6 Keys to Drafting IT Contracts that Cover Your Company

On the face of it, it may seem like the sole purpose of an IT contract is to serve as a legal safety blanket. In truth, that’s only scratching the surface.

In fact, an IT contract is a multi-faceted vehicle for companies to not only protect their interests, but to also set the tone for customer relationships and create an image of their business for outsiders. In other words, your company’s contract can leave a lasting impression, for better or worse.

Organizations can control the way their contracts are perceived simply by abiding by standardized guidelines and ethics for creating these vital legal documents.

In this six-part video series, attorney Jeremy Aber, senior advisor at OpenView Venture Partners, shares essential keys to drafting effective IT contracts. Aber believes that the IT industry has – for some time now – been moving toward a new standard for contract creation. Today’s IT contracts are written plainly and transparently, a shift that has been spearheaded by some of the largest companies within the industry. Read on for helpful advice on what to expect when drafting IT contracts.

The Argument for Simplicity: Drafting IT Contracts in Plain English

Believe it or not, there are a lot of benefits to writing your legal contracts plainly. For one, it’s an indication of noble intentions. Complex legal contracts, because of their sometimes nefarious usage over time, have a stigma attached to them. Although you should never compromise legal security, there may not be any incentive to burden your contracts with superfluous language.

“There is a new methodology of using a lot of plain English when drafting,” says Aber. “It’s really starting to take hold and people should be aware of it.”

And the industry seems to be moving toward such a change. Contracts are becoming more readable and customers are taking more interest in actually reading them. By adopting a simpler approach, you may lessen the amount of inquiries you receive about contract language — and in turn, reduce your customer support demands. For companies that values transparency in their business strategy, such a move will undoubtedly make sense.

How to Draft IT Contracts

Drafting IT contracts isn’t the first thing a lawyer is taught in law school. In reality, most lawyers don’t learn how to draft this sort of specialized contract during formal classroom sessions. Most of them pick it up over time, through firsthand experience. They often end up reusing ideas and wording from old contracts that lend themselves well to the specific need. But this can be somewhat of an issue given the complexity of emerging technologies.

“When you start at a law firm, very often they’ll give you a lot of old forms that have been around for 20, 30, 40 years,” says Aber. “You take them, you put them together, and you create other contracts…. These contracts aren’t really great vehicles for the IT world. There needs to be a better way to contract.”

Legal contracts are an unavoidable aspect of doing business. You will undoubtedly encounter them. When you do, make sure your legal team is able to produce the necessary paperwork to protect your assets and avoid leaving your company in legal limbo.

Comprehensive or Short & Sweet? Determining the Length of an IT Contract

Can IT contracts be short? That’s a question that many companies are being forced to consider. To answer, you must first weigh the number of items you need to fit into a contract versus the amount of space you’ll need. Oddly enough, the larger companies – such as IBM, salesforce.com, and others – tend to have shorter contracts.

One of the main benefits of having shorter contracts is that you will leave less room for confusion. As a rule of thumb, if you can say it in less than 10 pages, do so. Still, never overlook the importance of your company’s legal positing in your contractual agreements. This, naturally, takes precedence over contract length.

The Benefits of Transparency

A contract’s wording can provide a lot of insight into the belief system of a company.

Simple, transparent contracts suggest a level of trustworthiness, while the opposite is also true. If you have a jargon-laced contract that comes off as obscure or convoluted, it may put strains on a deal. As a result, technology trends in the industry have led to a move away from obscurity and toward transparency.

“Think about what you want your contract to say about your business,” suggests Aber. “There are different schools of thought in the legal community. Some lawyers think that contracts should be obscure, and should have tricks in them that you can use. There are other ones that think they should be more transparent.”

There are multiple ways to approach contract-writing. One thing is clear, however: Whether a contract is transparent or obscure speaks volumes about a company.

Balanced vs. One-Sided Agreements

SaaS agreements are moving away from being one-sided to being more balanced. Why is this the case? Companies are learning that, regardless of the language they use, the contracts invariably return to the middle. All lawyers can employ tricks in the wording of contracts. But if they’re discovered, that’s going to compromise customer-buyer trust.

Contract negotiations have a tendency to balance themselves organically. When you send out an agreement that’s unbalanced to one side, the opposing side will likely try to achieve a balance. During the creation process, neither party will accept the terms of a contract if they’re deemed unfair. And technology trends have made companies like IBM and other prominent businesses more apt to – right off the bat – offer up a fair contract. As with any other component of technology and law, your results may vary. As far as a company strategy goes, it never hurts to employee the Golden Rule: treat others like you want to be treated.

Developing an Effective End User Agreement

Your End User Agreements act as a safety blanket for your company. Not only do they protect you from issues cropping up, they also speak volumes about your company to the users. They’re going to determine what sorts of liberties your users and resellers can take with your software. There is a lot of nuanced information that goes into an end user agreement. So much so, in fact, that it shouldn’t strictly be left to your legal team to figure out and handle.

You need someone who will take ownership of the end user agreement. They should be a go-to resource, along with other advisors. In their totality, this new unit should greatly help during the formation of the initial agreement. In the end, an EUA should serve to underpin the company strategy.

 

Jeremy Aber runs his own IT focused law firm, the Aber Law Firm, and has over 18 years experience in technology and corporate law. He previously served as the General Counsel to OpenView Venture Partners; General Counsel and Vice President to ScriptLogic Corporation, a Windows software tools vendor; and the Head of US Licensing for BMC Software, a Fortune 500 enterprise software vendor. Jeremy has developed a methodology for streamlining and simplifying the revenue generating agreements and negotiation process for IT based companies and helps his clients, among other things, to increase their revenue by trying to shorten the contracting process.

Editor’s note: This article has been adapted from a previously recorded video series with Jeremy Aber.

Photo by: Mike Goren