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A strong agreement with tech providers should cover contingencies and limit risks.
Illustration by Michael Sloan for HR Magazine
Experience has taught Joe Almodovar the value of being
assertive when negotiating service contracts with HR technology vendors.
As senior director of
global human resource information systems (HRIS) and payroll at A.T. Kearney
management consultants in Chicago, Almodovar once negotiated an agreement with
a payroll services provider that promised 99.9 percent accuracy on employee
paychecks. But Almodovar was concerned that the terms didn’t include any
redress should the vendor fall short of that goal. “There was no discussion
upfront about penalties,” Almodovar says, “so I had to press for how we’d be
compensated should they not meet that important standard.”
Eventually, the two sides agreed that the vendor would waive
its monthly payroll processing fee if it didn’t hit the accuracy target. A
clause spelling out the terms of the penalty was included in an amendment to
In an ideal world, there would be no need for contracts
between HR and its IT providers because each party could be counted on to meet
the other side’s expectations. But agreements are written to govern the
imperfect world in which we live and work. To that end, here are steps HR
professionals can take to reduce risks to their organizations and secure
recompense if the vendor’s promises aren’t realized.
Be Clear and Precise
HRIS leaders should take a proactive negotiating
stance to ensure that tech providers are held accountable for performance after
a new system is purchased. Although many vendors maintain that the boilerplate
contracts they use can’t be modified because those contracts have been
meticulously constructed by attorneys, experts say there is usually leeway to
insert addendums and other language.
One of the biggest areas of contention can be service-level agreements (SLAs), which detail how vendors will manage client accounts after
the technology is deployed. Negotiating a good SLA with software-as-a-service
vendors is particularly important, given the challenge of identifying the root
cause of performance breakdowns in more-complicated cloud environments.
Problems typically arise
from the use of ambiguous language and because agreements lack adequate teeth,
says Roy Altman, manager of HR analytics and application architecture at
Memorial Sloan-Kettering Cancer Center in New York City. To avoid conflicts,
concepts such as “downtime” should be precisely defined so both sides
understand what “allowable days of unplanned downtime” and similar phrases
mean, he says. Other examples of vague wording include “problem response time,”
“SLA penalty formulas” and references to a system performing “substantially.”
Consult with an attorney to help clarify the meaning in such instances.
A vendor’s failure to meet requirements spelled out
in the agreement should result in actions that compensate the client for its
losses. These penalties should be clearly stated. “Any organization should be
very clear with its vendor that the expectation is that it must meet all of the
agreement’s requirements, not just some of them,” says Michael Rochelle, chief
strategy officer for the Brandon Hall Group in Delray Beach, Fla.
If a cloud provider doesn’t meet its obligation to ensure an
agreed-upon 99.5 percent of monthly system “uptime,” for example, it should
give financial credits or other monetary recompense to the HR client, according
to Altman. Uptime is the time a system is operational and available and is a
measure of reliability. Credits are typically applied as a percentage discount
against future monthly service fees.
“The damage to you in terms of system downtime can be greater
than the credits you receive for the problem if you don’t negotiate a good deal
in the SLA,” Altman says.
Given that cloud vendors will have control over your
sensitive HR data, it’s crucial that contracts address how information will be
protected in storage and in transit. HR should also verify that a provider has
adequate insurance in the event one of its employees causes a data breach.
“No vendor will guarantee they’ll keep your data safe because
100 percent guarantees aren’t possible,” Altman says. “But most will agree to
comply with industry standards for data security, which you should verify.”
Data migration protocols should be carefully considered
upfront and should never be an afterthought in contracts with cloud vendors.
Specify how long it will take to move content to a provider as well as which
tasks are the vendor’s responsibility vs. the client’s.
Iron Out Implementation
Whether they are
addressed in the contract or not, system implementation issues need to be
ironed out in the negotiating stage. The stakes for HR during this period are
high, given that the seamlessness, or lack thereof, of the system
implementation has a big impact on user adoption, which is a key measure of a
new technology’s success.
“Vendors typically are in
control of how long an implementation takes, and I think there should be
clauses that hold them to time and budget agreements, as well as to the content
that is being implemented,” says Jeremy Ames, president of Hive Tech HR, a
technology consulting group in Boston.
Anticipate Staffing Changes
Having the right vendor personnel assigned to your
account is key to a successful relationship. But the customer doesn’t always
have the ability to choose the staff assigned to its project. It’s not unusual
for senior personnel to shepherd the start of a system implementation, for
example, only to delegate the rest of it to less-experienced junior staff as
the process unfolds. That’s why some HRIS leaders insist on a contractual
clause that gives them the right to preapprove vendor staff assigned to their
“We named key vendor personnel in one of our contracts and
ensured they would be on the project for the duration, as well as be onsite at
certain times,” Altman says. “They couldn’t be swapped out without our written
Use language tied to roles rather than naming specific
individuals, Ames suggests. For example, you might require “senior
implementation consultants” on all technology projects.
Have an Exit Plan
Make sure to
consider what your “tipping point” is for exiting a contract, whether it is one
major issue—such as a data breach that is the fault of the vendor—or a series
of small problems that aren’t resolved, Rochelle says. Examples of the latter
might include repeated failure to meet system uptime or response time
requirements over a specified period.
You’ll also want to make
sure you know in advance what will happen to your data when the agreement is
“Data extraction from cloud systems isn’t always cut and
dried,” Ames says. “Vendors will sometimes give your data back in unfriendly
file formats, with long delays or even extra fees if the terms on data
retrieval aren’t clearly spelled out in the contract.”
Also, make sure you understand what happens in the event that
the vendor goes out of business or gets acquired by another company.
Putting the details in writing at the outset of the relationship with a
technology provider—and not just thinking about it when the end is in
sight—could save you some sleepless nights.
Dave Zielinski is a freelance writer and editor based in Minneapolis.
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