Navigating the legal contracts of working with third party providers can feel like a minefield. One wrong step can create thousands in fines, potentially require court appointments and ultimately sour the business deal altogether. Want to make sure you know how to get started? Use this article to create a basic understanding of key documents you will need for a smooth third party business transaction.
The Key Documents
The first document you will want to consider is a non-disclosure agreement (NDA). Once signed, it means that the provider cannot share your proprietary information with outside entities. An NDA enables you to provide greater detail about your operations to a provider so that they can create realistic bids on what they can accomplish. Lenders will often make multiple providers sign NDAs to start a comparable “bidding phase” of a project. Be sure the NDA extends to your provider’s entire company.
A service-level agreement (SLA) is a legal document that dictates the level of service expected between a client and service provider. Sometimes a “Master Services Agreement” is used instead of an SLA, but essentially serves the same purpose. SLAs focus on the output that will be received by the client from the service provider during an agreed-upon timeframe. An SLA can also cover liability, marketing rights, security access, company email access, proprietary ownership and other specifics. This is the moment to insulate yourself from a provider’s compliance violations. It is wise to create a standard SLA to use as a starting line.
The Statement of Work (SOW) gets into the finer details of the service being performed by the provider. There could be dozens of SOWs depending on the scope of tasks required to reach the SLA. In that sense, every SOW is under the “umbrella” of the SLA, as they are the individual pieces needed to complete the contract. Each SOW describes the timeline, deliverables, pricing amount, payment schedule and other nuances of a specific task.
Change Orders (CO) are only required when there is a change from the expectations in the SOW. Once a CO is signed by both parties, it legally replaces the agreement in the SOW. For that reason every CO should be detailed and coherent. Some companies avoid COs because they feel it delays production, but it is the only way to make a legally binding change in expectations. Change orders exist because there is little recourse if a provider does not uphold a verbal agreement.
Things to Consider
- Create a standardized provider assessment. This could include a criminal check, complaint history, references from previous clients, liability insurance check, compliance verification and more. Be sure to have a thorough review process for contracts as well.
- Outline how you will manage, review and give feedback on the provider’s performance during the contract. The more empirical the better. Share any potential compliance risks with the provider so that they may avoid them, and (more cynically) as proof you attempted to avoid a violation.
- Consider software solutions that provide detailed reporting on provider performance. You will have trouble addressing (or even noticing) provider behavior without data-driven evidence of declining performance. And of course, you can discover and reward excellent providers too.
- What Every Product Manager Ought to Know About Contract Negotiations, Daniel Elizalde, https://techproductmanagement.com/what-every-product-manager-ought-to-know-about-contract-negotiation/
- Reviewing Third Party Vendor Service Contracts, a Seven Part Guide, Jerry Blanchard, http://www.bankbryancave.com/2016/08/reviewing-third-party-vendor-service-contracts-a-seven-part-guide/
- Vetting Your Vendors: A Guide to Performing Due Diligence, Sean Mackey, http://blog.commonwealth.com/vetting-your-vendors-a-guide-to-performing-due-diligence