Tech collaborations need co-operation-minded contracting, says expert

Out-Law Analysis | 23 Jun 2016 | 10:32 am | 4 min. read

FOCUS: Businesses seeking to enter into collaborative arrangements need to embrace contract and negotiation approaches which support achieving the benefits of co-operative working.

The range of events taking place during London Technology Week this week serves to highlight the desire major organisations have in harnessing new technologies to create innovative products and solutions, in response to digital disruption and other market challenges. Collaboration is increasingly being viewed as a means for businesses to achieve this.

However, organisations looking to maximise benefits of collaboration and reduce time to market would be well advised to avoid a number of common stumbling blocks frequently encountered in establishing co-operative arrangements.

Be wary of recycling standard sourcing contracts

In many cases businesses looking to work with others hastily convert old sourcing contract templates, presenting them as the intended basis for effective co-operation.

The problem, however, is that those contracts tend to have unbalanced risk positions, showing many of the risk and reward characteristics of traditional customer-supplier procurement. Organisations' enthusiasm for co-operation can quickly diminish when faced with a range of often inappropriate delivery guarantees, indemnities and one-sided liability-limitation clauses. Equally, these 'legacy' contracts often contain lengthy sections on topics like acceptance testing and remedial plan processes, which in a collaboration context often do not reflect operational practice.

Contract negotiations based on those templates can, at best, be drawn out. These contracts can frequently cause collaboration partners to begin their new relationships on the wrong track, needlessly destroying project momentum and prospects.

Next generation collaboration contracts are required instead. By adopting a more measured approach to commitments and risks, contracts can be developed which empower the parties to work together.

Avoid analysis paralysis

Another common fault that can occur at the beginning of collaborative projects is for the parties to seek to deal with every potential outcome in significant detail at the outset. Very often this will not be possible and if parties become entrenched in this approach it can readily delay or even prevent the commencement and realisation of collaboration initiatives.

For example, imagine a scenario where companies are looking to work together to innovate and create a new product based on initial ideas. At the outset, the development may still be at an embryonic stage, with little certainty as to how the initiative will pan out. In those circumstances, seeking to agree very detailed related commercialisation arrangements may be futile, raising too many questions that cannot yet be answered.

Collaboration partners may find it more productive to come to the negotiating table at the outset of their projects with a focus on contracting only for initial co-operation activities. Agreed stages can be incorporated for analysing results and re-aligning the parties' commitments and expectations through contracting for later stages. As collaborative arrangements mature, the parties will be in a much more informed position to take robust contracting decisions at those later stages.

Whilst long term certainty right from the outset has obvious attractions, collaborating businesses and their contracting approaches should take into consideration the realities of dynamic development work.

Never lose sight of the aims of the collaboration

One issue that often arises in establishing co-operation arrangements is that the people drafting and negotiating contracts on behalf of the parties push for contract positions inconsistent with the collaborative business aims.

This can happen because the people negotiating collaboration contracts either never have sight or lose sight of the aims and benefits of the collaboration. Equally, some representatives fundamentally struggle to step outside the comfort zone of their traditional negotiating positions, founded in more traditional sourcing contract backgrounds.

This might mean that the parties can reach positions where the taking of any contractual risks or sharing of any benefits faces heavy resistance. Avoiding this can require some change in mind-set but also improved team governance. For example, negotiating teams need to be suitably briefed by the respective businesses on what the parties are willing to invest to get projects off the ground. It should not be assumed that the legal and commercial team implementing the contractual basis simply 'get-it'.

The need for clear contracting and providing for things that can get overlooked

Successful collaborations will generally require companies to embrace a more progressive approach.

However, this does not mean that there is not a need for contracts to be clear on major issues. Provisions on matters relating to employee safety, confidentiality, intellectual property ownership, any commercial exclusivity periods and royalties should, for example, be unambiguous. Parties should also consider related issues, such as on-going management of arising intellectual property, so that their collaboration contracts provide a firm basis for required aspects of the relationship.

Some issues are frequently overlooked. For example, if it is expected that collaborations will spur inventions, then it will be important to specify clearly in the contract which of the collaboration partners will be responsible for paying patent application costs and any compensation due to inventor employees. Not dealing with those issues before they arise can cause difficulties later.

Ultimately, it is important that the contract sets the right balance to encourage productive behaviours within collaborations. Whilst flexibility is one part of the equation, the other is the certainty of knowing 'where you stand' on issues of real business sensitivity.

Successful collaboration relies on trust and, however clichéd it sounds, the commercial drivers of realistic 'win-win' expectations. Parties will also need to ensure they navigate the constraints of competition law, although market practice and regulatory guidance is increasingly reflecting that there is huge potential for co-operative working. The right approach to constructing and agreeing a contractual basis for collaboration nevertheless remains absolutely vital in helping the parties realise their combined business potential.

Michael Horn is an expert in collaborative contracting at Pinsent Masons, the law firm behind Out-Law.com.