In this article, AURELE IT law firm shares the key elements of a proven negotiation strategy to safeguard your interests in IT contracts with major accounts, especially when you are not in a position of strength.
The Context
In your routine negotiations, you typically set the terms of the contractual negotiation based on your T&Cs tailored to the specifics of your service offering.
However, IT contract negotiations often take place in the context of an unbalanced power dynamic. You may find yourself compelled to accept another party’s general terms and unable to impose your own.
Two scenarios are common:
- You are an IT services company or a software vendor negotiating a contract with your IT corporate buyer based on their general terms of purchase.
- You are a user of a SaaS (Software as a Service), ERP, or Cloud solution, negotiating a service provision contract.
When facing a more powerful counterparty, you may not be able to negotiate everything, but you can focus on strategic clauses, such as the choice of applicable law or the limitations of liability.
The winning strategy involves quickly identifying the most impactful elements in the draft provided by the counterparty and targeting your negotiation efforts on these clauses.
This can be challenging, given the volume of contractual documents and their numerous cross-references to other applicable provisions, potentially accessible online.
Strategic Clauses include:
- Choice of applicable law
- Drafting of the preamble
- Limitations of liability
- Intellectual property
Choice of Applicable Law
The choice of applicable law is the first element to identify in the draft contract to determine the governing law and the competent jurisdiction in case of a dispute over the contract’s interpretation. It is the cornerstone of the contract.
IT projects often have an international dimension. Many market-leading software vendors are U.S.-based and subject their terms to California law, where they are headquartered.
The Stakes of Applicable Law
In theory, the parties are free to choose the governing law for their contractual relationship, which will apply provided it respects the mandatory rules and public policy of the country where IT services are performed.
For example, all corporate accounts, even foreign ones, must comply with France’s payment terms under the Economic Modernization Act (Loi de Modernisation de l’Economie)
In an adhesion contract, any non-negotiable clause determined in advance by one party that creates a significant imbalance between the rights and obligations of the parties is deemed null and void (Art. L441, French Commercial Code).
For all other matters, anything not explicitly stated in the contract will be governed by the applicable law, filling in the contract’s gaps.
Here’s an example of a clause from the T&Cs of a U.S.-based SaaS vendor, providing for the application of California law:
“This Agreement and any disputes arising therefrom shall be governed by the laws of the State of California, without regard to the conflict of laws provisions, and shall be subject to the jurisdiction of the courts (…) located in San Francisco, California.”
What to Do When Faced with Such a Clause?
Your best interest lies in negotiating the application of French law. At AURELE IT, we have observed that foreign vendors often accept this when the financial stakes justify it.
Why Is This Strategic?
Standard Form Contracts
The main advantage of French law is the possibility of invoking rules related to standard form contracts: agreements that contain non-negotiable clauses pre-determined by one party.
The 2016 reform of French contract law extended the concept of “significant imbalance” between the rights and obligations of the parties to B2B:
“In an adhesion contract, any non-negotiable clause determined in advance by one party that creates a significant imbalance between the rights and obligations of the parties is deemed null and void.” (Art. 1171, French Civil Code).
To know more standard form contracts and significant imbalance
If a party affected by such an imbalanced clause brings the matter to court, the judge may declare any clause deemed “unfair” to be null and void within the contract.
The conditions that must be met are:
- The existence of an standard form contract or a set of non-negotiable clauses determined in advance by one party.
- A significant imbalance between the rights and obligations of the parties as represented by the clause.
It should be noted, however, that the assessment of this imbalance cannot concern the main object of the contract or the adequacy of the price to the service.
Damages and Compensation
If your contractual liability is challenged, French law is generally more favorable than U.S. law.
The choice of applicable law is critical when it comes to the amount of compensation awarded by French judges compared to their American counterparts.
In the United States, courts can award punitive damages, which can be substantial and far exceed mere compensation for the harm suffered.
In contrast, under French law, damages are compensatory and strictly intended to cover the actual harm suffered by the injured party.
For example, in the case between Oracle and SAP, a U.S. jury awarded Oracle $1.3 billion for copyright infringement.
Similarly, a federal jury awarded more than $79 million to SAS Institute Inc. in its case against World Programming Ltd for unfair business practices and breach of contract.
AURELE IT can help you rebalance the power dynamics by crafting a strong argument to safeguard your interests in such negotiations.
Drafting the Preamble
The preamble plays a fundamental role, even if it can be challenging to negotiate with large enterprises whose general terms often include binding commitments for the counterparty.
Why Is This Strategic?
The preamble outlines the context and history of the relationship between the parties, as well as the steps leading to the contract’s conclusion (e.g., prior exchanges, commercial proposals, specifications, or negotiations).
This is crucial because, in case of a dispute, a judge can use these elements to interpret the scope of each party’s obligations.
The preamble is also an opportunity to clarify the client’s objectives in using the provider’s services or solution and to precisely define the scope of the provider’s commitments.
Additionally, it can include statements from both parties about their expertise and commitments.
For instance, information about the client’s level of expertise can influence a judge’s assessment of the provider’s duty to advise. Conversely, details about the provider’s expertise, capacity, and commitments can benefit the client.
Example Clause
“The Provider has declared that it has developed specific expertise, know-how, and experience for the services described in this Agreement and, in particular, that it understands the strategic stakes of the program as outlined above.”
A counter-proposal wording that can be proposed by the Provider:
The Provider, as an IT professional, undertakes to deploy all reasonable human, technical, and organizational resources to perform the described services. However, achieving the defined objectives remains contingent upon the active collaboration of the Client and the provision of necessary information by the Client.
Stay tuned as we continue this series with the next strategic clauses: Limitations of Liability and Intellectual Property.
Maître Florence Ivanier
Attorney , member of the Paris Bar
Founder of AURELE IT Lawfirm
External DPO
Email: