Tech & Sourcing @ Morgan Lewis

Digital transformation continues to be a buzzword for 2025, with companies considering or implementing new user-facing and back-office artificial intelligence (AI) solutions and other digital tools to enhance end-user experience (UX), business operations, IT infrastructure and resilience, and data flow and connectivity between devices and environments. These digital transformation projects often require project-based resources with specific skill sets that may not be readily available within a company to meet the desired implementation timelines. As a result, many companies engage third-party providers to design, build, test, and/or implement their digital transformation strategies.

These third-party engagements can be high profile, time sensitive, and costly, requiring strong contractual provisions to mitigate risk and incentivize delivery to expectations. While contracts cannot solve all potential failures, they can provide guardrails for common project issues, including insufficient governance, planning and change management, unstructured review and acceptance processes, under-skilled or under-staffed resources, poor communication and training, data conversion issues, and the inability to meet (or a material delay in meeting) specifications and user requirements. It is important to look at both legacy projects—both successful and unsuccessful—to identify risks and mitigations that can be addressed in the contract with the third party.

20 ‘Lessons Learned’ Contractual Provisions

1. Governance: Detailed governance procedures and parameters, including executive roles, committees, meetings (including frequency and topics), reporting, and escalation processes
2. Planning: A “planning phase” timeline and project plan sign-off, an overall (integrated) project plan, and a detailed plan by phase, workstream, milestones, and (if applicable) sprints
3. Scope definition and dependencies: A detailed definition of project objectives, scope, and both functional and technical system requirements; company responsibilities; and third-party dependencies
4. Project change management: A process (including documentation, project impact, and sign-off) for managing project changes; a definition of what constitutes a “billable” change
5. Product updates: Provisions for monitoring and implementing bug fixes, updates, new releases, and upgrades to any base products; responsibility for upstream and downstream impacts, including impacts on in-progress and released functionalities
6. Definitions of key workstreams in addition to planning (Yes, these still apply in “agile” delivery models):
   1. Design
   2. Build
   3. Testing
   4. “Go-live”
7. Stabilization: Process for confirming implementations are stable; make up and timing for hypercare team
8. Hand-off to steady state: Activities to properly hand off responsibility between implementation and support teams
9. Ongoing audit and review: Company’s rights to perform (itself or through another third party) audits and reviews of the project progress and delivery risks
10. Provider staffing: Detailed staffing plan (regardless of pricing mechanisms) by role and number of full-time equivalents (FTEs) per role; the identification of software entitlements required to be provided by the company (if applicable)
11. Company staffing: Details regarding company staff requirements and timing
12. Communications and user change management (often an undervalued workstream): Internal and external communications and readiness activities to adopt and use new technologies
13. Training: Scope of internal and external training responsibilities, including trainers and training content
14. Data responsibilities: Assessment of quality and readiness of company data; documentation of data collection, cleansing, and migration responsibilities
15. Deliverables and milestones: Regardless of the project methodology, detail key deliverables (including ownership and use rights) and key milestones (typically tied to completion of deliverables and other key project activities)
16. Acceptance criteria: Documentation of criteria for acceptance for each key deliverable and key milestone
17. Review and acceptance: Mapping of process if acceptance criteria are not met and appropriate next steps and remedies
18. Pricing: Detailed pricing schedule tied to completion of key milestones and deliverables; consider if productivity commitments should be criteria for payment against certain deliverables
19. Rate cards: Rate cards by role and location to enable adding and removing scope
20. Remedies for missed milestones: Incentives to consider include milestone credits, price reductions, and holdbacks; a remediation plan and performance assurances; and descoping and termination rights

How We Can Help

Our technology and outsourcing lawyers stand ready to assist clients in negotiating contracts for digital transformation projects, as well as renegotiating and terminating troubled transactions. We are well-versed in documenting innovative delivery structures and adapted to address the evolving requirements specific to emerging technologies.