This article is written by team iPleaders.

Chief Information Officers came to be in the 90s when companies started to get into the digital age. CIOs were appointed to make sure the IT changes within internal operations ran smoothly. Over time, people in this position have gone on to make significant contributions to their companies and the tech sector overall.

CIOs are in charge of IT strategy, the computer systems required to support an enterprise’s objectives & goals and development of policy & strategy, amongst others. Although these responsibilities might differ from one company to the other, what remains the same, is that they have to make very tough decisions.

Many of these decisions rely on the ability to negotiate with the different vendors that provide those systems to their company, put in the right terms and conditions in contracts as well enforcement of those contracts. As the CIO they are responsible for technologies that run their business internally. And to do that they are the company’s representative to all these various vendors.

CIOs have to strategize not only about what their company needs to function more efficiently but also about the execution of those strategies that more often than not require them to engage external consultants, developers, service providers or even SaaS platforms.

In 2015, we introduced an online course on contract drafting and negotiations. When we researched on who are the most likely beneficiaries of a course like this within India Inc., many fingers were pointed at one category of people – CIOs. They are after all custodians of some of the most important contracts and vendor relationships for a company hurtling into the new age of business, taking full advantage of the digital revolution.

It is important to note that most big companies who need a CIO tend to have in-house counsels and law departments to guide CIOs through law, regulations and negotiations. However, the CIOs are often required to make critical decisions about contractual negotiations, and lawyers perform a lot better when they have clear instructions to act on. The strategy part is better taken care of by the CIO who has far more ground-level knowledge about requirements of the company while the lawyers are happy to implement the strategy given to them while negotiating. Also, many CIOs find it refreshing and empowering to be able to hold their own in a negotiation rather than leaving it all to lawyers.

This is why we thought of writing an entire post dedicated to what CIOs need to watch out for while negotiating contracts.

So what are the most critical elements that CIOs should watch out for while negotiating contracts?

#1 Automatic Renewal

A lot of service providers include an automatic renewal clause in the fine print which is hardly ever read by the representatives that negotiate these contracts. Say you want a certain service for one year. You enter into a contract for this. The contract says that the duration is one year only, but it may be automatically renewed for another year unless you specifically give a notice before the 12th month! This is great as it avoids extra paperwork or paying of stamp duty on another agreement if you want to renew next year. So many people tolerate this clause. However, what if you want to cancel and forget to give a notice for cancellation of the automatic renewal before the 12th month? You will be stuck with this service for another year.

So think about whether your organization have the process to remember to cancel or not. Otherwise paying stamp duty next year again may be cheaper.

#2 Termination Clauses

As CIO or any executive, you should always review the termination provisions of a contract well before signing it.

Most vendor agreements come with a long list of provisions for termination. These work for both sides. However, any vendor with the slightest monopoly/ unique products or services will try to strong arm you into signing a contract with no wriggle room to terminate when you may need to.

Focus on when your company can terminate a contract and what it takes to terminate. It helps to negotiate to get as much flexibility as possible. Do you need to give a long notice period before terminating? What about the scenarios in which the other party is failing to live up to their promises? Can you terminate without in such cases? Can they easily terminate and leave you in trouble as you scramble to find a replacement?

Even if a vendor is at fault and there is a defect in their work, you may still want to give time to your vendor to remedy the situation. Should you write this in the contract? Should there be a penalty clause for delay instead of termination?

Would you have to give an official notice before terminating? These are all strategic questions and answers will vary depending on specific business cases. Are you ensuring that strategic planning is happening before you sign your contracts?

#3 One-sided first drafts

If you were to talk to any commercial lawyer who specializes in drafting agreements for big vendors, you will realise how contracts drafted in a totally one-sided manner to suit the side that drafts the contract first. More often than not, people sign these highly onerous documents without a second glance and end up paying the price for it.

Big vendors, who either have a sizeable amount of the market share or have established a good reputation do not like give any breathing room to their purchasers. If you have to source your service from such entities, and you have negligible leverage, to begin with, you have to rely on great negotiation skills and strategic planning.

Most importantly, don’t get intimidated. It is a standard trick in the book. The correct answer is to take that one-sided contract and change all the clauses extensively to protect your interest. Do not hesitate thinking that you are making too many changes. You have to fearlessly and mercilessly turn the text of the contract into your favour. Then both sides will negotiate, and something reasonable will be eventually arrived at. This is a standard process. If you see a tough one-sided contract and give up on a few things without fighting for them, you may lose ground on things that you really care for. When negotiating high stakes contracts, often the guy with the longest list of demand tends to win. Yes, you will give up on many of those demands later in the negotiation, but the question is which ones. You must plan for that.

However, you can also use this to your advantage. If you haven’t already, create a standard form contract which is heavily in your favour and demand that all vendors and service providers sign the same. Many will.

#4 Liability Waivers

Waivers are generally an agreement to release or not to assert a right. But in terms of corporate contracts, liability waivers primarily absolve businesses of their responsibility in case of an accident. Vendor agreements have comprehensive liability waivers to protect either party from blame in case something does not go according to plan.

Since liability waivers are contractual, they can be cause for action under section 63 of the Indian Contract Act. Liability waivers are put in place to make sure that any subsequent financial obligation, etc. in case of a delay in providing services, may be losses that are caused by any unforeseeable natural calamity, unforeseeable third-party actions etc. are not causing financial loss to the vendor. As the CIO it is very important that you negotiate these provisions very carefully and make sure that you do not sign off on waiving liability unless there is an absolutely valid commercial justification to do so.

You also need to make sure that your company is not put in front of the crosshair in case of a delay in payments and that there remains ample wiggle room. A small delay should not trigger a massive penalty. Negotiating these waivers are like walking a tightrope. You need to assert your company’s privileges while making sure that your vendor is not screwed over either. These provisions need to be driven by genuine commercial concerns and fairness, not ego or clever posturing. You have to find the fine line and decide on mutually acceptable ways to deal with future mishaps and risks that may or may not materialize.

What can be done to make the negotiation go better?

CIOs are in a position of power and authority. They can command a lot of influence and power if they are good at negotiating.

Always be prepared

Take into consideration previous experiences, talk it through with the CEO or other important people in the company who may have a say or may be affected by a contract about their concerns. You should research the vendor thoroughly, gain insight into their operations and what their competitors offer.

Make it a priority to devise a comprehensive negotiation strategy and delegate all responsibilities accordingly.

Keep things clear, concise and brief

Your goal should be to get the best services for your company, making sure that the contracts are in your favour but also not unfair to the vendors. If you work for a big company, chances are vendors are gonna fight amongst themselves to give you the best option. However, they might give you a great deal that they cannot sustain later – and while it will affect them quite badly, you will not really walk out of it scratch free either.

Keeping all conditions and terms clear in writing will make the negotiation process simpler and leave little or no room for miscommunication.

Streamline the negotiation process

As a CIO, you will have the authority to make decisions. Make sure the representative of the other party has the same level of authority. That way, they’ll be able to negotiate accordingly and won’t have to spend time running post to pillar to people with authority to get a counteroffer. It will make the process more streamlined and get rid of costly delays and save a lot of time. It is the simplest things that make a lot of difference in the course of a negotiation.

As Daniel Shapiro, director of the Harvard International Negotiation Program points out,”Most effective strategies for negotiation are really just common sense, but people fail to recognize them as soon as a negotiation gets difficult.” You have to deal with more vendors than ever before, for niche products and services, so adapt accordingly.

What actions can you take towards becoming a better negotiator?

One of the best things that you can do is to find a mentor with whom you can simulate various negotiation scenarios and get practice before the really important negotiations. Also, having team members with whom you can discuss and thrash out various outcomes before any negotiation is useful. However, if I am frequently negotiating high-value transactions, getting some proper training in negotiation and even contract law is a great idea, which is now easily available through online courses like this course on contract drafting and negotiations. Also, you might want to check out a specialized course on technology contracts which CIOs deal with most frequently. There are many live trainings too, like this one you could get from Harvard. You could also watch some youtube videos, and pick up some basic negotiation strategies. In your next negotiation, go prepared to the tee!