Jagvinder Singh Kang provides some timely advice for your procurement projects this year.
Introduction
Technology procurement has evolved over the decades. Gone are the days of just procuring IT hardware alone, or standard software. Organisations have become more dependent upon Cloud solutions, usually in the form of SaaS, and now there will be an inevitable movement to AI-enabled software solutions.
Although Cloud Computing and AI have been around for decades, many organisations may be coming anew to such procurement arrangements, or possibly seeking to ensure that the next procurement goes better than the last one – which may have:
- overrun on timings and budgets; or
- failed to deliver the functionality or performance that the customer organisation felt that it was going to be benefitting from.
This year, organisations should set themselves the five New Year’s resolutions shown below, when it comes to their technology procurement arrangements. This will save organisations from continuing to make the same costly mistakes of the past, when it comes to such procurements.
New Year’s Resolution 1: Set Clear Objectives and Requirements
Organisations undertake technology procurements with high level objectives and requirements. Whether this is an issue, is dependent upon how ‘high’ are these objectives and requirements. It is important to adopt a ‘Goldilocks approach’ to specifying these aspects to get them ‘just right’. If they are:
- Too high level, the abstract nature of them means that:
- it is difficult to get them specified as contractual requirements within the project timelines;
- when they are refined further during the project, it will add to the timelines and costs, as effort will be required by both the customer organisation and the service provider to work through the implications; and
- compatibility issues, as well as feature and performance limitations, may come ‘too late in the day’ for the project subsequently, as the project progresses and the requirements only then become clearer.
- Too low level, and:
- the procurement exercise might take significantly longer, due to the detailed requirements needing to be formulated by the customer organisation, which the service provider will then need to consider; and
- there might be too early a ‘lock in’ to requirements which might have benefitted from further discussion and workshopping between the customer and service provider organisation during the project – thus giving rise to subsequent timing and cost impacts.
Customer organisations also need to decide what is really important to them as part of the project, rather than adopting a ‘kitchen sink’ approach. This focus can avoid unnecessary time being wasted both during the procurement as well as the contractual negotiation process.
New Year’s Resolution 2: Get Proper and Timely Stakeholder Involvement
Linked with specifying the clear objectives and requirements for a project, it is important to get the right stakeholder involvement throughout the procurement process, from the inception, through to the completion. Having internal stakeholder input only as ‘cursory input’ at the outset, or escalation input during the contractual negotiations, will not align the project with the customer organisation’s true objectives or requirements.
Also, knowing when to rely upon external input is also important, whether that is in respect of the IT or legal aspects. This can usefully bolster the procurement process, as not all organisations will have the full breadth and depth of expertise for procurement arrangements, particularly when it is something novel to an organisation. This upfront and timely investment, can save a lot of time and cost downstream.
New Year’s Resolution 3: Set Realistic Timelines For The Project
Getting the timelines right at the start of the project ensures:
- there is sufficient time to put the Request for Proposal process together;
- the proper level of input can be obtained from stakeholders;
- the contractual process can be carried out properly – this is particularly important so:
- that the customer and service provider relationship is not harmed due to ‘pressure cooker’ negotiations arising from any artificial timelines; and
- that ‘corners are not cut’ on the contracting arrangements, for example:
- due diligence elements not being conducted appropriately (such as financial standing investigations of the service provider, data protection and AI assessments);
- contractual schedules not being appropriately populated;
- ‘agreements to agree’ being ‘sprinkled’ throughout the contract; and
- the practical implications of various rights, obligations and remedies, not being worked through.
New Year’s Resolution 4: Appreciate That Cloud Computing and AI Procurement Give Rise to New Considerations
Cloud Computing and AI procurement arrangements give rise to different considerations than ‘standard’ software procurement. With SaaS arrangements there will, for example, be issues of availability which need consideration, as well as how maintenance windows and outages are dealt with. Customer organisations also need to be aware that their ‘standard procurement terms’ will not be a ‘ready made fit’ for SaaS arrangements as, by way of illustration:
- SaaS providers will have implemented their existing security arrangements, so it will not be simple for them to make bespoke security adjustments for specific customer organisations. Any security requirements should be identified upfront as part of the tender process to identify any potential concerns;
- the data protection implications will need more careful thought, usually through data protection impact assessments being undertaken upfront; and
- due to the nature of the SaaS arrangement, seeking intellectual property rights ownership in any works during the contract can be problematic, depending upon the nature of the works. It can also be a ‘red herring’ for customer organisations unnecessarily spending time on such negotiations, unless the nature of the bespoke works are reusable with another provider without the service provider’s existing software platform (which will probably be unlikely to be the case when it comes to the code), or unless the nature of the bespoke work provides competitive advantage. If the service provider is willing to accept such a position, this will require the service provider to adopt a different approach to servicing the customer organisation, to ensure that the bespoke code is segregated and support teams are made aware of the restrictions, as it will obviously make future support arrangements more complex and time consuming for the service provider, with the associated cost consequences for the customer organisation.
When it comes to AI, organisations will need to approach this with a different mindset as well, as:
- although AI has been around for a long time, and organisations will already be using it, the increased power and functionality arising from new AI use (arising from a combination of the more powerful processing power available from Cloud Computing, and the use of larger data sets) means there is greater risk that the AI solution can go wrong, with greater adverse consequences for an organisation; and
- depending upon the nature of the AI use, it might require more detailed consideration under both data protection laws (such as the UK/EU GDPR), as well as under AI laws (such as the EU AI Act). Even if the EU AI Act is not applicable, organisations can usefully benefit from some of the aspects that can be leveraged under the EU AI Act, including for more responsible and ethical provision and deployment of AI.
New Year’s Resolution 5: Understand the Exit Arrangements
When entering into a technology procurement arrangement, it is also important to consider what is going to happen at the end of it – both on expiry, as well as in respect of an unexpected termination for cause by either party.
Too often, the exit arrangements are left as an ‘agreement to agree’. This might be due to wishful thinking, that either the arrangements will be agreed without any contention by both parties, or perhaps cynically, that when exit comes, it might be someone else’s problem to deal with! Either way, this is not a prudent approach to proceeding with a mission critical technology arrangement, as at the very least it will mean ‘service provider lock-in’, or at worst, it might mean significant business disruption and cost implications on termination.
Consequently, thought should be given to exit arrangements upfront, as well as how such exit arrangements might evolve during the project, so that appropriate provisions can be built into the contract at the outset.
Final Thoughts
Investing time at the outset of a project to address the above principles, might seem like it is delaying the start of a project. However, in the overall scheme of things, it should pay dividends in respect of both time and cost savings subsequently, as well as better alignment between what an organisation requires and what is delivered by a service provider.
Like all good New Year’s resolutions, organisations sticking to these should find that they experience a much better and successful year, at least, when it comes to technology procurements.
Jagvinder Singh Kang, Partner, International & UK Head of IT Law, Mills & Reeve LLP
Jagvinder.SinghKang@Mills-Reeve.com
