Optimize > Customer Contract Management

Why

Contracts are inevitable for any business when signing on new customers or partners. Also, Service-Level Agreements (SLAs) are increasingly becoming a critical component of any technology product vendor contract. Typically, an SLA defines the level of service a customer expects from a product vendor. It lays out the metrics by which service is measured, as well as remedies or penalties for agreed-on service levels that are not achieved.

Proper contracts help product managers to manage customer expectations and define the severity levels and circumstances under which they are not liable for outages or performance issues. This strategic activity is required to properly manage contract creation, execution, and analysis (with customers, vendors, or partners). It maximizes operational and financial performance at a product company, all while reducing business risk.

How

• Authoring Contracts: Customer contracts (e.g. SLA) should include not only a specification of the services to be provided and their expected service levels but also metrics by which the services are measured. It also includes the duties and responsibilities of each party, the remedies or penalties for breach, and a protocol for adding and removing metrics. Metrics should be designed so bad behavior by either party is not rewarded. Once authored, contracts must be reviewed by legal counsel.
• Negotiating the contract and Acceptance: Negotiation often occurs simultaneously when authoring the contract. Discuss the terms and conditions with the customer and decide on a mutually agreeable set of promises and obligations.
• Ensuring Compliance: The product manager or business owner must ensure that all the terms and conditions in the contract are being met by both parties when the contract is in force.
• Revisions and Amendments: Sometimes, one or both parties bound by the contract deem it necessary to change its terms or conditions. In these instances, a new contract is issued.
• Auditing and Reporting: Monitoring tools should be in place to automatically capture SLA matrices performance data, which provides an objective measure of contract performance. Depending on the service, the types of metrics to monitor may include: Service availability, Defect rate, Technical quality, Security and Performance
• Renewal: As businesses change, so does its service requirements. It is required to periodically review and renew the contracts. It may be required to repeat the contract process to ensure that everyone is on the same page about compensation, terms, and conditions.

It’s crucial to make customer contract matrices visible to product teams across the organizations. Third-party vendor partnership contracts and product architecture itself needs to be aligned to ensure the key quality attributes agreed in customer contracts.

References

• The Fundamentals of Contract Management
• Contract Management Basics
• Service-Level Agreement SLA
• [What is an SLA? Best practices for service-level agreements] (https://www.cio.com/article/2438284/outsourcing-sla-definitions-and-solutions.html)