performance Requirements:

Intellectual Property Ownership:

Personal Information Privacy and Security:

Information Security:

Other Unique Issues:

Prepared by:______________________________



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