Tips on how to divorce your technology vendor

If you’re looking to leave your vendor, you may be in for a world of pain -- unless you follow a few simple rules

Sure, hooking up with a new service provider is all cigars and handshakes at first. Promises are made and stars glimmer in your eyes as you sign the contract. The future looks bright.

Then things start to go south. The deadlines you carefully negotiated are being ignored. The fancy custom app you paid dearly to be developed suddenly

doesn’t work, and that around-the-clock support you were promised turns out to be largely imaginary. The thrill is gone and it ain’t coming back.

So you decide to make a clean break and start fresh with someone new.

But before you do, consider this cautionary tale of a small biotech firm in the Rocky Mountains that decided to dump its IT consultant. When the consultant got wind he was about to be canned, he installed a script that automatically blind-copied him on all e-mails to or from the company’s top executives. He quickly discovered that the firm’s lead scientist was having an affair. On the day the consultant was to be fired, he zipped up 500 racy e-mails and, using another executive’s account, forwarded them to the scientist’s wife.

“It was worse than a soap opera, and very tragic for the client,” says Patty Laushman, president of Uptime Group, an IT shop asked to perform computer forensics to prove that the firm’s IT vendor was behind the scheme. (Uptime ultimately took on the biotech firm’s IT business.) “Had we known how unhappy they were with their current vendor, we would have coached them on how to safely make the switch.”

Of course, not all jilted vendors turn into Glenn Close in “Fatal Attraction.” Most vendors who feel wronged will just sue you. But with easy access to your most confidential information and core business systems, the risks from a bad breakup with IT outsourcers are especially high. The industry is rife with horror stories of companies that terminated relationships only to find that they’re locked out of their own networks or their ERP systems suddenly stopped working; some even discover that they don’t actually own the code they use to run their business and have to go crawling back to the developer to get it.

Hell hath no fury like a vendor scorned.

Fortunately, you don’t have to suffer through an ugly divorce -- provided you go about it the right way.

Two Words: “Pre-Nup”

Before you ax your current vendor, you must secure a replacement. But as one particularly unlucky biotech exec can tell you, you don’t necessarily want the vendor to know too soon -- especially if the vendor has people working at your offices.

Laushman advises companies to avoid using internal e-mail or IM to discuss potential changes. She meets prospective customers in coffee shops or other off-site locales, and has her staff audit a potential client’s systems at night and on weekends to avoid suspicion and make sure Uptime has all the info it needs for a smooth transition.

Although sneaking around on your vendor may be necessary (not to mention fun), it’s more important to anticipate breakups from the start, and bake provisions into your service contract that protect you if things get ugly. In business arrangements, as in marriage, nothing beats a solid prenup.

For example, a key part of any contract is termination rights, such as nonperformance. That means both parties must agree on a way to grade the vendor’s performance and schedule periodic reviews, says Jon Piot, co-author of “The Executive’s Guide to Information Technology,” and president of Technisource Solutions Group, a division of Technisource.

“If the vendor isn’t earning a good grade, it gives you an opportunity to raise issues and work through them,” Piot says. “If they can’t improve and it’s time to fire the vendor, then at least it’s not a surprise. The times I’ve seen it get real ugly is when there’s no measurement in place and issues are not discussed. That can descend into mutual destructiveness.”

Equally important, companies should specify what happens when the contract is terminated -- such as how long the vendor should continue to provide service (and get paid) while the transition is underway.

“It’s in your best interests to have a transition plan,” says attorney Richard Neff, who heads the intellectual property and technology practice for the law firm Greenberg Glusker. “If it’s a mission-critical Net application, you’d want at least 90 days, and with some types of software up to a year.”

It also helps to pay attention to the fine print. In 2001, a midsize networking company in the Northeast contracted with a major Web host to migrate its site to new servers. Six months later the site hadn’t budged, so the company pulled the plug and did the migration in-house. It also stopped paying the host’s $60,000 monthly fee, says the firm’s CIO, who asked that the parties involved not be identified.

But according to the hosting contract, the company had to send a certified letter to the host giving it 30 days to correct the problems -- e-mail and phone calls didn’t count.

“It was one of those stupid semantic things,” the CIO says. “They said we needed to keep paying them. We said we’re not paying $60,000 a month for nothing. They sued us, we countersued them, and we ended up settling out of court.”

These days, he says, his firm insists on the right to terminate contracts for any reason with 30 days’ notice, as well as a 90-day transition period to a new vendor.

Custody Battles

Another big mistake is becoming too dependent on a single vendor or outsourcer. Small firms in particular often fail to obtain full-time custody of the apps, content, or systems their now ex-vendor has created. They end up with apps that can’t be upgraded or systems no one else can use.

“In many cases, customers are surprised to find out that the vendor owns the intellectual property for work the customer has paid the vendor to perform,” says Seth Hishmeh, COO of USAS Technologies, a multinational IT consulting and professional services company. Hishmeh says a small manufacturing firm once asked USAS to take over development of an unfinished back-office application, only to find out the firm didn’t own the rights to the app’s source code.

“It would be like trying to finish a house without access to the architectural drawings or floor plans,” Hishmeh says. “There was nothing we could do. They had to work it out with their old vendor.”

Attorney Neff says he’s witnessed a few horror stories about Web site developers who retained rights to their clients’ content long after their relationship was kaput. “It’s your Web site,” he says. “You need to obtain the rights for all work done for it.”

Besides code and content, organizations must own the knowledge of how their IT systems work, Laushman says. The last thing you want is a situation in which a single person has total knowledge of a business-critical system, with no paper trail for anyone else to follow.

“One guy had been our client’s sole custom developer for 10 years, with zero documentation,” Laushman says. “We met with the company and said we need to figure out how to get some documentation without arousing his suspicions. Otherwise it was going to cost them a lot of money while we figured out how everything worked. Most network and system admins hate doing doc work, but you have to insist they provide it along the way. Every piece of documentation will save you money down the line.”

Can This Union Be Saved?

Before you file the divorce papers, it’s a good idea to pull back from the brink and ask whether your own actions have contributed to the problem, and if it’s not too late to make things right.

“Usually both parties to a conflict contribute something,” says Rick Brenner, principal at Chaco Canyon Consulting. “Before taking any action, check that you’ve done everything you can to straighten things out on your side of the fence.”

For example, there may be conflicts between your employees and the vendor staff. You may have done a poor job communicating what you want, or have had unrealistic expectations about what the vendor can really deliver.

Problems often arise when dealing with small vendors or solo practitioners, who may possess valuable expertise but might just be overloaded from time to time, Brenner says.

“It’s very similar to having your bathroom redone,” Brenner adds. “I think every project manager should have to have part of his house remodeled. It would teach them a lot.”

The key to relatively painless parting is to avoid making the conflict personal, which is easier said than done.

“We don’t live in an entirely rational world,” Neff says. “People tend to get emotionally involved. It usually happens when one side isn’t getting what they want and refuses to pay. The other side cuts off service, and they end up in court.” He estimates that 95 percent of disputes settle before they ever get to court, mostly due to the prohibitive costs of litigation.

A better alternative to lawsuits is building a dispute resolution mechanism such as mediation or arbitration into the service agreement, says Ethan Katsh, director of the Center for Information Technology and Dispute Resolution at the University of Massachusetts Amherst.

With mediation, a neutral third party works with the parties to find a mutually satisfactory outcome. In arbitration a third party decides who’s right, and the disputants are legally bound to honor the decision.

“Mediation has a significant advantage because if any outcome is reached it’s because both parties wanted it,” Katsh says. “At the end of a successful mediation both parties walk away happy.”

The advantage of arbitration is that you know you’ll end up with a resolution, although you may not like the results.

Managed well, the dissolution could enable you and your vendor to work together again in the future. But don’t count on it.

You should always try to treat vendors as valued partners, Piot suggests. But if things get problematic and heated, “It’s best to cut the ties and get it over with as quickly and cleanly as possible. Usually there’s something fundamentally wrong there that can’t be fixed. Trying to turn around and bring the vendor back in after firing them for good reason is just asking for trouble.”

Copyright © 2006 IDG Communications, Inc.

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