8 Negotiation Checklist

Contract Checklist
Use this tool to assist you in negotiating a favorable contract with your vendor of choice. Whoever
you choose to conduct contract negotiations for a comprehensive health information technology
(HIT) project must have prior experience in contract negotiation. Whether you use a consultant
and/or an attorney to assist you, or designate one or more persons in your office to conduct
negotiations, reviewing this checklist can help you prepare for contracting and understand the
process.
Before Contract Negotiation

Before contract negotiations begin, determine the following:
• Do you have approval to proceed with negotiations from your board of directors, partners, or
others as required? Do not be surprised if some of your colleagues may become reluctant to
proceed because of cost, level of effort, or both. Those who helped recommend your vendor of
choice, such as the HIT steering committee, can aid the approval process by describing the
process it went through to select the vendor and the due diligence performed. If you are a small
office, reflect upon the steps you took to reach this point. Review the attributes of the product
you are considering, such as a realistic picture of strengths and weaknesses, level of effort for
implementation, accurate cost estimates, how much you think you can negotiate for price and
services provided, and the total cost of ownership (e.g., IT application staff, phone system
upgrades, physical changes to exam rooms, creating a wireless environment). Seeking approval
to begin negotiating a contract is not the same as asking leadership to make the selection. The
board of directors or other leadership group has not been through the same level of due diligence
as the steering committee. Nor will they likely be the end users. However, they have to pay for
the system and weigh this expenditure against all other factors.
• Will contract negotiations be performed with one or vendors? Even if you have a clear winner,
consider your second choice as a viable option in the event of contract negotiation failure with
the first. Although this rarely happens, having a second choice can make you more comfortable
negotiating what you want. Vendors negotiate all the time; your organization does not negotiate
at this level very often. As a result, vendors can sense when you only have one vendor of choice
or if you are confident enough to have another waiting in the wings. If you are undecided,
negotiating with both vendors simultaneously is possible. However, it can be difficult (you may
forget details of negotiation with one or both), and potentially costly if negotiation assistance and
legal counsel are engaged.
• Will price or terms be the kick-off strategy? Starting with price can put the organization at a
disadvantage when negotiating terms. If you strongly prefer one vendor that is clearly out of your
price range, give the vendor an opportunity to meet a ballpark budget before starting full
negotiations. The best process is one in which all issues are stated in an issues letter to the
vendor. Ask the vendor to address each issue. In using this approach, you will not risk getting the
best price at the expense of terms you really need, nor will the vendor constantly be adjusting the
price because of terms brought up later.
• Who will be included in the negotiation process? Legal counsel should always review the final
contract, but may not be the ideal resource for identifying clinical information system issues. An
experienced consultant or coach can be helpful. Avoid including your project manager in
negotiations to prevent influencing the project manager’s perspective going forward with
implementation.
• Make sure all contract elements specified in your RFP are in the offered contract, including the
best offer from the vendor that has been tailored to your situation (e.g., the specifics of what you
are buying with revised pricing). Make sure the vendor understands that the response to the RFP
and implementation plan will become part of the contract. Allow the vendor to make any changes
necessary to conform to this requirement.
• Keep track of issues that arise during the selection process that you may want to negotiate or
attach to the contract. For example, if the vendor said it would do something unique for you, such
as adding a feature or function, or making sure that the system will be able to handle a key
requirement, get in writing in the contract. If you have such promises in writing from a
salesperson, the promises can be attached to the contract— but make sure the vendor’s
contracting agent understands what is attached.
• Be prepared for the vendor to be surprised by your negotiation prowess. Many small offices are
not known for approaching contract negotiation from the perspective of a well-informed
consumer. Do not fall for common vendor tactics, such as “no one else has ever objected to these
terms.”
Tasks During Negotiation

• You should receive the contract in an electronic format so you can add line numbers or have the
vendor add line numbers prior to sending its final contract to you. When you receive the contract,
set up a spreadsheet or table to capture your issues. This can be as simple as the following
example.
Line Number Topic Issue/Concern Vendor Response

2 Parties Incorrect spelling of
name of organization
throughout
32 Maintenance Fees What is the basis for
annual fee increases?
92 Modules What is the alerting
module? Is this
included in price?
• To develop a list of issues, build off the list started during the selection process. Add issues based
on a thorough review of the contract, such as:
o Product capabilities
o Cost and payment terms
o Technical issues
o Installation and implementation
o Legal issues, including the HIPAA business associate agreement
o Other business and contractual terms
• Develop a negotiation strategy and target timeframe. Do not back yourself into a corner with an
unrealistic deadline.
• Submit a written list of issues to the vendor and schedule a target date for their written response.
Hold a conference call with the vendor to present and clarify issues.
• Conduct formal negotiation sessions after reviewing the revised contract. (These are most often
performed in a series of conference calls.)
o This is an iterative process that typically takes at least three drafts, sometimes more
o Ask for redlined drafts showing changes from prior draft
o Take good notes during the meetings, covering both intent with specific wording offered to
resolve issues
o Assure that the vendor’s written response is consistent with its verbal one
• Clarify exactly what you are buying and what the vendor is selling, including:
o Hardware – which devices (if you are buying from the software vendor)
o Software – which applications
o Implementation support
o Interfaces
o Data and chart conversions
o Customizations
o Networks/infrastructure
o Testing
o Training
• Conduct implementation planning concurrent with contract negotiations, and attach the plan to
the contract. At a minimum, the implementation plan should include:
o Project phasing (if any)
o Project start and go-live dates
o Key milestones
o Level of effort for buyer
o Level of effort for seller
o Recommended project organization chart
Negotiation Tips
• Remember, everything is negotiable, although you should focus on those areas most important to
the organization. YOU are in charge of the negotiation process.
• Beware of concentrating on cost issues too early. Once the vendor agrees to a cost, the vendor
has an easier time refusing other issues or re-opening costs if an issue has a cost impact.
• Try to find win-win solutions whenever practical. Once the contract negotiation is over, you will
be in a partnership situation with this vendor. A one-sided win is never successful.
• Request a complete set of product documentation—and arrange for users to read it. This will help
clarify what you are buying in terms of features and functions. Legally speaking, most vendors
specify that what you are buying is the product defined in the documentation—hence the need to
read it.
• Consider a final due diligence product demonstration to respond to any final questions or
concerns you may have about product capabilities before getting too deep into contract
negotiations.
• The terms of the agreement can have financial implications far beyond the price. The following
contract items need to be carefully negotiated.
o Payment terms that reflect pay for performance. Do not agree to pay on a schedule, but
rather by milestones or when a specific task has been accomplished by the vendor
o What/when is final system acceptance (some time after go live, not before system
configuration)
o Maintenance/support fees and inflation clauses
o Price protections
o Fixed fee for implementation? Expense controls/cap?
o Term or perpetual license if using an application service provider (ASP)
• Define performance criteria, remedies, and dispute resolution processes in terms you can
understand and measure.
• Get out your crystal ball—plan for contingencies.
o Is your organization going to change (grow, shrink, refocus, take on new product lines)?
o Ensure the contract has provisions for the vendor to keep the product current with federal,
state, and regulatory requirements, including maintaining certification for federal incentives
o What if the vendor leaves the business (software replacement clause, escrow, etc.)?
• Beware of last minute product substitutions, when vendors push you to buy a newer and better
product than the one you have evaluated. If a newer version is going to be released soon, even
though it may have features you desire, you generally do not want to be among the first to go live
with it. Have the stable version implemented and adopted, then migrate to the newer version.
Some vendors may offer a better deal if you are among the first to implement a new version, but
often, this is not the best deal if you have to struggle to get it implemented, then have to pay more
in implementation overage costs, hire someone to help you, or pay overtime for staff, etc.
• Beware of evergreen clauses (automatic renewals).
• Beware of vendors invoking the Sarbanes-Oxley Act as a payment-scheduling tactic. The
Sarbanes-Oxley Act only relates to vendors posting payments, not to you owing payments.
• Beware that vendors want to front load the payment schedule, while you want a payment
schedule that is, at minimum, tied to performance of the system, or ideally, that backloads
payments. Some tips to consider:
o Vendors typically propose payment terms that call for a percentage of payment down and a
percentage on installation of software. This is effectively calling for a down payment of both
percentages. Installation only refers to installing software on hardware, which may not even
be performed at your location. A down payment and installation fee should not exceed 20
percent.
o Tie payments to key milestones of performance, such as completing system testing, training,
and going live. Avoid tying payment to specific dates, although you may be required to meet
certain deadlines to achieve milestones, or payment penalties may be applied. An
organization can be as much to blame for delays as the vendor, so be sure to hold up your end
of the deal after the contract is signed.
o Hold some percentage of payment (at least 10 to 20 percent) until a period of time after the
go-live date. Ideally for a clinical information system, 90 days following go live or when a
certain percentage of users (e.g., 90 percent) have fully adopted the system.
Approval to Sign
The final step in contracting is obtaining approval to sign the contract. Approval to sign applies to
both the vendor and your office. The salesperson will likely have latitude to negotiate price and terms
within a given range. Beyond that, approval will be required from a sales manager. After all final
elements of the contract are agreed upon by both parties, the final contract must be reviewed and
approved by the sales manager or another person within the vendor organization.
Once the vendor-approved version of the contract is presented to you, you will likely need to have it
approved by your CEO and/or board of directors. Many factors enter in at this point, including
whether financing has been obtained, a grant has been awarded, other capital requirements preclude
approval, or a key staff member cannot be hired. Be aware that the contract usually has a “valid until
date,” after which it will need to be renegotiated. You will want to avoid this, but extenuating
circumstances can preclude approval. To aid the approval process, communicate regularly about
contract negotiation progress and prepare a summary of key terms.
Post Negotiation Tasks
Assuming a successful contract is negotiated and approval is obtained, the contract becomes a living
document that should work for you.
• On the final version of the contract, highlight any changes you have succeeded in obtaining,
major tasks or responsibilities you have agreed to, and key terms/conditions that you feel need to
be closely monitored. Move these to your own implementation plan so you can check them off.
• Review key terms and conditions of the contract with the vendor’s implementation manager/
specialist. Do not assume the implementation manager will have read it. Typically, they are
familiar with the standard contract and may not have read your final contract with special terms.
• Periodically review the contract to refresh your memory on terms, conditions, and special items
you have negotiated. The contract is not a hammer, but it can help clarify issues during disputes.
Copyright © 2011 Stratis Health. Funded by Chiropractic Care of Minnesota, Inc. (ChiroCare), www.chirocare.com
Adapted from Stratis Health’s Doctor’s Office Quality – Information Technology Toolkit, © 2005, developed by Margret\A Consulting,
LLC. and produced under contract with the Centers for Medicare & Medicaid Services (CMS), an agency of the U.S. Department of
Health and Human Services.
For support using the toolkit

Stratis Health  Health Information Technology Services
952-854-3306  info@stratishealth.org
www.stratishealth.org

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Contract Checklist

Before Contract Negotiation

Tasks During Negotiation

Line Number Topic Issue/Concern Vendor Response

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