Structing Effective Governance Processes: Mastering IT Contract Management - Part 2

For any IT agreement, whether for software-as-a-service, managed IT services, or a software implementation project, contract signing is just the beginning. Maintaining a successful relationship between the customer and the service provider depends on how the IT agreement is managed throughout its lifecycle.

Mastering IT Contract Management: A Five-Part Series outlines how organizations can ensure they realize the value anticipated from their IT agreements—and avoid the many pitfalls along the way.

Whereas contract management, as discussed in Part 1: Setting Up Appropriate Contract Management Processes, relates to the overall management of the relationship between the parties to an IT agreement, the governance process describes specifically who will oversee the agreement, how decisions will be made, how performance will be monitored, and how issues will be reported and escalated. The governance process is the operational backbone of any successful IT agreement—but is sometimes poorly implemented and fails due to avoidable structural or communication flaws. The following are some of the most common pitfalls that can undermine effective governance:

• Overly Complex Governance Structures: Just as overly complex agreements can create administrative burdens; overly layered governance structures can result in inefficiency. If too many individuals or committees are involved, especially without clearly defined roles, decision-making becomes fragmented and accountability diluted. For example, if a Change Request must be approved by both a project steering committee, a finance group, and legal counsel, delays can stall progress for weeks on otherwise simple operational updates.
• Bureaucratic or Rigid Processes: Governance can become a hindrance when it relies on excessive documentation or frequent formal meetings that do not match the pace or complexity of the engagement. For example, if a governance process requires weekly calls between a handful of key stakeholders from each party, but the agenda rarely justifies the time invested, the result can be meeting fatigue, stakeholder disengagement, and lost momentum on real issues.
• Excessive Service Provider Control: Some customers inadvertently give service providers too much authority in the governance process, such as by allowing them majority representation on committees, or unilateral decision-making power on certain topics. This can limit the customer’s flexibility, weaken leverage, and create a dynamic where the service provider effectively governs itself.

These issues can be mitigated with thoughtful, right-sized governance design. Some key recommendations to achieve this include:

• Designing Proportionate Governance Structures: Keep the governance process lean and purpose-built. For a long-term, low-touch SaaS subscription, quarterly reviews may be sufficient; while for an active systems integration project, weekly or biweekly meetings may be necessary. Set expectations based on the contract’s complexity, and align governance rhythms with actual business needs. It should be specific to contract governance and not cover internal governance that does not need to be contractualized.
• Maintaining Balance of Power: Customers should avoid ceding too much authority to the service provider. This includes guarding against disproportionate committee representation or allowing service providers to unilaterally approve changes. Decisions that materially affect service delivery, cost, or risk should remain under shared or customer control. A balanced structure promotes collaboration without compromising oversight.
• Embedding Performance Monitoring into Governance: The governance process is not just about meetings – it should also be used to actively track performance. This includes monitoring service levels, risk registers, milestones, and service credits. Some tools that parties can leverage for this include dashboards, reporting tools, and even AI-based alerts where appropriate. Additionally, agreements should include obligations for vendors to provide real-time or periodic data access, so performance issues can be identified early and addressed promptly, even outside the governance process if necessary.

The next part in Mastering IT Contract Management: A Five-Part Series will cover the importance of establishing forward-looking change processes in IT agreements.

McCarthy’s Technology Group has extensive regional and national experience advising and representing both customers and service providers in the IT space. Visit our Technology Group page and contact us with any questions or for assistance.