Mayhem of Multiples By Elgin Ward, Executive Director CAUCUS Oct 23, 2018
Every SOW should contain a reference to a specific, governing Master Agreement. Every SOW should be negotiated and managed to be completely consistent with specific, governing Master Agreement. Every SOW should provide that it is subject ONLY to the Master Agreement and not governed by any term in any other SOW.
I. Cedric, an experienced IT procurement professional, was assigned to negotiate an SOW with the Vendor (the ABC Company) to purchase some Professional Services needed to implement critical improvements to the Customer’s IT network.
II. In preparing to negotiate the detailed terms of the SOW for Network Improvements with the Vendor, Cedric reviewed the applicable Master Agreement to ensure that the SOW would be consistent. As allowed by the Master Agreement, Cedric negotiated an SOW for Network Improvements which included a warranty by the Vendor that, for 1 year from the date of acceptance, all its Professional Services and resulting Work Product would meet or exceed the results required under the SOW or the Vendor would, at its cost and at no additional charge to the Customer, timely correct any non-compliant Work Product.
III. The SOW was signed, the services were provided, tested and accepted. However, about 4 months after acceptance, the Customer’s IT Network began experiencing extreme slowdowns and other performance problems. An investigation by the Customer indicated the problem arose from a defect in ABC’s Professional Services. The Customer demanded ABC promptly cure the defect and fix the problems with the IT Network.
IV. ABC responded quickly, corrected the defective workmanship, and sent the Customer an Invoice for $50,000.00. The Customer objected to the Invoice, citing the 1-year Warranty in the SOW. After the Customer met with ABC, the Customer ended up paying ABC an additional $40,000. Why? What went wrong? After all, the SOW contained a 1-year Warranty that required ABC to solve the problem without any additional charge to the Customer – or did it?
V. The SOW for Network Improvements was the Customer’s 6th SOW with ABC. In the 4th SOW, ABC had carefully included some wording that said, in essence: “Customer networks are complex systems accessed and modified by Customer personnel and other parties. Customer understands the Supplier has limited ability to control the Customer IT environment or what other parties do in that environment. Except if and when the Supplier is given complete control of the Customer IT environment, Supplier will not be liable to the Customer under this or other SOWs for any warranty, service level, or other obligation for more than ten (10) percent of the payments received by Supplier under the SOW.” ABC documented $50,000 worth of work and, based on the limitation in the 4th SOW, was entitled to charge for $40,000.
3 KEY TAKEAWAYS
- Every SOW should contain a reference to a specific, governing Master Agreement.
- Every SOW should be negotiated and managed to be completely consistent with specific, governing Master Agreement.
- Every SOW should provide that it is subject ONLY to the Master Agreement and not governed by any term in any other SOW.