How to successfully negotiate your project contracts - Daniel Elizalde

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

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
.



Agenda
• Key Rules for Contract Negotiations

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

NDA
MSA
SOW
CO



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.



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


Non-Disclosure Agreement (NDA)

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”



NDA | Key Watchouts

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



Master Services Agreement (MSA)

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



MSA | Key Watchouts

1. Ownership of IP.

2. Payment terms.

3. Limitation of Liability.



Statement of Work (SOW)

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

Deliverables
Timelines
Payment amount
Milestones
Invoicing



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



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.



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.



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…”



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



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…”



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.



Fixed Price SOWs | Invoicing Schedule



Hybrid Projects
It’s OK to combine SOW types…

Discovery

Implementation

T&M

Fixed Price



Change Order (CO)

Change Orders
Change Orders document any deviations from the
current SOW



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



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…”



Thank You!

ManagersBuild.com
Keep in touch:
@delizalde
Daniel@ManagersBuild.com



How to successfully negotiate your project contracts - Daniel Elizalde

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