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Experts say to prepare for contingencies and don’t be afraid to make changes to the contract
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 in Chicago, Almodovar once negotiated a contract with a payroll services provider that promised 99.9 percent accuracy on employee paychecks.
But Almodovar was concerned that the contract language didn’t include any redress should the vendor fall short of that goal.
“There was no discussion upfront about penalties, so I had to press for how we’d be compensated should they not meet that important standard,” Almodovar said. 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 addressing the penalty was included in a contract amendment.
Modifying Contract Boilerplates
HRIS leaders should take a proactive negotiating stance to make sure performance factors after the sale—how new systems will be implemented, customer support issues and data security matters—meet expectations. Although many technology vendors say the boilerplate contracts they use can’t be modified because they’ve been meticulously constructed by attorneys, experts say there is usually leeway to add addendums and other language to those agreements.
One of the biggest areas of contention can be service-level agreements (SLA), which detail how vendors will service client accounts following a sale. Negotiating a good SLA with software-as-a-service (SAAS) vendors is particularly important given the challenge of identifying the root cause of service breakdowns in more complicated cloud environments.
Roy Altman, manager of HR analytics and application architecture at Memorial Sloan-Kettering Cancer Center in New York City, has negotiated many SLAs and said problems typically arise from the use of ambiguous language and because agreements may lack adequate teeth. To avoid arguments, metrics like downtime should be precisely defined so both sides understand what language like “allowable days of unplanned downtime” means, he said.
Experts say that organizations should consult with an attorney to help modify vague language in contracts. An example is use of the word “substantially” in phrasing, such as: “the applicant tracking system will perform substantially as follows ...”
“Any organization should be very clear with its vendor that the expectation is it meets all of the agreement’s requirements, not just some of them,” said Michael Rochelle, chief strategy officer for the Brandon Hall Group in Delray Beach, Fla.
Being precise with language surrounding metrics like problem response time or SLA penalty formulas helps avoid disputes and protect mutual interests, legal experts say.
“If the language in an addendum to a contract is ambiguous or inconsistent, it gives each side a reason to fight over it,” said William Tanenbaum, an attorney specializing in information technology issues with Arent Fox, a D.C.-based law firm. “Much of that can be avoided with more precise language.”
Not Meeting Expectations
Failure to meet certain expectations should result in the client somehow being made whole. If a cloud vendor doesn’t meet an agreed-upon 99.5 percent monthly system “uptime,” for example, it should give financial credits or other monetary recompense to the HR client, Altman said. 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 a future period’s 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 said.
Given that cloud vendors will have control over your sensitive HR data, it’s also crucial that contracts address how data will be protected in storage or in transit. HR also should verify that a vendor has adequate insurance should a malicious employee on the vendor’s staff cause a data breach.
“No vendor will guarantee they’ll keep your data safe because 100-percent guarantees aren’t possible,” Altman said. “But most will agree to comply with industry standards for data security, which you should verify.”
Data migration issues can be an afterthought in contracts with cloud vendors. Questions around how long it will take to move data to a cloud provider, vendor responsibility versus client responsibility, and more should all be spelled out in contracts.
Whether they are addressed in contracts or not, system implementation issues also need to be ironed out in the negotiating stage. The stakes are high here for HR, given that implementation quality has a big impact on user adoption, a key measure of a new technology’s success in companies.
Jeremy Ames, president of Hive Tech HR, a technology consulting group in Boston, believes more contracts should include penalties for implementation delays or problems.
“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,” said Ames, who has been a member of the Society for Human Resource Management’s (SHRM’s) Technology & HR Management Special Expertise Panel. Ames is also speaking at the SHRM 2016 Annual Conference & Exposition being held June 19-22 in Washington, D.C., this year.
Revolving Door of Personnel
Having the right vendor personnel assigned to your account is key to a successful relationship. It’s not unusual for senior personnel to shepherd the start of a system implementation, for example, only to give way to less-experienced junior staff as the process unfolds. That’s why some HRIS leaders insist upon a contract clause that gives them the right to preapprove vendor staff assigned to their projects.
“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 said. “They couldn't be swapped out without our written approval.”
Given how staff can turn over, Ames suggests using language tied to roles rather than naming specific individuals, for example, requiring “senior implementation consultants” on projects.
Organizations also should consider what their “tipping point” is for exiting a contract, whether it is one major problem—such as a data breach caused by a vendor—or a series of small problems that aren’t resolved, Rochelle said. Examples of the latter might include repeated failure to meet system uptime or response time requirements over a specified period.
It's often hard to look ahead to the end of a contract as you negotiate its beginning, but experts say that this is paramount. You'll want to know what will happen to your data when the contract terminates, for example.
“Data extraction from cloud systems isn’t always cut and dried,” Ames said. “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.”
Dave Zielinski is a freelance writer specializing in HR technology, talent acquisition and leadership development issues.
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