Be partners, not rivals: to ensure your important needs are met, work collaboratively in the contract negotiation process.

The contracting process for mission-critical behavioral healthcare software can go one of two ways. The focus can be on developing a long-term, mutually beneficial relationship between the provider and vendor, or it can focus on balancing conflicting priorities and have the potential to be based upon mutual distrust. Obviously the first option is preferable, and achieving a win-win result involves understanding the true costs, risks, needs, and benefits for both parties.

Each Party's Goals

The provider's objectives. As a provider, you want functional, reliable mission-critical software that integrates seamlessly into your operating environment. It must help you maintain full legal compliance. You want a competitive price with minimal risk. You need not only a successful implementation but also responsive support going forward.

To ensure that your priorities are addressed, you should reevaluate your fundamental reasons for purchasing software and for selecting a particular vendor. Honestly evaluate your preparedness for a major software implementation, which requires a significant commitment of time and energy by the organizational leadership and the IT, billing/financial, and clinical staff. It also requires a positive, mutually supportive working relationship with the vendor. The first step in building that relationship is the respectful negotiation of a fair agreement.

The vendor's objectives. To achieve a win-win result, you should recognize the vendor's goals and limitations in the negotiation process. All reputable vendors are interested in covering their costs, earning a profit, and satisfying customers, thereby building goodwill and strengthening their reputation. Additionally, vendors want to build their business, avoid unnecessary risk, and protect their deep investment in intellectual property.

Key Elements of an Agreement

Below are some of the key elements to keep in mind when negotiating a mutually beneficial agreement. These are areas where knowing your and the vendor's goals is particularly important.

Implementation. During the software selection process, the vendor should provide you a comprehensive proposal, which can be an attachment to the agreement. The proposal should clearly detail the vendor's normal implementation methodology, identify all vendor and customer responsibilities, and discuss potential issues along with their recommended solutions. Any major implementation is truly a team effort, with both the vendor and provider diligently working toward a successful outcome.

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With a project as complex as implementing a software system, it is important that the software license and implementation services agreement be adequately detailed. These details usually are provided in an implementation plan incorporated into the contract. Each recommended service and any related travel costs should be addressed. The responsibilities for equipment selection, installation, and configuration should be identified. Commitments and limitations on data conversion should be noted, as well as training arrangements for administrators and users. The agreement should provide a mechanism for the provider to accept the software once operational and identify responsibilities for correcting any problems.

Almost all software agreements include disclaimers of warranties and limitations on damages that may be paid to a customer in the event of a failed implementation. In some cases, particularly large procurements, a powerful customer will insist on penalty provisions that are so severe (and sometimes so arbitrary) as to require a vendor to place its entire business at risk if the customer is dissatisfied. This threat of annihilation has two unintended consequences. First, a disproportionate penalty often means no penalty (Would you impose the death penalty for a speeding ticket?). Second, it means that the vendor's primary focus will be on protecting itself from a potential lawsuit. Instead of working with you to address the inevitable problems that accompany a complex software implementation, the vendor will play defense to avoid the threat of catastrophic litigation.

Maintenance and support. Once implementation is complete, your relationship with the vendor turns to ongoing maintenance and support. The agreement should address the ongoing correction of problems, clarify the vendor's obligations, and detail the extent and limitations of prepaid user support. If the agreement provides rights to future updates, enhancements, and/or new versions of the software, those terms should be defined, and any limitations on those rights should be articulated clearly.

Payment. Payment terms for the initial software license; rights to updates, enhancements, and new versions of the software; software maintenance services; customer support services; travel reimbursement; etc., should be clear and cover foreseeable contingencies. If any products and services are offered at a fixed price, the agreement should detail when and under what circumstances the vendor will be reimbursed for additional services.

The Role of Attorneys

As with any major agreement, the provider's attorney should thoroughly review the agreement. The attorney needs to understand behavioral healthcare operations as well as the shared risk inherent in this type of agreement. If the attorney will negotiate the deal, the provider should let the vendor know and involve him/her from the outset. Doing so will speed negotiations and possibly reduce legal fees. If the attorney is involved only after the negotiations, the vendor likely will reserve the right to modify the financial terms in the event of a significant shift in risk provisions.

The Problem With Positional Bargaining

The provider-vendor relationship and a successful implementation can be threatened if one or both of the parties engages in "positional bargaining" (e.g., I say 10, you say 1; I say 8, you say 3). Positional bargaining changes the discussion. The focus is no longer on identifying each party's concerns and interests, and then working to address those to the extent possible. The struggle itself may create distrust and kill the relationship. The party with more relative power could get the other side to agree to unfavorable terms, which may put the other party's entire business at risk if something goes wrong. Instead of building a mutually beneficial long-term relationship dependent on each party's stability and availability, the negotiations ultimately could result in the loss of an important business partner.

An example of counterproductive positional bargaining would be a provider shifting risk to a vendor via a fixed-price contract with no room for adjustment in the event of unforeseen circumstances. In the short term the provider might spend less, but the vendor will be motivated to forgo some implementation services to improve its profit margin; the provider's recourse primarily depends on the vendor's ethics. This approach impacts both parties' ability to rapidly address, at a minimal cost, the problems that arise in all implementations. The end result could be long-term problems with extensive remediation costs.

While giving the appearance of being savvy, such zero-sum tactics merely paper over the fact that all implementations run into a few challenges. However, every challenge can be met and overcome by the motivated, involved action of both parties. But the two need to act as partners rather than rivals. The provider and vendor are better served if negotiations focus on contemplating these challenges and agreeing in advance to solutions for all common exigencies.

Any successful implementation is achieved by a provider and vendor working together. That partnership begins with a comprehensive and clear agreement that recognizes the needs of both parties and prepares for any issues ahead of time. By working as partners, a long-term bond is forged and both parties can grow to greater success.

Paul Litwak is a member of the American Health Lawyers Association and the International Technology Law Association. Much of his career has related to the development and operation of health and human service systems and managed care programs for persons with mental illness, chemical dependency, or developmental disabilities. His experience includes service as deputy commissioner and general counsel for the New York State Office of Mental Health and executive vice-president and general counsel of Preferred Health Care, Ltd., one of the first behavioral health managed care companies.

Michael Morris is President of Anasazi Software, Inc., which he co-founded in 1989. He also is the Chair of the Software and Technology Vendors' Association. For more information, e-mail [e-mail].

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members of the Software and Technology Vendors' Association (SATVA) examine information technology trends impacting the behavioral health field. The views offered here do not necessarily reflect the official views of SATVA and its members. For more information about SATVA, visit www.satva.org.