A complete review and Tips for technology tranquility.

By: jitender

1. ISSUE: DATABASE MARKETING

Technology is making the database marketing and mining business huge. Computer systems facilitate speedy handling of millions, even hundreds of millions, of data entries. This can provide supplemental income for organizations with valuable databases.

Trap: Some database marketers and miners may not voluntarily disclose the ways they want to use the association's data. They also may not make the organization aware of all third parties and corporate affiliates with whom they want to share the data. Similarly, they may not disclose how they outsource data handling tasks. Not being mindful of these issues could cost the group money and harm relations with members.

Tip: Ask the database marketer or miner questions early and often. Also seek input from the company's customers and an attorney with experience in this area.

2. ISSUE: CD-ROM DEVELOPMENT AGREEMENTS

Organizations planning new CD-ROM products and services may sign up with developers that lack the staff or software to do the job effectively. As a result, organizations may be subject to copyright infringement lawsuits, cost overruns, sloppy products, and user complaints.

Trap: By overlooking the need for due diligence in dealing with CD-ROM developers, the association can end up spending twice as much as budgeted for the project and still be unhappy. Defending against copyright infringement litigation alone may cost more than the product.

Tip: Investigate CD-ROM developers and their software ownership rights. To protect the association's rights, get a written CD-ROM development agreement. Consider a related toll-free support agreement with the same or a different company so that members have a place to turn if they have problems with the product, and be sure the association owns the toll-free number.

3. ISSUE: OUTSOURCING TECHNOLOGY

As technology moves faster and increases in complexity, many associations consider outsourcing.

Trap: When an organization is frustrated with technology and enamored by the solutions offered by outsiders, who will speak up about the possible disadvantages of outsourcing? Once outsourced, how easy will it be to reverse the transaction if it turns out not to be effective?

Tip: Find an independent source to comment on potential outsourcing disadvantages, and study those issues. Consider the fact that the association may lose control of critical data and technology staff and costs. After addressing these issues, if outsourcing is still in the best interest of the organization, be sure to cover all bases with a comprehensive outsourcing contract. It should address issues such as control, pricing, termination rights, vendor personnel commitments, and license of the vendor's intellectual property.

4. ISSUE: MEMBER TECHNOLOGY

Some associations are getting involved with their members' technological needs in an effort to help their members modernize and be able to use association services (like CD-ROMs or Web sites) and to increase the association's revenue through things such as royalty agreements with technology vendors that market member software.

Trap: Working with members on technology issues may be riskier than working with them on more traditional projects, such as government affairs.

Tip: Before proceeding, answer these questions: Will the association provide technical support? Will the support come from a staff person? Will there be a toll-free number for members to call seven days a week, 24 hours a day? If the answers to these questions are no, then who will provide support, at what cost, and for how long? Will the association intercede if a member's software package does not work, when the association sponsored the software through a royalty agreement?

Determine what risks the association can cover with insurance and what other risks can be covered contractually. For example, the contract could state that the vendor will reimburse the association for losses and expenses incurred from third-party claims because of the software.

5. ISSUE: TAXATION OF TECHNOLOGY REVENUE

Organizations are looking for more ways to generate revenue from technology.

Trap: Associations may not address tax planning issues early enough to avoid unrelated business income taxation. Instead, some organizations will assume that the income is taxable while others will assume that it's tax-free. (The more reliable assumption is that the income is taxable.)

Tip: Complete tax planning for this revenue as early as the association would for any other income. The main difference between paying and not paying taxes on this, or any other, revenue is advance planning accompanied by contemporaneous documentation.

6. ISSUE: CANDY STORE MENTALITY

The average computer system or Web site user's emotional state when approaching a technology acquisition, whether it be Web site development, a financial management system, or a database software acquisition, is that of a child in a candy store. Faced with all the choices, the association wants to buy, buy, and buy.

Trap: Sometimes software fails and Web sites go dark. These problems may end up costing the association more money, usually unbudgeted.

Tip: Approach technology acquisitions with inquisitive skepticism, ask lots of questions, get independent expertise to help formulate questions and evaluate answers, and avoid emotional commitment.

7. ISSUE: DEFERRING DEAL KILLERS

Nobody likes distasteful tasks. But one such task that should not be put off is figuring out what computer system acquisition problems, if identified before the deal is done, would kill the deal. The widespread trend seems to be avoiding asking questions that would help surface deal killers.

Trap: Because the task is distasteful, associations put off asking these questions as long as possible: Is the vendor bankrupt? Is the source code available? Is the software warranty real or illusory? Is there a qualified project manager available? Will a manager continue to be available in spite of other commitments and staff turnover?

Tip: Ask these questions up front. The time to list, ask about, and evaluate deal killers is at the start, not the end, of the project.

8. ISSUE: INSULATED VENDORS

Businesspeople have always found ways to protect their companies from unnecessary risks. Retailers, for example, often place each store location in a separate corporation. Some software vendors do similar things, such as using subsidiaries without substance (i.e., no assets) or independent distributors to contract with customers. In both cases, the vendor hopes to be legally insulated if anything goes wrong.

Trap: These vendors' risk-avoidance techniques shift economic threats from the failure of their products and services to the association. If done properly, these techniques may be cheaper for the company than insurance or other risk-management steps.

Tip: Include questions about liability insulation on the association's front-end-deal-killer list. Demand that the vendor stand behind its products and services. Reputable vendors will offer no less.

9. ISSUE: USERS WAIVING THEIR LEGAL RIGHTS

The law provides computer system users and Web site owners with many rights. One is the right to certain warranties. In addition, there is a right to financial damages for breach of those warranties. However, some system providers and developers, through standard contracts, get organizations to waive those rights.

Trap: Some standard contracts contain a warranty section with enough language to create an illusion of providing a warranty. Similarly, such contracts contain a liability section that creates the misimpression that the vendor agrees to accept liability for breach of contract.

Tip: Do not sign away the association's legal rights. Only do business with companies that agree to fair, reasonably negotiated warranties and liability terms.

10. ISSUE: SOURCE CODE

This code is needed to solve computer problems. Some vendors ask organizations to pay enormous fees for this code. Others withhold the code altogether. Still others purport to provide it but omit so much documentation that the code is worthless. And others provide code in an un-user-friendly escrow account.

Trap: Agreeing to go without source code will force the association into huge, double expenses if problems, such as vendor default, breach of contract, or bankruptcy, arise.

Tip: Do not pay for source code. And do not settle too quickly for source code only in escrow. Many reputable vendors will provide source code without charge and without escrow.

11. ISSUE: LACK OF PERFORMANCE SECURITY

A regular contract is just an unsecured promise to pay. It does not guarantee vendor performance and may provide little more than a ticket to the nearest courthouse - accompanied by the usual delays, uncertainties, and expenses of litigation.

Trap: Some companies will make empty promises to get business, knowing that the contract is unsecured and that many organizations will not sue to obtain their contract rights.

Tip: Get contracts secured with performance security, such as a letter of credit with carefully structured trigger mechanisms. For example, a vendor's failure to deliver on time software that works can trigger the bank's release of the association's funds under a letter of credit. A performance bond, which is similar to an insurance policy, is less attractive but better than no security at all.

12. ISSUE: TRUE COSTS AND VALUES OF TECHNOLOGY ACQUISITIONS

When buying a new computer system, many associations decide how much help to get largely based on their budget for the system purchase price. For instance, an organization planning to pay $50,000 for a new system will ask for less help than one planning to pay $500,000, even though each of those systems may be equally critical to the missions of the associations.

Trap: The contract cost is the least costly part of the acquisition. The real cost is the value of the system to the organization; and the real risk is the economic difference to the association if the system succeeds or fails. Newspaper reports highlight that economic loss to users of failed systems is often 10 times or more than the system's purchase price.

Tip: Assume the contract cost is zero. Get help, including legal analysis, commensurate with the system's value, complexity, risk, and importance - not its purchase price. Some organizations get free help from a friend or a board member, but this practice frequently disregards the need for technology law expertise and industry-specific experience. It also shows no regard for the importance of the contract's subject matter to the buyer. Whether that subject matter is an association management system or a Web site, its value, importance, complexity, and risks cry out for corresponding legal analysis and planning.

NEXT YEAR'S TRENDS

Some recent developments may tip off association executives about future technology trends. Here are some examples of what's coming down the pike,

Web-linking agreements. As more and more problems arise from hyperlinks, these specialized contracts will become more popular. They will cover many issues, no doubt including some that have not yet surfaced. The scope of the license permission to use a hyperlink will be one key issue. Trademark, copyright, and framing issues may also be addressed.

Misuse of trademarks. The use of another company's trademark to drive traffic to or away from a Web site has already triggered litigation. Almost regardless of the outcome of the first lawsuits, this will be an increasingly contentious issue as more Web sites attempt to increase their own and decrease their competitors' online revenue.

Employees and technology. One court recently held that an employee's deletion of her employer's WordPerfect directory on her last day of work constituted an illegal conversion of her employer's property. With increasingly valuable computer files available to employees, and with e-mail added to the equation, there may be more employer-employee disputes concerning technology.

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