Springfield General Hospital HCO Contract Strategy and

Springfield General Hospital

HCO Contract Strategy and Negotiations

Learning Management System Acquisition and Implementation

Sandra B. Cadichon and Toni M. McLaurin

June 6, 2014

Table of Contents

1.0 Introduction ............................................................................................................................... 3

2.0 Key Criteria ............................................................................................................................... 3

2.1 Confidentially and security ................................................................................................... 3

2.2 Maintenance and support ...................................................................................................... 4

2.3 Fees/costs and long-term price protection ............................................................................. 4

2.4 Warranty ................................................................................................................................ 4

2.5 Liability ................................................................................................................................. 4

3.0 Negotiation Table...................................................................................................................... 4

4.0 BATNA ..................................................................................................................................... 5

5.0 Push Back.................................................................................................................................. 6

6.0 Risks and Benefits to “Go to the Balcony” Approach .............................................................. 8

7.0 Alternative Approaches to Negotiating the Service License Agreement ................................. 9

8.0 Cloud Computing, Application Software Provider and Software as a Service Models ......... 10

9.0 Warranty ................................................................................................................................. 12

10.0 Source Code Escrow ............................................................................................................. 14

11.0 Conclusion ............................................................................................................................ 14

SGH Strategy and Negotiations 3

1.0 Introduction

Through a comprehensive Request for Proposal (RFP) process, Springfield General

Hospital (SGH) has chosen to partner with Cornerstone OnDemand, Inc. for their new Learning

Management System (LMS). SGH believes that developing a mutually satisfactory agreement

regarding a number of specific criteria is the key in order to move forward with a successful

partnership. However, SGH does understand the need for flexibility from both parties and there

are items detailed in the Cornerstone OnDemand, Inc. boilerplate contract on which SGH is

willing to negotiate. We present the following as our contract review, strategies for negotiation

and suggestions for how to develop a license agreement that meets the needs of both SGH and

Cornerstone OnDemand, Inc.

2.0 Key Criteria

The key criteria that SGH feels need to be adequately addressed include: 1)

Confidentially and security, 2) Maintenance and support, 3) Fees/costs and long-term price

protection, 4) Warranty and 5) Liability.

2.1 Confidentially and security

In a healthcare organization, confidentiality and security are paramount. This extends

beyond vendor concerns regarding their own products’ confidentiality and security issues to the

employees in the organization. The license agreement must address the ways in which

Cornerstone OnDemand will ensure adequate confidentiality and security for all SGH

employees.


2.2 Maintenance and support

As a mid-sized hospital, SGH requires robust vendor support and ongoing maintenance

for all IT projects outside the scope of their enterprise software. This includes support for

integration into their existing software products.

2.3 Fees/costs and long-term price protection

For the purposes of short- and long-term budgeting, SGH must ensure that the initial

upfront fees and costs are presented in a comprehensive yet clear manner and that there is a

detailed description and agreement on what these upfront costs include. Renewal fees must also

be pre-determined and locked in for a set period of time to be agreed upon by the organization

and vendor partner.

2.4 Warranty

As an organization that has to comply with numerous federal and state laws and

regulations, SGH must partner with a vendor that ensures their software will be in compliance

with these laws.

2.5 Liability

SGH and Cornerstone OnDemand must accept shared responsibility for liability with

limitation of liability applicable to both parties.

3.0 Negotiation Table

Although there are certainly items in the current license agreement about which SGH

feels very strongly, there are also items of lesser importance that we would be willing to take off

the negotiation table. In the RFP, SGH stated that we would like to be able to modify any LMS

software to make it more specific to our organization. However, Section 2.3 Modifications

expressly prohibits this, and this would be acceptable to SGH if Cornerstone OnDemand ensured


us that we would have the opportunity to review the available content and select those modules

which were most appropriate for our organization.

As Cornerstone OnDemand agrees in Section 3.4 Upgrades to manage upgrades and

enhancements to the Software, and obligates SGH only to provide any necessary ancillary

hardware or software, SGH will accept this aspect of this section without discussion or revision.

The same section also obligates SGH to verify the accuracy of any data in the updated software,

and we have already stated in our RFP that we do plan to have some control over content, so this,

too, would be a non-issue for SGH.

4.0 BATNA

As our selection of Cornerstone OnDemand demonstrates that we believe them to be the

vendor best able to provide what we requested, we expect to be able to negotiate a successful

license agreement that benefits both parties. If not, the most obvious best alternative to no

agreement (BATNA) would be to discontinue negotiations with Cornerstone OnDemand and

contract with the second choice from our RFP process. This would entail considerable time lost

on the part of both parties, but would be better than an agreement where SGH felt they were not

treated fairly.

However, if SGH ultimately finds that its expectations and requirements cannot be

reasonably met by any proprietary system, our more difficult but probably ultimately more

successful BATNA is to utilize a free, open source LMS. This would allow SGH to fully

customize a product to meet their needs as outlined in the RFP without the contract restrictions

being proposed by Cornerstone OnDemand or any other proprietary product. Although this

would burden our already busy IT staff, it would not require any licensing fees or hardware costs

and would be flexible enough for SGH to ensure that it’s content could provide the e-learning


that is required of SGH employees while also satisfying federal, state, and organizational laws

and regulations, and all requirements of the OIG, and The Joint Commission. Like the

proprietary systems, it would also allow SGH the full functionality to monitor employee

participation and success or failure in the e-learning (Chaudhari, 2012).

5.0 Push Back

Reviewing the current contract, there are a number of issues with which SGH takes

exception and feels further negotiation is warranted but is concerned that these may represent

areas where we will get significant push back from Cornerstone OnDemand. Section 6

Confidentiality, discusses only the confidentiality of Cornerstone’s own information. The final

agreement should protect the confidentiality of both parties, and similarly, liability for breach of

confidentiality should apply to both parties not just the vendor. These obligations should remain

in effect even after expiration or termination of the agreement. This seems to be a reasonable

request on the part of SGH and should be easily negotiated by just discussing the fairness of a

shared responsibility and reframing the issue to allow Cornerstone to see it from another angle.

One of the reasons why SGH selected Cornerstone OnDemand was due to their ability to

provide the support and maintenance requested by SGH. However, the type of Standard and

Enhanced technical support outlined in the agreement does not align with our requests or

requirements. As this is not a mission-critical software implementation, it is reasonable to

provide telephone support during Cornerstone’s stated regular business hours. However, there is

an expectation of much greater availability by email, as many employees will be accessing this

software remotely and support may be required after hours and on weekends. Providing SGH

with a “bank” of technical support contacts is acceptable, but this should exclude any support

contacts related to warranty or product defect issues, as these should be covered by Cornerstone


OnDemand as part of their commitment to SGH. For both Standard and Enhanced support,

yearly support fees should be fixed for at least the first three years of the license term and then

renegotiated for an additional period of time with the provision that support fees may not exceed

a specified cap. All fees should be calculated based on a previously agreed-upon rate, not current

market rates. Regarding maintenance issues, although SGH accepts Cornerstone managing all

upgrades and enhancements being made, we object to changes being made “at [the] Licensor’s

sole discretion and…implemented by the Licensor,” and request that no upgrades or

enhancements be made prior to approval by SGH.

SGH understands that there are Initial and Renewal Fees associated with this software

implementation but disagrees with Cornerstone’s request for payment of fees within 30 days of

the date of the invoice and would like to see this changed to date of receipt of the invoice. In

addition, the broad statement that SGH is responsible and will be invoiced for “any additional

costs reasonably incurred by [the] Licensor in the delivery of the Software as they are incurred”

needs to be better delineated, before SGH agrees to this provision.

As all of these issues revolve around money, SGH recognizes that this could be a very

contentious part of the negotiation. We feel that one of the best ways to try to make these

changes in the agreement may be to “build them a golden bridge (Ury, 1993).” As there are

many potential solutions to what SGH sees as unfair support, maintenance and fee structures,

part of the negotiations could involve brainstorming with Cornerstone regarding different ideas

for developing a new support and maintenance paradigm, making them ultimately feel as if the

changes were their idea.

Warranty is probably the area, aside from anything involving finance, where there will be

the greatest push back. Cornerstone has proposed a warranty that is in direct opposition to what


SGH requested and what Cornerstone stated they could provide in their RFP. In Section 7.5, it is

stated that they “make no representation that the Software, or the records or forms it creates

comply with any state or federal laws or regulations or any third party's requirements regarding

record keeping or confidentiality. Ensuring compliance with all laws and regulations is the sole

responsibility of Licensee.” As discussed in more detail in Section 9.0, this is unacceptable to our

organization and must be resolved prior to moving forward, as regulatory compliance is a

primary reason for our implementation of an online LMS. This may be where it becomes

necessary to “use power to educate,” making sure that Cornerstone understands the

consequences of not reaching an agreement and that we are fully prepared to use our BATNA.

They need to understand that this truly is unacceptable but that we are willing to work with them

to develop a solution.

Finally, Liability, like Confidentiality, needs to be treated as a two-way street by

Cornerstone OnDemand, Inc. and SGH again needs to appeal to their sense of fairness, again by

reframing the situation, to turn this agreement into one with a shared responsibility for liability.

6.0 Risks and Benefits to “Go to the Balcony” Approach

“Objects react. Minds can choose not to” (Ury, 1993). Ury uses the “balcony” as a

metaphor for a mental attitude of detachment. The benefits of “going to the balcony” prior to any

negotiation are allowing oneself the opportunity to regroup and not overreact, thus thwarting a

negative negotiation experience. This approach in essence allows for a more constructive, calm

and less emotionally driven approach consequently propelling the negotiation towards a mutually

satisfactory resolution. By “going to the balcony” in negotiating the contract with Cornerstone

OnDemand, Inc., SGH has the opportunity to process the aspects of the contract that fall short of

the listed criteria, thus affording us time to pause and think. For example, technical support is


crucial to routine functioning at SGH. Realizing that as deadlines approach there may be some

employees that leave required modules to the very end, SGH may be able to think of creative

ways to request an extension to the hours of the technical support being offered, or increase the

number of support contacts offered particularly around the time of deadlines. An additional

benefit of “going to the balcony” is to allow for a time out and therefore avoiding making

important decisions on the spot.

The potential risk of “going to the balcony” is that it allows the opponent time to be

creative with their comeback tactics. An example includes creating a stonewall tactic and refusal

to negotiate. This can be obstructive in that Cornerstone OnDemand may come back with a “take

it or leave it” response and any other suggestion may be met with a negative. Another risk may

be an offensive response in the form of an attack, i.e. Cornerstone OnDemand may question our

credibility, status or authority, a tactic geared towards intimidating us into acceptance. Finally,

tricks can be used to deceive. According to Ury, tricks take advantage of the fact that you assume

your counterpart is acting in good faith and telling the truth (Ury, 1993). Tricks such as the “no

authority” ploy can mislead us to believe that the Cornerstone representative has authority to

decide when he or she doesn’t. Another trick is the last-minute “add on” or additional demand

that is created after being led to believe that an agreement has been reached.

7.0 Alternative Approaches to Negotiating the Service License Agreement

Additional approaches to negotiating the LMS service licensing agreement (SLA) include

refraining from arguing and refraining from being too pushy. Section 2.3 (Modifications)

explicitly states that the Licensee (i.e. SGH) is prohibited from modifying or customizing the

software. This section of the SLA goes against a request made by SGH to have some ability to

customize the software to meet the ever changing needs of the organization and evolving


healthcare environment. Rather than argue this point, Ury proposes an approach he calls “Step to

their side”. Going to the balcony has allowed us to regain our composure, time to think, now its

time to help the other side regain their mental balance. The expectation from the other side might

be an argument, application of pressure or resistance. In stepping to their side, listening actively,

acknowledging their point and expressing our view without provoking we will be better

positioned to negotiate our need. For example, rather than saying “we specifically requested the

ability to modify and customize”, they may be more receptive if we say, “we understand and

appreciate the fact that much of what you have for us is proprietary and we respect your

authority and expertise in that regard, may we propose working together to customize some

modules that you may in the long-run use once the data is de-identified.” Alternatively, we could

decide that this may not be worth pursuing and concede to allow Cornerstones’ position on this

to remain. Ury suggests that by creating this favorable climate for negotiation, we are more

likely to find an opponent that thinks, “this person actually seems to understand and appreciate

my problem…Maybe I can negotiate with this person after all” (Ury, 1993).

Offering to work with them to create new modules that can later be used by Cornerstone

in essence leads to another mode of negotiating described by Ury: building them a golden bridge

(Ury, 1993). In building a golden bridge, the opponent is given a sense of importance,

recognition and value. Building a golden bridge means actively involving Cornerstone in

devising a solution so that it becomes their idea and not that of SGH.

8.0 Cloud Computing, Application Software Provider and Software as a Service Models

A cloud based LMS allows flexibility and freedom to work and access files from just

about anywhere. Advantages include: 1) Rapid deployment – Can be activated within hours. 2)

Flexible expense management – No buying or installing of any software or hardware for the


system. 3) Device diversity (supports all operating systems). 4) One console to rule them all –

Supports iPhones, iPads, Android and whatever else comes down the road. 5) Near Zero-day

updates – Service updates occur almost immediately (Lopez, 2012). A cloud-based LMS is

desirable because it would allow for seamless integration with existing technologies, making it

possible to enhance learning as well as manage learning, teaching and administrative aspects

from one single platform. Additional benefits of cloud mobility for mobile and desktop devices

is that it provides the user with the advantage of easily accessing and managing resources

anytime and anywhere, regardless of the users’ location; as well as enhance the performance and

accuracy of administrative data and quality standards (Weebly.com), all of which are desirable

for SGH.

Two alternative approaches for a functional LMS include Software as a Service (SaaS)

and license from an application software provider (ASP). Purchasing a license from an ASP for

our LMS software could allow us full control over the installation and system configuration. The

biggest drawback is the higher upfront costs for the software itself, installation, setup and

configuration. Moreover, the ASP route could potentially take longer to deploy, IT staff would

require additional training, and more IT staff may need to be hired and ongoing internal

operation maintenance for the software would add additional cost.

Important differences between a traditional software license/deliverables versus a SaaS

product include: 1) cost of the software application; 2) hardware required to run the application;

3) people needed to design, deploy, manage and maintain and support the application. Important

features of a traditional software licensing and acquisition are: use of a single-tenant model that

is customizable whereby the customer buys the software application for installation on its server,

pricing is limited to the cost of the software itself and vendors often charge an upfront fee for a


perpetual license (Sysmans, 2006). For a SaaS product, a multi-tenant model is often utilized: the

back-end hardware infrastructure is shared among many different customers, a subscription fee is

required which includes the cost of the software application (also aligned with number of users

and transactions), the hardware (uses existing organization infrastructure) and the people services

(Sysmans, 2006). Other key features include: vendor assumes all support, training, infrastructure

and security risks, delivery of application anywhere, anytime (Sysmans, 2006). Unlike an ASP, a

SaaS is configurable but not customizable. Either a SaaS product or a cloud computing system

would satisfy the needs of SGH.

9.0 Warranty

At minimum, SGH requires that the warranty provide the following basic assurances

(adapted from Overly and Kalyvas, 2004):

1. Performance

a. Software will perform in accordance with agreed-upon product specifications for at least

12 months.

2. Services

a. Installation, implementation and support shall be in compliance with industry best

practices

3. Compliance with applicable law

a. The product shall comply with all federal, State of Indiana, and Department of Public

Health laws and regulations, and conform to mandates set forth by The Joint Commission

regarding employee continuing education and compliance.

b. Compliance with Health Insurance Portability and Accountability Act (HIPAA) privacy

requirements is an absolute must.


4. Infringement of Intellectual property

a. The software will not infringe the intellectual property rights of any third party

5. Viruses

a. The product will be free from viruses and other destructive programs

b. Vendor shall use commercially available measures to screen for and eliminate

destructive programming and viruses from the software.

6. Disabling Mechanisms

a. Software does not contain any time bomb or lock-up mechanisms

b. Vendor shall warranty that destructive programming designed to permit unauthorized

access or use by third parties to the software installed on SGHs systems or to disable or

damage the system are not present.

7. Third party software

a. Vendor shall specifically identify and exhibit in the agreement all third party software

b. Vendor shall warrant that it has the right to license third party software

8. Authority

a. Vendor/Licensor shall warrant that it has sufficient authority to enter into the license

agreement and grant the rights provided in the agreement.

9. Litigation

a. The vendor/licensor shall warrant that there are currently no pending litigation involving

them that may ultimately affect or interfere with SGHs right to use the product.

The current contract as presented by Cornerstone OnDemand does not address these

crucial liability concerns. In fact, no assurances or warranties are provided placing SGH in a


precarious situation. We are unable to proceed with the contract as it stands without appropriate

revisions in the warranty of the proposed LMS system.

10.0 Source Code Escrow

In the event that Cornerstone OnDemand terminates its business, fails to provide support

and maintenance as outlined in the agreement, or files for bankruptcy, SGH would like

arrangements made for a two party source code escrow agreement to protect its interest. This is

necessary so that we may continue to have a reliable system that is uninterrupted by vendor

shortcomings. We request a mutually agreed upon escrow agent, the right to verify the source

material and full disclosure of defined source material. An additional requirement is allowance to

expand the scope of the license to permit the licensee (SGH) to provide its own support and to

modify the source code. A separate license agreement is sought for the source code with

appropriate modifications for its use differentiating it from the software license.

11.0 Conclusion

We at SGH appreciate the opportunity to enter into negotiations with Cornerstone

OnDemand for our computerized LMS software. While there are many positives outlined in the

proposed licensing agreement, we feel that there are key items that remain unresolved thus

prohibiting our signing the agreement as is. We trust that upon mutual resolution of the areas of

concern (warranty and liability issues and source code escrow provisions) that SGH and

Cornerstone OnDemand will be better positioned to enter into a long-term partnership.


References:

Chaudhari, S. (October 11, 2012). Top Open Source Learning Management Systems. Retrieved from:

http://elearningindustry.com/top-open-source-learning-management-systems

Lopez, M. (May 24, 2012). 5 Key Benefits of Cloud Mobility. Retreived from:

http://networkingexchangeblog.att.com/enterprise-business/5-key-benefits-of-cloud-mobility/

Overly, M., Kalyvas, J R. (2004) Software Agreements line by line (1st ed.). Boston, MA; Aspatore Books.

Sysmans, J. and SaaS Marketing and Communications Committee (September 2006). Software-

as-a-Service; A comprehensive look at the total cost of ownership of Software

applications: a White Paper. Retrieved from: http://www.winnou.com/saas.pdf

Ury, W. (1993). Getting past no : negotiating your way from confrontation to cooperation. New

York: Bantam Books.

Weebly. Com (2012). Cloud-Based Learning management Sytems-ETEC 522. Retrieved from:

http://cloud-basedlms-etec522.weebly.com/why-cloud.html

http://elearningindustry.com/top-open-source-learning-management-systems

http://networkingexchangeblog.att.com/enterprise-business/5-key-benefits-of-cloud-

http://networkingexchangeblog.att.com/enterprise-business/5-key-benefits-of-cloud-

http://networkingexchangeblog.att.com/enterprise-business/5-key-benefits-of-cloud-mobility/

http://www.winnou.com/saas.pdf

http://www.winnou.com/saas.pdf

http://cloud-basedlms-etec522.weebly.com/why-cloud.html


Springfield General Hospital

Vendor Contract Strategy and Negotiations

Learning Management System Acquisition and Implementation

Nicole Bammel and Eric Chavez

June 6, 2014


Table of Contents

1.0 Introduction ............................................................................................................................. 18

2.0 Key Criteria ............................................................................................................................. 18

3.0 Negotiation Table.................................................................................................................... 19

4.0 BATNA ................................................................................................................................... 21

5.0 Push Back................................................................................................................................ 21

6.0 Risks and Benefits to “Go to the Balcony” Approach ............................................................ 22

6.1 Benefits................................................................................................................................ 23

6.2 Risks .................................................................................................................................... 23

7.0 Other Approaches to Negotiating SLA ................................................................................... 23

8.0 Operational Alternatives ......................................................................................................... 24

9.0 Warranty ................................................................................................................................. 25

10.0 Source Code Escrow ............................................................................................................. 26

11.0 Conclusion ............................................................................................................................ 27


1.0 Introduction

Cornerstone OnDemand, Inc. was selected by Springfield General Hospital (SGH)

through a detailed Request for Proposal (RFP) process. Cornerstone OnDemand, Inc. will be

providing SGH with a Learning Management System (LMS). Cornerstone OnDemand will be

discussing the various key criteria that are the most important to them and what kind of push

back we may receive from SGH. We will work to mitigate this push back and come to an

agreement on these criteria. There are also some key concepts that we are willing to take off of

the table and work out other contract possibilities. These concepts and others will be discussed

within this strategy and negotiations paper.

2.0 Key Criteria

The key criteria needed for Cornerstone OnDemand to be successful are listed below.

1. Confidentiality is very important to Cornerstone OnDemand. We do not want this

contract to be used as a bargaining chip with other companies.

a. The deals we make with SGH are to be kept within the company and not released

to other vendors.

2. The billing and revenue module are very important to Cornerstone OnDemand because

we have been requested to deliver Software as a Service (SaaS) product.

a. As a SaaS provider, Cornerstone OnDemand pays recurring monthly fees for

bandwidth, server capacity, monitoring, and maintenance to a third-party.

b. Cornerstone OnDemand will require an initial fee and a renewal fee to continue to

use the product. Additional fees will be assessed as the organization asks for more

services.


3. Cornerstone OnDemand will have the right to inspect SGH’s records or to have them

audited by a third party company.

a. We want to make sure our product is being kept confidential and that none of the

information be being disclosed to any other vendor.

b. If this audit reveals that the license fee payments have been underpaid, SGH shall

pay the underpaid amount to Cornerstone OnDemand immediately.

3.0 Negotiation Table

In review of the proposed contract with SGH there are several items that Cornerstone

OnDemand could consider revising and taking off the negotiating table. These items are less

important because they would either be relatively easy for Cornerstone OnDemand to

accomplish without creating an undue financial hardship, they would foster a greater sense of

trust and cooperation with SGH, or they could potentially generate additional revenue for the

company.

Items 2.1 and 2.2 in the contract, which state that SGH must use the software solely for

internal operations and that SGH cannot distribute access to the software to non-employees,

could be removed and replaced with revise items to allow for external associates of SGH to use

the software in accordance with its business operations. This would allow SGH to use the LMS

to train external agents. For example, if an external contractor for the hospital needs to be trained

on specific SGH policies or if they need training to work in the hospital as required by HIPAA,

the Joint Commission, or federal and state regulations. Another example of external associates

using the software would be allowing regulatory agencies such as the Joint Commission or the

Center for Medicare and Medicaid Services to access the software to obtain reports of completed


training certifications. This revision would be easy, would cost Cornerstone OnDemand little,

and would foster greater trust and cooperation.

Two items that could be revised may help to generate additional revenue for Cornerstone

OnDemand. These are items 7.5 (compliance with law) and 2.3 (no modifications).The contract

could be revised to state that the LMS will help SGH meet regulatory reporting compliance with

state and federal laws and that Cornerstone OnDemand will allow SGH to modify and customize

the software to meet their internal needs. SGH has already stated that they would like the LMS to

help them meet legal reporting requirements. Cornerstone OnDemand can revise the contract to

state specifically that we can assist with coursework development that will help them meet these

requirements as long as a clear compensation schedule is outlined. In addition, Cornerstone

OnDemand can modify and customize the software to meet the internal needs of SGH with the

clear understand that such customization could be quite expensive and will result in higher

monthly SaaS fees since the modified form of the software will likely not be marketable to other

agencies.

Other modifications to the contract that can be relatively easy and should be considered

for taking off the negotiating table are extending the period of acceptance testing from 30 to 45

days and extending the number of support contacts for each year after the initial year to 15-20.

A final consideration for removal from the contact would be item 12.5 regarding

solicitation. Non-solicitation agreements for employees are no longer legal in the state of

California (Levinson, 2008). Furthermore if the hospital solicits a Cornerstone OnDemand

employee to work for them or vice versa, this may foster a continued working relationship and

renewed contract which may benefit both parties for years into the future.


4.0 BATNA

If negotiations for the current contract break down, our best alternative to a negotiated

agreement (BANTA) may be to revise the contract to sell a traditional software license to SGH.

Cornerstone OnDemand would then install the software on the SGH local system instead of the

SaaS model. This may be more acceptable to SGH because it would allow the hospital greater

flexibility in adapting and customizing the software to their local environment which was one of

their desired features.

We may offer to pay a share of the source code escrow costs or we may offer to extend

the acceptance testing period from 30 to 45 days. Both of these alternatives to the current

contract may be acceptable to SGH because it will help to foster trust that the LMS will be stable

over time, will not result in any data loss, and will function as they expect it to.

Even though Cornerstone OnDemand has put a great deal of time, effort, and expense

into responding to the RFP, demonstrating the software product, and preparing the initial

contract, a final BANTA would be to simply walk away from the negotiations and look for

another customer. If negotiations with SGH are difficulty and it is impossible to come to a

mutually satisfying contract, it might be better to avoid the potential of years of working with a

difficult customer that could end up costing the company money rather than resulting in financial

profit.

5.0 Push Back

We may receive some push back from our first criteria because SGH might want to use

our agreement to bargain with another vendor. They might want to show that vendor what we are

offering to see if they receive a better offer. Cornerstone OnDemand wants their contract

information to be safe and secure. Our information should stay in house and not be used for any


bargaining chip. Springfield General Hospital might be pushing back on this topic because they

have other contract offers. We have to come back with the fact that each contract should have a

confidentiality agreement within it and those vendors would not want them to reveal the

information.

Our second key criteria about the billing revenue cycle may receive some push

back because there is a yearly payment. We will go to the balcony to become a third-party

company and think of the scenario from both sides. Springfield General Hospital has a point

because they do not want to pay the yearly fee for something they have already paid for.

Cornerstone OnDemand wants to make sure their licensees receive all of the updates and to

receive the updates, the company needs to pay the yearly fee. Once we come back, we will be

calm and collected and ready to give our full explanation. Springfield General Hospital will need

to understand that their product will never be kept up to date unless they are willing to pay the

yearly fee.

The audit will also receive push back because SGH would not want their personal

information to be audited. We would come back to them with the fact that it is our product and

we reserve the right to audit the records. We need to make sure our product is being used to the

fullest and that we are being paid for the use of this product. Springfield General Hospital will

push back saying their information is confidential. Cornerstone OnDemand will come back with

this information and examples of why we need to perform these audits. These examples will

show SGH that the audits not only benefit Cornerstone OnDemand but SGH as well.

6.0 Risks and Benefits to “Go to the Balcony” Approach

The “Go to the Balcony” approach can have its risks and benefits. In general, it allows

the vendor or organization to step aside and think about what is going on in the negotiations.


Each side allows themselves time to think about what they are going to say next and defuse any

situation that might be present. William Ury states in his book, “Getting Past No,” that when

there is a vicious cycle of action and reaction, you have the opportunity to break this cycle, by

going to the balcony.

6.1 Benefits

Some of the benefits of going to the balcony is that it gives each side time to gather their

thoughts and figure out what needs to be said next to close the deal or finish a negotiation. One

side can go to the balcony and think about the proper words to say to calm down the other side.

“From the balcony you can calmly evaluate the conflict almost as if you were a third party. You

can think constructively for both sides and look for a mutually satisfactory way to resolve the

problem” (Ury, 1993).

6.2 Risks

Some risks of going to the balcony include showing the other side that you need extra

time to gather information and figure out what needs to be said. Some companies are ready to

settle things right here and now and they do not want to wait for people to take more time to

think. If this is a phone negotiation, the other side might be wondering what is going on with the

organization they are negotiating with. They might get suspicious that they were working on

other work with another company at the same time.

7.0 Other Approaches to Negotiating SLA

Ury (1993) has several good ideas about strategies to use when negotiating contracts. In

addition to the “Go to the Balcony” approach, two others that he recommends are “Step to Their

Side” and “Reframe.”


With the “Step to Their Side” strategy it is important to refrain from arguing with the

customer. Start by actively listening to his concerns and repeat what he has said by paraphrasing

if possible. Acknowledge his viewpoint, make him feel heard, and agree (without conceding)

whenever you can. Acknowledge the customer’s authority, experience, and knowledge and

attempt to build a working relationship. Next, you can express your own views without making

provocations and acknowledge the differences with optimism. It is important to keep the climate

favorable for negotiation and to put yourself on the same team with the customer.

When using the “Reframe” strategy, it is important to avoid rejecting what the customer

is proposing. Instead try to get clarity on the problem by re-wording and reframing as much as

possible. Use open-ended, problem-solving questions. Ask “why,” “why not,” and “what if.” Ask

for his advice and recommendations on how to work on the problem that is being negotiated. If

necessary, restart by negotiating about the rules of the negotiation itself. Try not to get

discouraged by stonewalling (go around the stonewalls) or by personal attacks (reframe as an

attack on the problem). Foster a spirit of cooperation by changing the language from “you” and

“I” to “we.”

8.0 Operational Alternatives

Springfield General Hospital requested we provide a product that is a Software as a

Service (SaaS) product. We are going to deliver this product to SGH but there are alternatives to

SaaS. Software as a Service is a product that is centrally hosted on the cloud by independent

contractors or by application software providers.

An alternative is installing software onto the computers at the hospital. This software can

be pushed out onto every computer connected to the hospital’s network. With this software, the

information is stored locally and can be easily lost due to network failure. On the positive side,


the organization itself has all of the power to update and add new modules. They do not have to

wait for the vendor to product templates or updates to be applied. The software would be a one-

time purchase and updates will be sent to the organization and then they choose whether they

want to apply it or not. Some updates will be free, but the more extensive ones can cost more

money for the organization.

9.0 Warranty

Section 7 of the contract states that Cornerstone OnDemand makes no warranty that the

LMS will meet all of neither the requirements of SGH, nor that use of the software will be

uninterrupted or error-free. There is no warranty that errors will be corrected in software updates

or that patches or workarounds will be made available. Finally we make no warranty that the

software or the records it creates will comply with state or federal laws or regulations. As it

stands, this section of the contact is likely to be rejected by SGH.

The hospital has specifically stated that they require the software to be compliant with all

federal and state of Indiana regulations and Indiana Department of Health regulations. In fact,

their reason for obtaining the software is to meet state and federal regulatory requirements.

If Cornerstone OnDemand gets push back from SGH regarding the warranty section of

the contract, we suggest at a minimum adding the following concessions which are reviewed in

Overly (2004).

Performance. If specified and agreed upon software functions are listed in the contract,

then Cornerstone OnDemand should make a warranty that the software will meet these

requirements and will make reasonable efforts to correct errors and disruptions of service

in a timely manner.


Compliance with Applicable Law. The software should comply with federal and state of

Indiana laws. Cornerstone OnDemand should make reasonable effort to ensure that SGH

will have learning content and reporting capability to meet regulatory requirements.

Services. Cornerstone OnDemand should provide support services in accordance with

industry standards for SaaS and make efforts to correct any deficiencies in a timely

manner.

Infringement of Intellectual Property. Cornerstone OnDemand should ensure intellectual

property rights of third parties are not knowingly infringed upon.

Viruses and Disabling Mechanisms. Cornerstone OnDemand should ensure that the

software is free of malicious viruses and disabling mechanisms.

10.0 Source Code Escrow

Because Cornerstone OnDemand is offing the LMS to SGH as SaaS, the hospital will not

have access to the software object or source code. They will have only remote access to the

software. Most organizations that enter into SaaS agreements with us do not care about the

source code or object code as long as they have access to the functioning software. Up to this

point we have no reason to believe that SGH is any different as no request for software escrow

has been made.

Although the LMS will not be a critical business system for SGH, the hospital will grow

to depend on it to meet its training and regulatory reporting requirements. As such, loss of the

system and the database of training certificates would be a hardship for SGH. Source code

escrow is a way for SGH to have reassurance that they will be able to continue using our

software if Cornerstone OnDemand goes bankrupt or out of business.


If SGH determines that it is necessary and economically feasible, we recommend

entering into a software escrow agreement of the type outlined by Practical Law (2013). Under

such an agreement, SGH could pay a third party escrow service to maintain mirrored SaaS

services that may be rapidly deployed in case Cornerstone OnDemand should go out of business.

Alternatively the escrow service could hold source code of the software with the agreement that

SGH would have the right to self-host the software in the case that Cornerstone OnDemand

should cease business operations.

11.0 Conclusion

Springfield General Hospital has agreed with the contract that was drawn up by

Cornerstone OnDemand. This agreement between our two organizations will allow us to form a

great bond and be able to share our information with each other in confidence. We will be

providing SGH with a LMS that will allow their employees to keep up to date with their

continuing education modules. Human resources will also be able to follow the progress of the

employees and develop a report to send to the necessary entities. Cornerstone OnDemand will be

gaining another customer and more public knowledge about the company. Entities will benefit

from this contract, it will take time, but it will happen.


References

Levinson, M (2008 August 19). Non-Solicitation Agreements: What IT Leaders Can Learn from

Edwards vs. Arthur Andersen. retrieved June 2 2014, from CIO Web Site:

http://www.cio.com/article/444765/Non_Solicitation_Agreements_What_IT_Leaders_Ca

n_Learn_from_Edwards_vs._Arthur_Andersen

Overly, M (2004). Software Agreements Line by Line: How to Understand & Change Software

Licenses & Contracts to Fit Your Needs. United States of America: Thomson/Aspatore.

Practical Law, (2013 March 26). Protecting Licensees and SaaS Customers Against Software

Licensor or Provider Bankruptcy. retrieved June 1 2014, from Practical Law Web Site:

http://us.practicallaw.com/2-525-3492#null

Ury, W (1993). Getting Past No: Negotiating in Difficult Situations. New York, NY: Bantam

Books.

http://www.cio.com/article/444765/Non_Solicitation_Agreements_What_IT_Leaders_Can_Learn_from_Edwards_vs._Arthur_Andersen

http://www.cio.com/article/444765/Non_Solicitation_Agreements_What_IT_Leaders_Can_Learn_from_Edwards_vs._Arthur_Andersen

http://us.practicallaw.com/2-525-3492#null

Documents

Springfield General Hospital HCO Contract Strategy and