How to successfully negotiate your project contracts - Daniel Elizalde

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Sooner or later, Product Managers need to manage and external vendor. This presentation describes the most common contract types and key negotiation points to reduce the risk of your engagement. It describes NDAs, MSAs, SOWs, and Change Orders from a Product/Project Manager perspective

Negócios Tecnologia

How to Successfully Negotiate
Your Project Contracts
Daniel Elizalde, PMP
@delizalde | ManagersBuild.com
Daniel Elizalde, PMP

Why contracts are critical

71% of IT Projects are EITHER over budget, over
schedule, or deliver incomplete scope.

Via contracts PMs can enforce these
constraints and reduce Risk!

Source: Standish Group (2004).
CHAOS Report
.

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

Agenda
• Key Rules for Contract Negotiations

• Common Contracts – Definitions & Top 3 Wachouts
–
–
–
–

NDA
MSA
SOW
CO

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

Key Rules for Contract Negotiation
1. Stay involved from start to finish.
2. Everything is negotiable. Everything.
3. Always have everything in writing.
4. Negotiate when you are still friends.

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

Frequently Used Contracts
NDA

MSA

SOW 1

Non-Disclosure Agreement

Master Services Agreement

SOW 2

…

SOW n

Scope of Work

CO 1

Change Order

CO 2
Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

Non-Disclosure Agreement (NDA)
Daniel Elizalde, PMP

NDA | Non-disclosure Agreement
Agreement to not disclose proprietary info with
anybody outside the companies.
– Client: protect trade secrets & plans
– Vendor: protect procedures & “secret sauce”

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

NDA | Key Watchouts

1. Sign an NDA before sharing too much product/
project info
2. Company vs Individual NDAs
3. Who has signing authority?

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

Master Services Agreement (MSA)
Daniel Elizalde, PMP

MSA | Master Services Agreement
MSA (a.k.a. Master Contract) defines how two
companies will do business together
• Umbrella contract –
governs every SOW
• Negotiations and redlines can
take weeks or even months

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

MSA | Key Watchouts

1. Ownership of IP.

2. Payment terms.

3. Limitation of Liability.

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

Statement of Work (SOW)
Daniel Elizalde, PMP

SOW | Statement Of Work
SOWs define the details of what will be provided in an
engagement, including:
•
•
•
•
•

Deliverables
Timelines
Payment amount
Milestones
Invoicing

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

Two Main Types of SOWs
Time & Materials

Fixed Price

Overview

Client pays for hours worked.
Vendor does not commit to
deliverables

Client pays a fixed amount for
specific deliverables

When to use

Scope is vague

Scope is clearly defined

Who bares the risk

Client

Vendor

Invoicing

Recurring (e.g. every 2
weeks)

Based on acceptance of
milestones

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

T&M SOWs | Key Watchouts for Clients
1. Be careful of “bait-and-switch”.

2. If possible, buy materials on your own.
3. Demand frequent updates.

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

T&M SOWs | Key Watchouts for Vendors
1. Be flexible, but keep an eye on the scope.

2. Client has never worked with Vendors before.
3. Client wants specific deliverables.

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

T&M SOWs | Example – Too Specific
“…the deliverables include wireframes, visual comps,
and an HTML prototype…”
vs.

“…deliverables can include items like wireframes, visual
comps, and prototypes as time-permitting by the
number of hours allocated in this SOW…”

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

Fixed Price SOWs | Key Watchouts for Clients
1. Low bids = red flag.
2. Ensure realistic review times.
3. Define clear deliverables.

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

Fixed Price SOW | Example – Clear Deliverable
“…the application will run on mobile devices…”

vs.
“…the application will run on iOS phones, models 4 and
up…”

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

Fixed Price SOWs | Key Watchouts for Vendors
1. Define the number of review cycles.
2. Agree on an objective and measurable acceptance
plan.

3. Define invoicing that’s beneficial to you.

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

Fixed Price SOWs | Invoicing Schedule

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

Hybrid Projects
It’s OK to combine SOW types…

Discovery

Implementation

T&M

Fixed Price

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

Change Orders
Change Orders document any deviations from the
current SOW

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

Change Order | Key Watchouts
1. Be clear and explicit.
2. Bundle changes to expedite approval.
3. Keep it in writing.

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

Change Orders | Example – Zero Dollar
“…OK, I agree to the change. Since it’s nothing major,
no need to modify the SOW. We have a great
relationship…”

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

Thank You!

Daniel Elizalde, PMP
ManagersBuild.com
Keep in touch:
@delizalde
Daniel@ManagersBuild.com

Daniel Elizalde, PMP
Daniel Elizalde, PMP

@delizalde | ManagersBuild.com

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How to successfully negotiate your project contracts - Daniel Elizalde

1. How to Successfully Negotiate Your Project Contracts Daniel Elizalde, PMP @delizalde | ManagersBuild.com Daniel Elizalde, PMP

2. Why contracts are critical 71% of IT Projects are EITHER over budget, over schedule, or deliver incomplete scope. Via contracts PMs can enforce these constraints and reduce Risk! Source: Standish Group (2004). CHAOS Report . Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

3. Agenda • Key Rules for Contract Negotiations • Common Contracts – Definitions & Top 3 Wachouts – – – – NDA MSA SOW CO Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

4. Key Rules for Contract Negotiation 1. Stay involved from start to finish. 2. Everything is negotiable. Everything. 3. Always have everything in writing. 4. Negotiate when you are still friends. Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

5. Frequently Used Contracts NDA MSA SOW 1 Non-Disclosure Agreement Master Services Agreement SOW 2 … SOW n Scope of Work CO 1 Change Order CO 2 Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

6. Non-Disclosure Agreement (NDA) Daniel Elizalde, PMP

7. NDA | Non-disclosure Agreement Agreement to not disclose proprietary info with anybody outside the companies. – Client: protect trade secrets & plans – Vendor: protect procedures & “secret sauce” Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

8. NDA | Key Watchouts 1. Sign an NDA before sharing too much product/ project info 2. Company vs Individual NDAs 3. Who has signing authority? Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

9. Master Services Agreement (MSA) Daniel Elizalde, PMP

10. MSA | Master Services Agreement MSA (a.k.a. Master Contract) defines how two companies will do business together • Umbrella contract – governs every SOW • Negotiations and redlines can take weeks or even months Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

11. MSA | Key Watchouts 1. Ownership of IP. 2. Payment terms. 3. Limitation of Liability. Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

12. Statement of Work (SOW) Daniel Elizalde, PMP

13. SOW | Statement Of Work SOWs define the details of what will be provided in an engagement, including: • • • • • Deliverables Timelines Payment amount Milestones Invoicing Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

14. Two Main Types of SOWs Time & Materials Fixed Price Overview Client pays for hours worked. Vendor does not commit to deliverables Client pays a fixed amount for specific deliverables When to use Scope is vague Scope is clearly defined Who bares the risk Client Vendor Invoicing Recurring (e.g. every 2 weeks) Based on acceptance of milestones Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

15. T&M SOWs | Key Watchouts for Clients 1. Be careful of “bait-and-switch”. 2. If possible, buy materials on your own. 3. Demand frequent updates. Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

16. T&M SOWs | Key Watchouts for Vendors 1. Be flexible, but keep an eye on the scope. 2. Client has never worked with Vendors before. 3. Client wants specific deliverables. Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

17. T&M SOWs | Example – Too Specific “…the deliverables include wireframes, visual comps, and an HTML prototype…” vs. “…deliverables can include items like wireframes, visual comps, and prototypes as time-permitting by the number of hours allocated in this SOW…” Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

18. Fixed Price SOWs | Key Watchouts for Clients 1. Low bids = red flag. 2. Ensure realistic review times. 3. Define clear deliverables. Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

19. Fixed Price SOW | Example – Clear Deliverable “…the application will run on mobile devices…” vs. “…the application will run on iOS phones, models 4 and up…” Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

20. Fixed Price SOWs | Key Watchouts for Vendors 1. Define the number of review cycles. 2. Agree on an objective and measurable acceptance plan. 3. Define invoicing that’s beneficial to you. Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

21. Fixed Price SOWs | Invoicing Schedule Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

22. Hybrid Projects It’s OK to combine SOW types… Discovery Implementation T&M Fixed Price Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

23. Change Order (CO) Daniel Elizalde, PMP

24. Change Orders Change Orders document any deviations from the current SOW Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

25. Change Order | Key Watchouts 1. Be clear and explicit. 2. Bundle changes to expedite approval. 3. Keep it in writing. Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

26. Change Orders | Example – Zero Dollar “…OK, I agree to the change. Since it’s nothing major, no need to modify the SOW. We have a great relationship…” Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

27. Thank You! Daniel Elizalde, PMP ManagersBuild.com Keep in touch: @delizalde Daniel@ManagersBuild.com Daniel Elizalde, PMP Daniel Elizalde, PMP @delizalde | ManagersBuild.com

How to successfully negotiate your project contracts - Daniel Elizalde

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