CONTRACT STRATEGY AND NEGOTIATIONS March 8, 2011

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Seattle Grace Hospital

Contract Strategy & Negotiations
For
Website Development Project
D1KLM Innovative Solutions Team
Deysi Sulaj
1acob Frimpong
Kerry Heinecke
Lyndia Hayden
Malvi Patel


Tuesday, March 8, 2011




CONTRACT STRATEGY AND NEGOTIATIONS March 8, 2011

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Table of Contents
1 Contract Negotiation Key Criteria................................................................................................................ 3
2 Best Alternative to a Negotiated Agreement ................................................................................................... 6
3 Risk & BeneIits .............................................................................................................................................. 7
4 Warranty ........................................................................................................................................................ 9
5 Source Code Escrow ..................................................................................................................................... 11
ReIerences ................................................................................................................................................... 13













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Contract Negotiation - Key Criteria
Seattle Grace Hospital (SGH) expects MedWeb Designs, Inc. (MedWeb) to be a partner and not just a
service provider. ThereIore, the negotiation process will be about negotiating an agreement that provides long-
term success Ior all parties while contributing to the relationship-building begun during the selection phase.
However, SGH will take all steps to ensure that any agreement with MedWeb is based on the critical areas
identiIied by the selection process. The contract agreement should ensure that SGH is protected and that any
promises made or inIormation provided by MedWeb is part oI the Iinal contract. Responses to the RFP will be
included as an exhibit in the contract.
Three essential items that SGH need Irom the agreement are outlined in the table below:
Item Description SGH Need Importance
Ownership of Data Determination oI
who owns data in
the Application
Service Provider
(ASP) model
All data and templates
provided by SGH to
MedWeb Ior purposes oI
the agreement together
with other content
developed by or Ior SGH
should be and remain the
property oI SGH. The
agreement should ensure
that SGH can retrieve its
data upon the termination
oI services and should
include the processes and
costs involved in retrieving
data. MedWeb should
agree to help SGH
transition to another CMS
system, iI SGH decides to
do so.

O Ensure
ownership oI
data and
business rules
remains with
SGH
O Protect SGH
data and other
proprietary
inIormation
O Ensure Iuture
retrieval, iI
needed
O Interoperability
with new CMS
system

Security and Privacy












Protection oI data
against unauthorized
disclosure,
alteration,
restriction, or
destruction and the
right oI SGH and its
partners to be sure
that the conIidential
inIormation
MedWeb maintains
is being controlled
and protected Irom
The agreement should
require that SGH data be
physically separated Irom
the data oI other ASP
users, on separate drives or
computers, and that
appropriate Iirewalls be
established to prevent other
users Irom accessing SGH
data. Any agreement Ior
MedWeb`s use oI the data
should speciIically state
how the data will be used
O Regulatory
compliance
O Protect SGH
data and other
proprietary
inIormation
O Build trust with
SGH
constituents
O Business
continuity oI
SGH
O Maintain
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Security and Privacy
(continued)
unauthorized access
or distribution.
and give SGH the right to
review, audit, and approve
their use oI the data. SGH
should have the right to
have MedWeb hosting
environment audited by a
third party designated by
SGH. MedWeb must agree
to comply with all
applicable state and Iederal
laws or regulations
including but not limited to
HIPAA Privacy Rule.

SGH`s
competitive
advantage
O Ensure data
quality and
integrity
O Avoid lawsuits
Service Level
Agreements (SLAs)
A deIinition oI
services,
perIormance
measurement, and
problem
management
SLAs guaranteeing that the
MyGrace portal is
available at least 99.9 oI
the time, and providing
SGH with timely and
appropriate responses in
case oI system issues or
downtime. Responses must
include periodic updates
during such downtime
regarding MedWeb`s
progress in remedying the
situation and well as the
estimated time at which
SGH`s website shall be
restored. SGH must be
eligible Ior service credit
(an amount equal to the
pro-rata Monthly Service
Fee Ior one-halI day oI on-
going support service) in
respect oI each such
interruption.
O Availability
and access to
SGH data and
inIormation
O Adequate
support and
maintenance

Other areas that are important to SGH and deserve careIul attention during negotiations include:
1. Website Design and Set-Up - MedWeb, with the assistance and input Irom SGH, shall use their CMS
Toolset to build SGH`s MyGrace portal. MyGrace shall display the Iunctionality and Ieatures set Iorth in
the RFP and Scope oI Work. MedWeb shall work in good Iaith to meet the project timeline and achieve
the milestones set Iorth in the RFP.

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2. Cost - The contract should include the total cost, payment schedule, and/or Iinancing terms. SGH shall
withhold 25 oI payment until two months two months aIter the 'go-live date. There will be no costs
associated with accepting new bug Iixes, releases and versions Irom MedWeb.

3. Customization - SGH`s position is that there will be no additional costs incurred with each release to
re-apply the customization.

4. Merger or Acquisition SGH should be permitted to assign the agreement to an aIIiliate or to a
successor entity in the event oI a merger, acquisition, or sale oI all or substantially all oI its assets.

5. Acceptance Testing SGH should have Iourteen (14) business days oI receipt oI deliverables to test
and report problems with deliverables. II MedWeb is notiIied oI problems within 10 business days aIter
receipt oI a deliverable, they should address the reported problems in a revised deliverable within 30
days. SGH will then have an additional Iourteen (14) days to report that all issues have been resolved by
the revised deliverable.

6. #egulatory Compliance MedWeb must agree to comply with all applicable state and Iederal laws or
regulations including but not limited to HIPAA Privacy Rule.

7. Disputes #esolution & Governing Law The agreement shall be governed by and construed in
accordance with the laws oI the State oI Washington, without giving eIIect to its principles governing
conIlicts oI law. Any dispute arising out oI or in connection with the agreement shall be adjudicated
exclusively in the state or Iederal courts located in Seattle, Washington.

8. Training MedWeb should provide Iour (4) weeks oI onsite training (2 weeks prior to go-live and 2
weeks aIter go-live) to SGH technical and/or business personnel regarding the use and operation oI the
MyGrace web portal.

9. Support and Maintenance - Beginning on the go-live date oI MyGrace, MedWeb shall host, support
and assist SGH in its operation oI MyGrace and shall continue to provide services during the term oI our
agreement. The support provided by MedWeb should consist oI a minimum oI twenty (20) hours per
month oI website administration, enhancements, and HTML/CSS development. Designated staII Irom
MedWeb should be available 24/7, and 365 days/year via phone, email, and instant messaging.

10.Transaction Volume Agreement should not include a maximum storage space allocation, including
the backup and oIIsite storage and tape retention thereoI, within the hosted environment Ior the CMS.
There should be no costs associated with transaction Iees, and any price reductions or increases that can
be expected as volumes increase.
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Best Alternative to a Negotiated Agreement

When taking a look at the changes that Seattle Grace Hospital would like to include in the negotiated
agreement it would be necessary to understand why there is such an interest Ior change. The purpose oI
negotiation is not always to reach an agreement . Ior an agreement is only a means to an end. the purpose oI
negotiation is to explore whether you can satisIy your interest better through an agreement than you could by
pursuing your Best Alternative to a Negotiated Agreement (BATNA) (Ury, 1991). In the process oI using the
BATNA it is important to Iirst identiIy it. Three alternatives should always be considered prior to negotiations
that way when you are at the table you know which 'better alternative to use. As the saying goes, there is
always room Ior improvement the same implies with the BATNA once it is identiIied and developed, it is
always good to improve the BATNA as it is utilized. Think beIore speaking when negotiating because it may or
may not require the use oI the BATNA. Sometimes negotiating will not work towards MedWeb`s beneIit so
think beIore using the BATNA. When looking at the whole negotiation strategy it is important to also learn
what the other side`s BATNA is. Listening to SGH`s story allows MedWeb to set perceptions and expectations.
While looking SGH`s key points that require negotiation the SLA is one component oI the contract that
is important to SGH. As Briggs (2003) points out one oI the biggest issues with SLA`s is to negotiate an SLA
and to enIorce it. When looking at the tactic and using the BATNA it will require MedWeb to listen closely at
what SGH would like enIorced with the SLA components. The SLA states an uptime percentage oI 99.9 and the
use oI credits or payment when the site undergoes downtime time. SGH stance on this should be to negotiate
and use the BATNA. In this case SGH`s BATNA could be a quicker response time to the hospital website`s
slowness or downtime. Simply because as a hospital what is important is that the website works and patients,
clinicians and employees can use this type oI technology to perIorm their daily work. MedWeb should enIorce
and emphasize that they will be readily available to troubleshoot when the website undergoes slowness and or
downtime.
The level oI security and measures taken to optimize the use oI the website is another negotiating key
point within the contract. It is important to ascertain that the data is secured at all times and Ior how long. The
length oI time is important to know as hospital due to expansion oI systems and expansion oI use oI the
MyGrace site. Once the inIormation technology department expands also SGH would like to maintain their
own secure server this point must be added to the contract.
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The third key point SGH is looking to negotiate the ownership oI data once services are terminated with
MedWeb. The ownership oI data is a crucial point to negotiate because at this point the data and projects
internal and external components and the use thereoI will belong to SGH. Knowing when the plan Ior MedWeb
termination oI services at the time oI negotiation and contract signing may not be known. There should be a
general statement oI SGH imbedded in the contract that stipulates such an agreement. The BATNA here is that
even though MedWeb has helped in the transIormation oI the data and the enhancement oI the data to the
MyGrace portal its use and contents do pertain to SGH.
Risk & Benefits
William Ury (1991) describes breakthrough strategies in 'Getting Past No: Negotiating in DiIIicult
Situations. One oI the strategies is to Go To the Balcony, literally or Iiguratively. Ury recommends that
people should not react immediately to positive or negative situations because reactions can lead to regret. In a
negative situation, it might seem natural to strike back or break oII communication. This can be a costly
mistake. Instead, they should step back, collect themselves and view the situation objectively. The method oI
stepping back may be pausing and taking time to think beIore you speak, or it may be done physically by taking
a short break to gather your thoughts during tense moments oI negotiation. Below is an example oI actions that
had drastically diIIerent results. Although the action was the same in both scenarios, the result in the alternative
situation displays how staying calm and viewing the situation objectively could yield positive results Ior both
parties.
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There are risks and beneIits when you Go To The Balcony`. In the scenario above, SGH`s CIO knew
that it was a risk to counteroIIer on all three issues. However, he knew that he had to take a stand on his
interests, which were to get the optimal, most cost eIIective solution in terms oI support, the contract term and
maintaining workIlow integrity. Another risk could be taking a time out` when time is oI the essence. Going
to the Balcony in this case might set a negative tone and lead the other party to think that SGH is indecisive or
unreasonable.
This strategy is beneIicial because it exercises caution Irom acting impulsively, and it promotes
compromise. Compromise is important because it reinIorces that the contractual agreement is satisIactory to
both parties. When both parties are happy with the contract, it will lead to a healthy business relationship.
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Two other approaches to negotiating an SLA would be to:
O Don`t Argue: Step To Their Side
4 Disarm the person by deIusing hostile emotions; get them to hear your point oI view by doing
the opposite oI what they expect
4 Listen Actively
4 Acknowledge Their Points
4 Agree Without Conceding
4 Build A Working Relationship
4 Express Your Views Without Provoking
Don`t say 'yes, but..say 'yes, and
Make 'I statements, not 'You statements
Acknowledge DiIIerences With Optimism

O Don`t #eject: #eframe
4 Redirect the other side`s attention away Irom positions
IdentiIy interests
Invent creative options
Discuss Iair standards
4 Treat hard-line positions as an inIormative contribution to the discussion
4 Ask Problem Solving Questions
Why
Why Not
What II
Ask Ior Advice
Why Is That Fair
Make Questions Open Ended
4 ReIrame Tactics
Go around Stone Walls ignore it, reinterpret it or test it
DeIlect Attacks reIrame as an attack on the problem to be solved jointly
Expose Tricks ask clariIying questions to turn tricks to your advantage
The Turning Point Changing the Game

Warranty
A warranty is a promise by the vendor to stand behind their product. (Warranties). 'Vendor
accountability is central to assuring that the vendor`s business interests require it to deliver on the promises it
has made. (Overly and Kalyvas, p.9). In reviewing the provisions, SGH discovered issues within the
warranties. The contract also lacks basic warranties Ior a soItware agreement. The issues and lack oI warranties
could potentially create roadblocks in the success oI MyGrace. SGH has decided that the warranty section oI
the contract will require revisions to ensure the appropriate accountability. SpeciIic revisions are needed in the
Iollowing provisions.
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First, the statement in section 1.13 conIlicts with MedWeb`s RFP response because it says that the warranty
period means thirty (30) days Irom the date oI acceptance. It will need to be changed to: 'warranty period
means 12 months Irom the date oI acceptance. Under the Warranty Ior System, the MedWeb RFP response
reads: 'Medweb guarantees that our design and soItware products are Iree Irom deIects Ior a period oI one year
aIter installation.
In provision 7.2, MedWeb does not warrant that their product will meet all oI SGH`s requirements.
Additionally, they did not use the phrase 'except as provided in 7 to recognize that there are requirements they
will meet in the agreement. II this clariIication is not included, then the MedWeb is not assuming any liability
oI the soItware iI there are issues. This type oI disclaimer creates risk that SGH will avoid.
Provision 7.3 is inappropriate because it uses the general disclaimer language such as warranty oI any
kind` in the exclusive warranty. This language can undermine or conIlict with other warranties in the agreement
(Overly and Kalyvas 54).
The next provision, 7.4, is also inappropriate. By using the as-is` phrase, it becomes a general type oI
disclaimer and can conIlict with other warranties in the agreement. (Overly and Kalyvas 54). It jeopardizes
other warranties Ior SGH.
MedWeb`s soItware must comply with all state, Iederal laws and any third party requirements. Provision
7.5 states that MyGrace will not comply; however, both MedWeb and Seattle Grace Hospital must assume the
responsibility to comply with laws and regulations. It is not the sole` responsibility oI SGH. Also, the MedWeb
must comply with the privacy requirements oI the health insurance portability and accountability act
('HIPAA) since MyGrace will contain conIidential, private patient inIormation. 'The OIIice Ior Civil Rights
enIorces the HIPAA Privacy Rule, which protects the privacy oI individually identiIiable health inIormation;
the HIPAA Security Rule, which sets national standards Ior the security oI electronic protected health
inIormation; and the conIidentiality provisions oI the Patient SaIety Rule, which protect identiIiable inIormation
being used to analyze patient saIety events and improve patient saIety (Health InIormation Privacy).
Compliance to HIPAA must be added to provision 7.5 since this is a regulatory standard.
Furthermore, Seattle Grace Hospital`s Statement oI Work included how MyGrace would provide secure
patient health inIormation. This service oI MyGrace, and the compliance oI it, remains a priority.
It was noted that MedWeb neglected to add eight (8) basic warranties that are necessary beIore SGH can
agree to the contract. The additional types oI basic warranties that must be added to this contract include:
1. PerIormance: SoItware will perIorm in accordance to all speciIications listed in MedWeb RFP
Response.
2. Services: Services including installation, implementation, support will be provided in a timely manner in
compliance with the industry`s best practices.
3. InIringement oI Intellectual Property: The soItware will not inIringe the intellectual property rights oI a
third party.
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4. Viruses: The soItware will be Iree oI viruses and other destructive programs.
5. Disability Mechanisms: The soItware will not contain any lock up mechanism or time bomb. The
licensee`s data will not become unusable or inaccessible.
6. Third Party SoItware: All third party soItware, iI any, will be delivered to the Seattle Grace Hospital by
MedWeb.
7. Authority: The MedWeb has the suIIicient authority to grant the rights that are included in this
agreement.
8. Litigation: There is no pending litigation that involves MedWeb that would prevent the licensee`s right
to use MedWeb. (Overly and Kalyvas 54).
The process oI reviewing warranties was important. The review went Iurther than checking oII the types oI
warranties provided by MedWeb. It was necessary Ior SGH and Seattle Grace Hospital to pay speciIic attention
to how the warranties are worded, which warranties are absent and the possible consequences.

Source Code Escrow
Source code escrow reIers to depositing the vendor`s (MedWeb Designs, Inc.) soItware source code into
an account, which is held by a third party. Seattle Grace Hospital (SGH) has put this stipulation in their
soItware development and maintenance contracts with the MedWeb. This protects SGH`s investment by
allowing them to make necessary modiIication to the code in order to support and maintain the soItware in the
event MedWeb Iiles Ior bankruptcy or otherwise stops maintaining, updating, and supporting the soItware. It`s
especially important to do this when the soItware is critical to the operation oI the business (Overly & Kalyvas,
2004).
There are two types oI code generated when soItware is developed: object code and source code. Source
code reIers to the human-readable Iorm oI the logic built into the soItware. It`s typically written in
programming languages such as Java or C. AIter the programmer completes writing the source code, it is
then compiled into machine-readable code called object code. This code cannot be read and understood by
humans. ThereIore, providing the source code is what SGH will need to make any changes or updates to the
soItware. This is the code that goes into escrow in the event that MedWeb no longer supports or maintains the
soItware (Silver, 2002).
Either the vendor or the licensee can select the escrow agent. OIten a vendor will work with a particular
escrow agent who handles all oI their customer`s requests Ior escrow. That can make the contract and
negotiation easier since the agent is Iamiliar with the vendor. In this project, SGH will allow MedWeb to select
the agent iI they pay the escrow Iees, which is typically approximately $1000 2000 per year. MedWeb is then
responsible Ior keeping a current copy oI the soItware in the escrow account whenever a new release is
available Ior distribution (Silver, 2002).
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Seattle Grace Hospital has included the Iollowing inIormation into the soItware contract (Silver, 2002):
O Procedures Ior depositing and handling the source code (how oIten, what constitutes the need Ior a new
version to be deposited, who handles it, how it`s stored, etc.).
O Procedures Ior releasing the code aIter a qualiIying event occurs (how the parties oI notiIied oI the
pending release, timeIrame allowed Ior response Irom either party, legal recourse available, etc.).
O The events that will qualiIy SGH to remove the source code Irom escrow. For example: MedWeb Iiling
Ior bankruptcy; MedWeb breaching the license agreement; acquisition or merger oI MedWeb that
creates a new company that may or may not support the soItware; MedWeb Iailing to upgrade or
maintain the soItware as agreed upon.
O Procedures Ior release oI source code (what SGH is allowed to do with it and how it should be handled
with regard to conIidentiality).
O Force Majeure clause that allows either party out oI its obligations to the contract due to events beyond
its control such as war, acts oI God, Iire, explosions, etc. SGH has an interest in limiting these events to
avoid MedWeb Irom backing out oI its contract obligations.













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References
Briggs, L. (2003). 7 Ideas for negotiating a smarter SLA. Retrieved Irom
http://www.sourcingmag.com/content/c050515a.asp
'Health InIormation Privacy. The U.S. Department of Health & Human Services. The U.S. Department oI
Health & Human Services, n.d. 1 March 2011. http://www.hhs.gov/ocr/privacy/~.
Overly, Michael and James R. Kalyvas. Software agreements line by line. Boston: Aspatore Books, 2004.
Silver, J. (2002). How a software escrow agreement protects you and your business. Retrieved Irom
http://law.Ireeadvice.com/resources/articles/soItwareescrowagreement.htm
Ury, William, Getting past no. Negotiating in difficult situations. NewYork. Bantam Dell, 1991.
'Warranties. Federal Trade Commission. Federal Trade Commission, Ocober 2001. Web. 3 March 2011.
http://www.Itc.gov/bcp/edu/pubs/consumer/products/pro17.shtm/