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Business Management

Krishna Gopal (Middle East) - Smart Contracting in the Middle East

The first important thing about smart contracting is the difference between technology delivery and contract delivery. In many of the software services companies that I know the delivery director on a project is more concerned about delivering to the technical specifications than to the contract. (Almost as if once contracting is done, s/he will pick out the technical specs annexure out of it and be done with everything else in the document). The difference is vast and is perhaps the key to success in delivering projects, especially in the Middle East region.

Overall, I really don’t know if smart contracting is strictly possible in the Middle East, but over the course of this article I will try to outline some pointers here that may help with the onerous job of negotiating a contract for your company. You will likely find it easier to deal with private companies or those that have stakes from MNCs. They will understand that IT projects cannot be totally boxed in – that there will be scope variations and time line changes, which will have to be paid for. There will be scope for including some defined Change Request clause and there will likely be no pitched battles every time the topic of a CR is raised.

The problem is with government owned entities – Municipalities, Telcos, Utlities, Govt Departments, Hospitals, Oil companies etc. Most of their Contract documents are modelled on civil contracts and have not really been updated to reflect modern day requirements of IT projects. They may engage the services of an E&Y or a PWC to help write the RFP which might look quite professional but come contracting time and they will bring out the old relic. So it may be a good idea to lay your hands early, on a document usually called “The General Terms & Conditions of the Tender”. This will be available with the Purchasing / Procurement department. Get this document and ship it to your Legal team.

Now there are two kinds of Legal people in corporations - those that will always tell you what is not possible and those who will find a legal way to make things possible. Their behaviour is also a function of the stage of life of your company. A growth seeking company will likely have legal teams of the latter kind while a profitability seeking company will have legal hawks of the former kind.  Sit with your legal person if possible (or get him / her on VC) and go over the major points in the document and try and whittle it down to one or max two pages of issues that s/he wants to negotiate on.

This is important because customers in the Middle East hate a completely redlined document. Also once the LoI is awarded there will be serious pressure to start work – “Trust us, your money is not going anywhere. Start the work, we have a deadline to keep.” Given all this it’s best to get some head start on contracting. Some of the likely problematic clauses will be – Performance Guarantees, Commitment on Localization, Pre-screening of resumes, Delay Penalty, Maintenance Obligation & Period, Governing Law, Arbitration, Limitations of Liability, Financial Bonds to be submitted, Termination and Step In, Non Compete and Non Disclosure.  This should be done in parallel once you get a sense that you are in the top two or three in the RFP process and that there is a real danger (sorry chance) of winning the deal.

In the Middle East the culture is one of relationship and developing trust. In a relationship between supplier and customer, the need to take out a contract signals the beginning of the end of the relationship. Hence it’s important to build deep relationships at the executive management levels and / or at the Board. It is also crucial to set up a formal steering committee to resolve contentious issues during the project implementation. I have seen this to work well especially if the right stakeholders participate.

At the end of the day in the Middle East it’s more Smart Relationships than Smart Contracting that wins the day!

By Krishna Gopal, Independent Consultant in the Middle East and Africa. Follow him on Twitter @krishg40 or read his regular blog here.

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