Managing Vendors – Articles by Jim Everett

Tips on managing vendors, skills and competencies required

Agreements and Their Effects

Posted on | June 27, 2008 | CLICK HERE TO COMMENT OR ASK QUESTION

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Relationships are formed on personal contact and communications. At least that is how we mostly see business working arrangements. But let me tell you a story about a recent experience I came across. It is one where the wording of an agreement set a negative tone and almost put an end to an otherwise harmonious collaboration.

When a client engages a vendor to carry out key work for the company, there are often several agreements. One is the contract, or Statement of Work, where the deliverables and terms are set out. The other may be a Non-Disclosure Agreement (NDA), where the vendor agrees not to disclose information about the client, processes, products or business.

In this case, a colleague was offering his professional services pro-bono to a non-profit project. The project had access to a small host company’s business information, and was hoping to publish the experience of the project and gain broader exposure and revenue for the initiative.

The colleague had established a good working relationship with the entrepreneur who was leading the project. At this point, the entrepreneur sent my colleague a non-disclosure agreement. In essence, the agreement said that any breach whatsoever, however broadly defined, would result in a minimum penalty of $100,000.

The agreement also stated that all rights to any proprietary materials belonging to the colleague used in the project, automatically became the property of the project and its subsequent assignees.

Basically the NDA said, “If you tell anyone anything, we will sue you for all we can! And, by the way, we now  own all the tools and models that you show us, and can do what we like with them.” I suspect this is not what the entrepreneur intended, but that is what his contract said.

So my colleague had the agreement reviewed by a highly experienced law firm. The attorneys there were astounded at the terms and the wording. They said that such conditions were totally out of line and extraordinarily harsh. Their advice was to drop the project and walk away.

However my colleague hung in there, reworded the project to a more reasonable form, and resubmitted it to the project entrepreneur. The entrepreneur and his local attorney pushed back, but my colleague stood his ground with the more acceptable and typical agreement. The entrepreneur finally agreed to proceed.

But the delays cost the project a level of help from my colleague. The amount of assistance was scaled back due to lost project timing. And the wording of the initial NDA shifted the tone of the relationship.

So, the lesson is that agreements that are worded with high penalties and one-sided benefits, can set a negative tone with a vendor. And when the work of the vendor or consultant revolves around trust and collaboration, the client can lose more than they realize. Even though the relationship has been built on personal contact, the agreement still makes a powerful statement.

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