3 Best Practices when Contracting with your Customers

First, think transparency vs. obscurity.

When a technology company is contracting with its customers, one of the goals of the customer agreement is to clearly communicate the revenue or business model to the customer. This is important, as in the intangible property world (as apposed to tangible property world (i.e. things you can touch and feel)) the customer often does not know what they will be receiving or what to expect (other than what the sales person said or the demo looked like). It is really important to clearly communicate and explain your model in your customer agreement, so you can clear up this confusion.

Second, think short and simple vs. complex and long.

Most IT executives or managers are not aware that customer contracts can be short and simple, and written in plain English. There is a new drafting trend in legal circles, and it is definitely taking hold in the IT contracting world. The large vendors like Microsoft, Oracle, IBM, Google and Salesforce.com are on board, so it is worth learning more about this movement. Essentially, the legal departments at these companies and others like them are realizing that customer agreements can and should be short, simple and written in plain English. Unfortunately, smaller IT companies are not aware of this trend, and more importantly their outside attorney’s are not aware of this (or maybe don’t believe in it), so it has not percolated down to most smaller IT shops yet. Hopefully articles like this will help that effort.

Third, think balanced vs. a one-sided agreement.

Most agreements are one-sided, but the truth of the matter is they do not have to be this way. A one-sided agreement can either be buyer or seller favorable, but either way most of the clauses protect one side and not the other. In the IT contracting world, many of the larger companies (see above) have also realized that putting a one sided agreement in front of their customer does not usually go over very well. So, these companies have started to some of the clauses that a typical customer would look for plus making other clauses reciprocal include in their agreements.

Does this make a difference? Absolutely, as if a customer sees that the agreement is not one-sided they are much more likely to sign it. It is really that simple! One of the flies in the ointment is that too many outside attorneys usually provide their clients with one-sided agreements, so if you want a more balanced agreement you will have to discuss it with your attorney (i.e. tell them what you want, and how you want it).  Not to be cynical, but lawyers do make a lot of money making a one-sided agreement more balanced (you know, that back and forth jousting with the attorney on the other side of the negotiations).

At the end of the day, you should take ownership of your customer agreements, as they are part of your selling process (whether they are an online click agreement or a written agreement). In a later post I will provide some concrete examples of transparent, short/simple and balanced agreements in the IT customer-contracting world.  Stay tuned.

If you want some further inspiration, watch this video and read these blogs posts:

• TED presentation regarding contract simplicity
• End User Agreement are Too Important to Leave to the Lawyers
• Are You Selling Legal Complexity or Simplicity?

Disclaimer: This article does not constitute legal advice, and is for informational and educational purposes only. Contact your attorney for legal advice.