© 2009 Richard Pryor & Associates
Intended Audience – This tip sheet is for the assistance of people involved in the procurement or the supply of ICT products and services.
When should a customer document its functional requirements?
Ideally, the customer will be able to document its functional requirements with a high level of detail before seeking proposals or tenders.
Even if technical requirements cannot be fully specified until after proposals have been evaluated it is highly desirable that the business requirements (including any new or revised requirements) are documented and signed-off by the relevant business unit managers before an approach is made to the market.
What if the customer has insufficient resources to document its requirements?
A major acquisition creates many additional demands upon the time of a customer’s ICT department. The relevant resources may already be overstretched just managing day-to-day operations. The additional resource demands associated with the preparation of detailed requirements may force the customer to engage one or more consultants to assist in the analysis and documentation of requirements.
If this is necessary, then the consultants should be selected on the basis that (a) they are unlikely to be a bidder for the relevant business; and (b) they are likely to be able to assist and add value to the subsequent phases of the procurement process.
A formal services agreement should be entered into with any consultants engaged for this purpose. Such an agreement should define the scope of work, required deliverables, time-frame for completion, fees and payment terms. In addition it should address issues of confidentiality and the ownership of intellectual property rights in the deliverables.
Should the documentation of requirements be entrusted to the supplier?
After selection of a preferred supplier, it is common for the customer’s requirements to be further developed by the preferred supplier or with the assistance of the preferred supplier. This raises a range of additional issues which need to be carefully managed. In particular it can create a situation where the customer loses most of its negotiating power.
The management of this process needs to be considered in the context of the specific procurement. However, the following issues should be considered if the supplier is to be involved in the refinement of the customer’s requirements.
- Has the supplier agreed to all key contractual terms? – It is desirable that the terms of contract have been agreed before the supplier commences any substantive work on the development or refinement of the documentation of the customer’s requirements. This can be achieved using a master services agreement with a statement of work to govern the initial work on requirements.
- What level of certainty is there regarding future pricing? – If the supplier is unable to give firm pricing for the overall project until the completion of the detailed analysis and documentation of customer requirements, then one of the deliverables required of the supplier should be a firm price for the further phase(s) of the project. The basis upon which the firm price will be generated should be agreed before the commencement of any work. The customer should have a right not to proceed if the price proposed is unacceptable.
- Will the customer be entitled to use the detailed requirements document in any event? – If the supplier completes a detailed requirements document which is considered satisfactory but the customer elects not to proceed with that supplier (eg. because pricing for the further phase(s) of the project is too high), then the customer should be entitled to use the detailed requirements document for its own purposes including disclosure to an alternative supplier. It should be noted that this option is not always workable because the development of the detailed requirements document will often be very specifically framed by reference to the products offered by the supplier engaged to prepare the detailed document.
- What warranties will the supplier give with respect to its input to the development of requirements? – It is common for a supplier to seek to exclude liability for any loss suffered by the customer if it is unable to achieve its business objectives. However, if the supplier is involved in the development of the requirements, it needs to take some responsibility with respect to the quality of its work.
When should a contract be provided by the customer?
For any major procurement, the customer should consider including a full contract with its RFP or tender documents. Prospective suppliers should be required to complete a contract compliance table in which the supplier must identify any clauses which are not accepted and must provide the supplier’s suggested alternative approach to the relevant issue.
For less significant and lower risk procurements, the customer should still consider the critical contract issues and include a list of the key legal and commercial requirements in summary form in its RFP or tender documents. Prospective suppliers should be required to complete a compliance table addressing each of these contractual requirements.
When should a contract be provided by the supplier?
It is usually preferable for suppliers to table contractual material at the earliest possible stage.
For less formal procurements, there are a range of template proposal documents which can be used which highlight the solution offered but also incorporate contractual terms and conditions. Use of a carefully developed proposal template can simplify contract finalisation, reduce the frequency of customer legal reviews and may significantly shorten the sales cycle.
In the case of formal procurements, it is quite common for the customer to use generic procurement documents (eg. a standard RFP document which is used for all procurements of goods or services). These standard procurement documents often contain no specific ICT procurement provisions. As a result, issues like software licensing, support and service levels are not addressed. A supplier can often win respect from the customer by identifying these deficiencies and then proposing the use of its own contract documents.
If the supplier’s contract is particularly one-sided, then the particular circumstances of each procurement should be assessed to determine whether it would be best to disclose this position early in the process (which may strengthen the supplier’s negotiation position if it is selected as preferred supplier notwithstanding the contract terms) or to hold back disclosure of the unfavourable terms until the customer is otherwise committed to proceed with the supplier.
Even where a customer has provided a suitably adapted contract as part of its RFP or tender documents, the supplier may still need to submit contracts for review by the customer. For example, the project may involve the use of third party software or hardware which will be supplied subject to the third party’s terms and conditions governing the licence, warranty and the provision of maintenance.
© 2009 Richard Pryor & Associates – The content of this tip sheet is subject to copyright and may not be translated, adapted, reproduced, broadcast or transmitted in whole or part without the express written permission of the author.
Important disclaimer – This tip sheet provides general comment. It does not constitute advice on any matter. No reader should act on the basis of any content without obtaining and considering professional advice upon their own circumstances. Richard Pryor & Associates and its officers and agents hereby disclaim any liability to any person with respect to the consequences of anything done or omitted to be done in reliance upon any of the content.
For further advice on ICT procurement and supply negotiations, contact Richard Pryor – richard@pryor.com.au