The biggest legal risk you’ve never heard of

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By Brad Frazer
Dolan Media Newswires

I used to be employed by a technology company that would bring in a lot of outside vendors to help with what I call “IT implementations.”

This work included everything from customized software development and deployment to hardware configuration and installation to data storage in the cloud.

Invariably, the internal-purchasing cycle went like this: (1) an internal business person had a need for a new function or gadget for the enterprise; (2) the business person prepared a request for proposals; (3) various vendors prepared and submitted responses to the RFP; (4) sales people arrived onsite armed with food, gifts and PowerPoint presentations; (5) a vendor was selected and a PO was prepared; (6) a contract was prepared and signed; (7) the IT implementation began; (8) the IT implementation failed; and (9) litigation ensued. Sound familiar?

If you have no experience with such an IT sales cycle, it may be that it occurred and you were just never aware of it unless you were in the legal department, were an outside lawyer, were an executive or worked in the IT department. Google the phrase “failed IT implementations” and you will quickly see what I mean.

For example, here’s a headline from March 16, 2016: “NYC hospital CMIO quits over EHR implementation, cites Challenger report.” Many other examples exist. Not all of these cases end in litigation, true. But many do, and customers almost always either do not get what the sales person promised or they end up spending two to three times the RFP amount (through change orders and scope creep) to get what they thought they were promised.

In my experience, most failed IT implementations begin with a poor contract. Note that in my sales-cycle example above, the phrase, “Legal Department got involved early and often with contract preparation” is not to be found. That omission was intentional. Some IT implementations will fail no matter what, but in most cases the customer can improve its chances of getting what it thought it was paying for if the legal department is involved early and often. This begins with the preparation of the RFP — if not before.

An intelligent, careful lawyer will know the most likely legal reasons an IT implementation will fail and will know what to expect from the earliest stages of the engagement. This is critical so that, if in fact you must litigate, the contract supports the aggrieved client’s position in the dispute. Indeed, after the first couple of sales cycles like the one above, I even started going to the sales presentations and challenging the sales guys on their statements and warranties. They loved that.

For example, imagine that you engage someone to paint your house for $5,000. That’s it. That’s the whole contract. You come home from work and find your house painted bright pink. You are understandably aggrieved and consult legal counsel to seek recovery of your $5,000. The lawyer should immediately ask: “What did the contract say? Did it say you wanted forest green?” You see the point. Unless the contract delineates specific criteria against which the court can gauge the vendor’s performance, it is very difficult for the client to have a legal remedy when, in their estimation, the other party’s performance was what failed.

This is why I emphasize the importance of the statement of work, a document that describes the work to be performed by the vendor during the IT implementation. Two things to remember about the statement: (1) it must articulate in as much detail as possible the expected performance criteria of the vendor, including as many of the promises made in the sales meetings and as many of the RFP requirements as possible; and (2) it must be made a part of the contract by means of an integrated attachment or exhibit. If possible, your lawyer should help prepare the statement of work since ultimately it may fall on her shoulders to enforce the contract.

I know what you are thinking: “Preparing a long, detailed SOW that describes everything we want is hard.” Yes, getting a good statement of work is hard, and you cannot see the future. But imagine that you take the full request for proposals, the vendor’s full response, all the sales literature and all the emails and text messages from the sales person promising you that, “Yes, it will do that” and staple them to the contract so that they all collectively become, in essence, the statement of work. And that is a good way of providing an idea of what a complete SOW might look like, since it would delineate all the expected performance criteria.

Brad Frazer is a partner at Hawley Troxell where he practices Internet and intellectual property law. He is a published novelist (look for “Bradlee Frazer” at www.diversionbooks.com), frequent speaker and regular author of Internet content. He may be reached at [email protected].