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Be partners, not rivals

April 1, 2008
by Paul Litwak and Michael Morris
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To ensure your important needs are met, work collaboratively in the contract negotiation process

The contracting process for mission-critical behavioral healthcare software can go one of two ways. The focus can be on developing a long-term, mutually beneficial relationship between the provider and vendor, or it can focus on balancing conflicting priorities and have the potential to be based upon mutual distrust. Obviously the first option is preferable, and achieving a win-win result involves understanding the true costs, risks, needs, and benefits for both parties.

Each Party's Goals

The provider's objectives. As a provider, you want functional, reliable mission-critical software that integrates seamlessly into your operating environment. It must help you maintain full legal compliance. You want a competitive price with minimal risk. You need not only a successful implementation but also responsive support going forward.

To ensure that your priorities are addressed, you should reevaluate your fundamental reasons for purchasing software and for selecting a particular vendor. Honestly evaluate your preparedness for a major software implementation, which requires a significant commitment of time and energy by the organizational leadership and the IT, billing/financial, and clinical staff. It also requires a positive, mutually supportive working relationship with the vendor. The first step in building that relationship is the respectful negotiation of a fair agreement.

The vendor's objectives. To achieve a win-win result, you should recognize the vendor's goals and limitations in the negotiation process. All reputable vendors are interested in covering their costs, earning a profit, and satisfying customers, thereby building goodwill and strengthening their reputation. Additionally, vendors want to build their business, avoid unnecessary risk, and protect their deep investment in intellectual property.

Key Elements of an Agreement

Below are some of the key elements to keep in mind when negotiating a mutually beneficial agreement. These are areas where knowing your and the vendor's goals is particularly important.

Implementation. During the software selection process, the vendor should provide you a comprehensive proposal, which can be an attachment to the agreement. The proposal should clearly detail the vendor's normal implementation methodology, identify all vendor and customer responsibilities, and discuss potential issues along with their recommended solutions. Any major implementation is truly a team effort, with both the vendor and provider diligently working toward a successful outcome.

With a project as complex as implementing a software system, it is important that the software license and implementation services agreement be adequately detailed. These details usually are provided in an implementation plan incorporated into the contract. Each recommended service and any related travel costs should be addressed. The responsibilities for equipment selection, installation, and configuration should be identified. Commitments and limitations on data conversion should be noted, as well as training arrangements for administrators and users. The agreement should provide a mechanism for the provider to accept the software once operational and identify responsibilities for correcting any problems.

Almost all software agreements include disclaimers of warranties and limitations on damages that may be paid to a customer in the event of a failed implementation. In some cases, particularly large procurements, a powerful customer will insist on penalty provisions that are so severe (and sometimes so arbitrary) as to require a vendor to place its entire business at risk if the customer is dissatisfied. This threat of annihilation has two unintended consequences. First, a disproportionate penalty often means no penalty (Would you impose the death penalty for a speeding ticket?). Second, it means that the vendor's primary focus will be on protecting itself from a potential lawsuit. Instead of working with you to address the inevitable problems that accompany a complex software implementation, the vendor will play defense to avoid the threat of catastrophic litigation.

Maintenance and support. Once implementation is complete, your relationship with the vendor turns to ongoing maintenance and support. The agreement should address the ongoing correction of problems, clarify the vendor's obligations, and detail the extent and limitations of prepaid user support. If the agreement provides rights to future updates, enhancements, and/or new versions of the software, those terms should be defined, and any limitations on those rights should be articulated clearly.

Payment. Payment terms for the initial software license; rights to updates, enhancements, and new versions of the software; software maintenance services; customer support services; travel reimbursement; etc., should be clear and cover foreseeable contingencies. If any products and services are offered at a fixed price, the agreement should detail when and under what circumstances the vendor will be reimbursed for additional services.

The Role of Attorneys

As with any major agreement, the provider's attorney should thoroughly review the agreement. The attorney needs to understand behavioral healthcare operations as well as the shared risk inherent in this type of agreement. If the attorney will negotiate the deal, the provider should let the vendor know and involve him/her from the outset. Doing so will speed negotiations and possibly reduce legal fees. If the attorney is involved only after the negotiations, the vendor likely will reserve the right to modify the financial terms in the event of a significant shift in risk provisions.