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Contract language that suits your needs

January 1, 2007
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Tips for negotiating software agreements

As more and more behavioral health organizations adopt software solutions for administrative, clinical, and financial functions, executives are learning that implementing organization-wide information systems is a far cry from going to Best Buy and purchasing off-the-shelf software for PCs.

In fact, industry experts have a whole list of dos and don'ts for behavioral health organizations buying and implementing software solutions. The absolute bottom-line advice: Really “look before you leap” by paying attention to software contracts, say those in the know.

Dave Dimond, senior vice-president at Technology Solutions Company (TSC), a consulting firm specializing in provider software implementations, talks about software agreements as “prenuptials” to what is in effect a marriage of sorts—the vendor and provider organization working together to successfully install, implement, and maintain a software package. Thus, a software contract should never be entered into lightly, advises Dimond.

Laura Kreofsky, a manager of the Advisory Services Practice at First Consulting Group, urges provider organization executives to consider the potential complexity of negotiating software contracts. “Don't underestimate the time and energy required for negotiations,” Kreofsky says. “When you go into negotiations, the vendor will provide you with some core template/boilerplate language.” She advises that an organization examine that language, looking for “words and phrases such as, ‘The vendor and client shall have joint accountability.’ That's too fuzzy. The vendor could come back and say that their interpretation was that you would do the lion's share of the work.”

Another critical element is ensuring that the contract's language reflects the principle that all work be performed and completed to your satisfaction, says Sheryl Sovie, the operations manager for information technology at Huron Hospital in Cleveland. Sovie also has worked on the vendor side. “Make sure the vendor's deliverables are provided on some type of scheduled delivery,” she insists. She adds that it's important to be a strong customer and use whatever power and leverage you have, and not be timid in the negotiation process.

To that end, keep in mind the following tips from experts when negotiating software contracts with vendors:

Research contracts and talk to other organizations. It's important to research contracts and speak to, and meet with, other organizations using the potential vendor's software. Conduct site visits if possible, and dig for details. A vendor with nothing to hide will gladly facilitate contacts and visits, and many will pay for site visits.

Secure professional legal counsel. Obtain counsel from those with experience in software agreements to help create and review the proposed contract. Don't let deadline pressures or vendor assurances distract you from working with counsel to craft the best agreement possible.

Remember that the devil is in the details. Everyone interviewed for this article agrees that the devil is absolutely in the details of these contracts. Make sure to verify that the contract:

  • stipulates that performance will be based on customer satisfaction and approval;

  • covers all aspects of ongoing support and maintenance, as applicable;

  • specifies in detail what type of hardware the vendor supports (such as server manufacturers and sizes, PCs or Macs, etc.);

  • specifies all hardware and software upgrades needed to support the vendor's software; and

  • allows cohabitating with third-party software (i.e., the software can work with other programs the organization uses).

Be mindful of time frames. One of the most challenging issues to work out with any software agreement is implementation. Vendors generally prefer to estimate the time from purchase to full implementation. Instead, insist on tightly sculpting all expectations, roles, and timelines, and build in performance milestones with penalties when they are not met.

Explore hosting options. Some healthcare organizations are turning to what until recently were called ASP (application service provider) agreements, and now often are referred to as SaaS (software as a service) arrangements, in which the software is hosted through an online interface. Advantages to SaaS arrangements include:

  • The vendor hosts the service and maintains all the basic computing functions; in other words, the vendor runs the program for you.

  • It is a "thin-client" application, meaning that you don't need to buy a lot of hardware and create a data center.

  • All the service, including help-desk support, is done by the vendor.

  • The cost is usually relatively low and based on a subscription basis.

But keep in mind the potential for downtime and problems if the network—and subsequently the software—goes down, particularly if your organization has no information system professionals. IT support can be included in these agreements but, again, it is important to research and agree on all the details.

Think carefully about becoming a beta site. One option for some provider organizations (although probably not the smaller ones) is to collaborate with a vendor in developing software. This is common for acute-care hospitals and medical groups but rare for small provider organizations. Still, some behavioral health IT vendors might be interested in recruiting your organization as a beta (testing) site.

On one hand, being a beta site for new software can mean a significant cost break, but it requires time, staffing, and patience that may not be possible for small organizations. Only organizations with full-time IT staff generally are able to be beta sites.