Serving ASP Clients, Not Subpoenas
When Shakespeare wrote, "Let's kill all the lawyers," he definitely wasn't talking about attorneys who specialize in technology issues. These barristers, who know just as much about server farms as serving subpoenas, provide an invaluable service to clients inking an ASP contract.
And that's the rub. An outsourcing agreement is a legal contract, binding on both parties. Non-performance triggers penalties. And divorce can be costly, with litigators the big winners. The best insurance policy is to write a win-win contract up front. Lawyers who specialize in technology law write the best sellers.
IT lawyers have experience. They have been writing contracts since law school. And technology lawyers know the intricacies of ASP agreements because that's what they bill every day. Most important, they are familiar with industry benchmarks. "We're not a hammer to make a provider do something unrealistic," says David Guedry, a partner at Hughes & Luce in Dallas. "Our job is to bring realism to the picture," adds the attorney, who heads his firm's technology group.
Guedry, who has been negotiating technology contracts for 14 years, says legal help is especially important in the ASP arena. Most IT outsourcing contracts hand over the entire process to the provider who takes care of hardware, software, even networks. But an ASP is basically an integrator, or the outsourcer's outsourcer. Many ASPs don't worry about clients' servers or networks. Guedry says an attorney will draft a contract documenting everyone's role clearly. "It's difficult for clients to know the right questions to ask," he observes.
Service Levels Are Primary
In the counselor's view, the most important aspect of an ASP contract is the service level agreements. "It's my job to make sure my client gets fair and reasonable performance standards," Guedry says.
Attorneys also help their clients understand the total cost of the ASP contract. Clients see the invoice price in the contract, but the expenses don't stop there. What are the internal costs of an ASP contract? Most firms have to purchase special software and network connections that the ASP is not going to provide. "My clients have to build these costs into their analysis," says Guedry.
Software customization is another issue. By definition, an ASP agreement gives the client the right to use a software program with no customization. If the client needs changes, is that possible and at what cost? If it's not possible, clients need to consider ASP outsourcing carefully. "If all your competitors are using the same ASP program, how do you differentiate yourself?" ask Guedry.
Another scenario to consider is when the ASP upgrades the software package. Then every client has to accept those changes whether they like it or not. Sometimes these software changes dictate alterations in business procedures the clients never anticipated when they originally signed their outsourcing agreements.
Customer support can become a sticky question. It's clear the ASP must support its clients. But who supports the client's clients, those constantly calling end users? "This question rarely gets enough focus," says Guedry. For a price, ASPs will provide this service. But then there's another cost to add to the final tally.
Dispute Resolution Clauses
What about divorce? Guedry says termination for convenience is the most common provision in ASP agreements. He also builds in procedures for dispute resolution to try to work things out before the litigation process kicks in.
Selecting the right attorney in these negotiations is just as crucial as finding the best ASP provider for your needs. Guedry say potential clients need to assess two things in their technology counsel. First, make sure your attorney understands your business. For example, bankers need to find an IT attorney who has worked with banks before. Second, the attorney must have outsourcing experience. S/he must be conversant with the current SLA and performance guarantees for the ASP module in negotiation.
That said, an attorney can't do everything a company needs to ink an advantageous outsourcing agreement. Guedry counsels buyers to hire a technology consultant, too.
Lessons from the Outsourcing Primer:
- Select an attorney who both understands your business and has a working knowledge of outsourcing issues.
- Let your attorney help you negotiate service levels and performance guarantees. S/he should be familiar with the current metrics.
- Your attorney can help you calculate the entire cost of the ASP agreement. These include internal costs that aren't in the outsourcing contract.
- The most common area of negotiation that people neglect is the customer service question. Who's going to service the customer's customers, the end users?
- Hire a technology expert, too.