By Steven Ellsworth
Vizient Senior Consultant, Supply Chain Services
When entering into an agreement for items that fall into the information technology category, it is important to realize that they are not accomplished in the same manner as ones within the clinical setting. There is a nuanced approach that must be adhered to if one is to achieve success in contracting for services or equipment in IT. If prepared and processed correctly, the hospital will not only provide the necessary equipment or services but will do so at a competitive cost.
1. Look at life expectancy
For IT items such as computers, one can expect the equipment to last three to five years. When working with medical equipment, the equipment normally has a life expectancy of seven to 10 years.
2. Understand the scope of work
Before entering into negotiations, you should ensure that you have a clear understanding of what the IT project entails and what the timelines and goals are. This may mean numerous meetings with stakeholders to ensure there is a clear understanding of what is being asked, which can drive the direction of the contract action.
3. Contract reviews
If the agreement is a renewal, the document may only require a simple one-page renewal based on the contract language. If it’s a new service agreement, the contract action may need a non-disclosure agreement, a master services agreement, statement of work, budgetary approval and vendor review to add to the hospital’s procurement system.
You must review the contract thoroughly to ensure you understand all the clauses and the terms of agreement, including payment terms, termination clauses and intellectual property clauses. A vital (and often overlooked) component is the preamble within the document. This is where both parties’ legal names are mentioned entering into an agreement. There will normally be a date of execution or at least what action will activate the agreement. Due to the agreement being for an IT requirement, there will be a security portion.
4. Negotiate payment terms
When negotiating the agreement, one must consider how, when and where invoicing happens. Traditionally, a NET30 payment is agreed upon — meaning that 30 days past the invoice date, the vendor will be paid. Often, agreements will allow the vendor to additionally bill if the invoice was paid after the 30-day mark. As such, it is especially important to adhere to the pay dates indicated. Also, the agreement will mention how the hospital is to pay the vendor, which could be by check, wire or electronic funds transfer (EFT). It has become the norm to pay vendors via EFT.
5. Include a termination clause
Ensure that the contract includes a termination clause that outlines the procedures and penalties for ending the contract early. There will always be a section to discuss terminations. The agreement may mention the need for 60-90 days prior notification to the vendor if your hospital is wanting to terminate. As it pertains to IT agreements, there may be language referencing any data the vendor stores and how long your team will have access to that data after termination. For items such as software, it may be required to delete copies of software once the agreement expires.
6. Address confidentiality and security
When working with IT agreements, the agreement must be reviewed by what is commonly referred to as INFOSEC (Information Security). Security can be costly with data breaches and data theft, as well as funds being taken, which applies to both the hospital and the vendor. The IT security team will review the agreement from that lens to ensure the language will not open or provide unauthorized access to the corresponding network. Both parties must agree on what provisions the contract includes for data confidentiality and security. As it pertains to confidentiality, the vendor will need to sign a non-disclosure agreement (NDA). It can either be a one-way NDA or mutual where your team also signs the document.
7. Resolve disputes
The hospital will want to include a dispute resolution clause within the agreement. The clause will outline how any disputes between the parties will be resolved. The document will annotate which states laws will govern any resolution. Within this area, your team — with the assistance of legal — will ascertain if any portions of the governing law are different if another state is mentioned.
When entering into an agreement of any kind, it is always advisable to seek legal advice before signing. Legal language can be particularly challenging to read and even more so when entering into an IT agreement. Following the basic roadmap above will help to ensure your team does not sign an agreement binding your team to business or legal terms that can adversely affect your budget for years to come.
Learn more about Vizient’s expertise and solutions in the information technology areas of telecom audit and expense management, print management, hardware and software, and resellers.
About the author
In his role as senior consultant. Steven Ellsworth provides guidance, mentoring and leadership to member organizations to help transform their supply chain operations to leading-practice performance levels. Ellsworth has more than 33 years of supply chain experience in the United States military, technology and healthcare, and he has earned four advanced degrees including Bachelor of Science in project management, a Master of Science in IT management, a Master of Business Administration and a Master of Arts in acquisition and procurement.