How to successfully negotiate your project contracts - Daniel Elizalde

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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!

Agenda

• Key Rules for Contract Negotiations

• Common Contracts – Definitions & Top 3 Wachouts– NDA– MSA– SOW – CO

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.

SOW 2 SOW n

Frequently Used ContractsNon-Disclosure Agreement

Master Services Agreement

Change Order

Scope of Work

Non-Disclosure Agreement (NDA)

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”

NDA | Key Watchouts

1. Sign an NDA before sharing too much product/ project info

2. Company vs Individual NDAs

3. Who has signing authority?

Master Services Agreement (MSA)

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

MSA | Key Watchouts

1. Ownership of IP.

2. Payment terms.

3. Limitation of Liability.

Statement of Work (SOW)

SOW | Statement Of Work

SOWs define the details of what will be provided in an engagement, including:

• Deliverables• Timelines• Payment amount• Milestones• Invoicing

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

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.

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.

T&M SOWs | Example – Too Specific

“…the deliverables include wireframes, visual comps, and an HTML prototype…”

“…deliverables can include items like wireframes, visual comps, and prototypes as time-permitting by the number of hours allocated in this SOW…”

Fixed Price SOWs | Key Watchouts for Clients

1. Low bids = red flag.

2. Ensure realistic review times.

3. Define clear deliverables.

Fixed Price SOW | Example – Clear Deliverable

“…the application will run on mobile devices…”

“…the application will run on iOS phones, models 4 and up…”

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.

Fixed Price SOWs | Invoicing Schedule

Hybrid Projects

It’s OK to combine SOW types…

Discovery Implementation

Fixed PriceT&M

Change Order (CO)

Change Orders

Change Orders document any deviations from the current SOW

Change Order | Key Watchouts

1. Be clear and explicit.

2. Bundle changes to expedite approval.

3. Keep it in writing.

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…”

Thank You!

ManagersBuild.comDaniel Elizalde, PMP

Keep in touch:@delizalde

Daniel@ManagersBuild.com

How to successfully negotiate your project contracts - Daniel Elizalde

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