The "Gag Order" in Tech Contracts

Periodically my firm will be working with a client where the vendor will subtly or not so subtly hint the client is subject to a "gag order" - they cannot share contract or product information with outside advisers without onerous NDAs from the advisers.

Ray Wang of Forrester highlights on his blog "bullying" tactics some vendors have been using. Tom Wailgum covers the topic at CIO.com. They focus on software vendors, but I have seen it come up with every variety of tech vendor.

My recommendation to buyer organizations is:

a) In every technology evaluation (way before you get to negotiations with the short-list), be clear to all the vendors that you may choose to involve external advisers or attorneys. For incumbent vendors, include an annual renewal statement which states the same. If a vendor has an issue with that they can disqualify themselves from your business. Trust me, few will.

b) Benjamin Kern in the technology practice at the law firm of McGuire Woods advises "Independent of a vendor's restrictions, Customers should always ensure that any third party exposed to confidential information is subject to an agreement governing protection of confidential information". That NDA should provide comfort to most vendors.

c) If a vendor still insists on its own NDA with the third party, make sure it is tightly constrained. Since technology contract pricing and terms change more rapidly than prices in the bazaars of Cairo or in oil futures, don't agree to NDAs which are not localized or valid beyond 60 to 90 days.

d) Specific to attorneys, Benjamin also mentions "A vendor who pressures a client not to use a lawyer may end up with an unenforceable contract.  Courts can refuse to enforce a contract based on a number of equitable principles, primarily focused on unequal bargaining power, unfairness or unconscionability."

e) Turn the tables on the vendor - and tell them you want visibility to and customized NDAs from their advisers. With their 30 to 50+% in SG&A spend they most likely have a higher concentration of external consultants and attorneys helping them than you do.