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NEGOTIATION SKILLS FOR

INFORMATION TECHNOLOGY
CONTRACTS

June 24, 2009
Suzanne Harris
Newport Beach, CA

1
NEGOTIATION SKILLS FOR
INFORMATION TECHNOLOGY
CONTRACTS

Welcome!
Institute For Supply
Management

2
Agenda
 Introductions
 Basic IT Contracts and Deal Points
 Sourcing and Information
Technology
 Negotiation
 Summary
 Question and Answers
3
Introduction To IT
Contracts

 Who Are We?
 Strategic Sourcing
 Indirect Purchasing
 Procurement
 Contract Department
 Contract Negotiation Department
 IT Contract Department
 IT Vendor Management
 IT Sourcing
 IT
 Vendor Management Organization (VMO)
4
Introduction To IT
Contracts
 Your name
 Company
 Title
 What organization do you report to
 What you are hoping to learn

5
Introduction to IT
Contracts

 “In business as in life, you don’t
get what you deserve, you get
what you negotiate”.

Chester Karrass
 “90% of negotiation is
preparation”.
 Suzanne Harris

6
IT Contracts and Deal
Points
Contracts Commonly Used in IT
 *Non Disclosure Agreement, NDA

 Hardware Agreement

 Telecom Agreement

 *Master Services Agreement

 *Statement of Work

 *Software License Agreement

 Software Maintenance Agreement

 Software as a Service, SAS and Hosted

*Recommended contract templates

7
IT Contracts and Deal
Points
 Non Disclosure Agreement:

 Protect confidential information
 Unilateral or bilateral

8
IT Contracts and Deal
Points
Nondisclosure Agreement
 NDA is required before company confidential
information can be shared.
 Defines Confidential Information
 Work product resulting from or related to

work or projects performed
 General or specific to a project

 Time Based - when does it expire

 Do you have an NDA on file that is sufficient?

9
IT Contracts and Deal Points
Nondisclosure Agreement (cont’d)
Who’s Paper? Theirs or yours?
 Term of the Agreement

 Why have term?

 What is long enough?

 Defines What Is Confidential

 Confidential information disclosed remains

property of the owner
10
IT Contracts and Deal
Points
Nondisclosure Agreement (cont’d)
 Non compete using confidential

information
 Damages for breach

 State Law Governing

 What is the down side? They steal your

intellectual property!
 Your Leverage: We can’t talk to

sales without one! 11
IT Contracts and Deal
Points
 The Master Services Agreement

12
IT Contracts and Deal
Points
MSA
 Master Services Agreement, MSA:
 Professional Services
 Contractors
 Consultants

 MSA is basis for support on all other
agreements.
 Defines the on-going relationship between the
two companies
 We do not have to repeat these terms in each
SOW. 13
IT Contracts and Deal
Points
MSA
 Term and Termination:
 Defines the effective date
 Defines the term
 May describe auto-renewal
 Recommendation: Effective until
cancelled. Can be cancelled without
cause by customer with 30 days
written notice.
14
IT Contracts and Deal
Points
MSA
 Invoicing and payment
 Payment Terms
 Penalties for late payment
 Confidentiality
 Intellectual Property:
 Ownership
 Indemnity for use of IP
 Non-solicitation
15
IT Contracts and Deal
Points
MSA
 Warranty
 Provides protection of the SP failing to
provide quality services against the
SOW.
 Provides language on notice of failure
and “reasonable” response to cure
the failure.
 Indemnification
 Held harmless by SP
 Limitation of Liability 16
IT Contracts and Deal
Points
MSA
 Insurance
 Lengthy clauses detailing types and
amounts of coverage required.

Professional Liability $5M

Commercial General Liability $5M

Worker’s Compensation Insurance

Employers Liability Insurance $1M

Automobile Liability Insurance $5M

Fidelity Insurance (fraud, dishonest or
unauthorized acts)

Cyber Risk $5M
17
IT Contracts and Deal
Points
MSA
 Independent Contractor:
 Defines the Service Provider, SP, is not an
employee- important for tax purposes.
 Defines Liability: Work Site Coverage is
not covered by customers worker’s
compensation, liability or other insurance.
Requires SP to have a significant amount
of insurance coverage.
 Risk Management
18
IT Contracts and Deal
Points
MSA
General Provisions:
 Force Majeure (French for "superior force"), also known as
cas fortuit (French) or casus fortuitus (Latin)[1], is a
common clause in contracts which essentially frees both
parties from liability or obligation when an extraordinary
event or circumstance beyond the control of the parties,
such as a war, strike, riot, crime, or an event described by
the legal term "act of God" (e.g., flooding, earthquake,
volcano), prevents one or both parties from fulfilling their
obligations under the contract. However, force majeure is not
intended to excuse negligence or other malfeasance of a
party, as where non-performance is caused by the usual and
natural consequences of external forces (e.g., predicted rain
stops an outdoor event), or where the intervening
circumstances are specifically contemplated.
 Don’t let things like “delayed transportation” slip in. 19
IT Contracts and Deal
Points
SOW

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IT Contracts and Deal
Points
SOW
 Statement Of Work:
 Key components include

 Effective Date: Term of the agreement

 Identify Attachments

 Project Description

 Objectives

 Status Reports


Acceptance Criteria

Project Assumptions
21
IT Contracts and Deal
Points
SOW
 Statement Of Work:
 Key components include (cont’d)

 Attachments:

 A-1 Project Status Report Form

 A-2 Change Order Form

 A-3 Travel Policy

22
IT Contracts and Deal
Points
SOW
 Statement Of Work:
 Key components include (cont’d)

 Identify Key Roles and Assignments

 Change Control


Pricing and payment
 Termination

 Total authorized dollars

23
IT Contracts and Deal
Points
SOW
 Statement Of Work:
 Key components include (cont’d)

 Deliverables
 Estimated Due date

 Materials

 Expenses

 Maximum Amount Payable

24
IT Contracts and Deal
Points
SOW
 Statement Of Work:
 Key components include (cont’d)


Pricing methodology: Fixed fee
versus estimated dollar per hour
-Not To Exceed
 Are Travel and Expenses

authorized? If so, what is the Not
To Exceed number?
 Dependencies 25
IT Contracts and Deal
Points
SOW
Deliverables
 Detailed description of Deliverables

 Schedule of deliverables

 Acceptance criteria for deliverables

 Connection of payment tied to your

acceptance of deliverables
 SLA's and penalties or credits for late

or unacceptable delivery
26
IT Contracts and Deal
Points
SOW
Most common deal points:
 Clarity of scope

 Delivery schedule

 Locking in personnel by name

 Fixed Fee versus Time and Materials

 Expenses

 Who’s travel policy

 Change Order

 Credits for late deliverables

27
IT Contracts and Deal
Points
SOW
Pros for Fixed Bid
 Scope of work is clear

 Deliverables are measurable

 Timeliness is critical

 Little chance of change in scope

 Success is measured on the result

 Clear picture of how much this

costs 28
IT Contracts and Deal
Points
SOW
Negotiation Points:
 Start With Your Templates

 MSA on file or in conjunction with

 Is software part of the deal

 What is in it for them

 Your estimate versus their bid

 Determine risk factors

29
IT Contracts and Deal
Points
SOW
Cons For Fixed Bid
 Scope is not certain

 Supplier knows the scope is

uncertain
 Supplier inflates the price because

of the “unknown” and risk is
shifted to him
 It doesn’t meet the “reasonable”

test 30
IT Contracts and Deal
Points
SOW
Pros for T & E Bid
 Scope of work not clear
 Nature of the work is transactional
 Scope will be determined after work has
begun
 You want to pay as you go
 Significant chance of change in scope
 Success is measured by making progress

31
IT Contracts and Deal
Points
SOW
Cons For T & E Bid
 Supplier is not motivated to complete

 Could increase your cost

 You hold most of the risk

 Deliverables are clear

 The “Change Order”

32
IT Contracts and Deal
Points
SOW
Negotiation tips for SOW’s
 Each is unique

 Diagnose which is better for your situation

 Use
 Competition
 “Make in House”
 Exceeds the Budget
 Future business
 Time
 Authorized to negotiate and make concessions
today 33
IT Contracts and Deal
Points
SOW
Negotiation tips for SOW’s
 Consider
 Use your contract template
 Limit the scope and plan to add on as needed
 Use acceptance criteria
 Identify the personnel by name
 Limit personnel changes using contract language
 Estimate what it should be and negotiate for that
 Expenses
 Letter of Intent

34
IT Contracts and Deal
Points

Software License
Agreements

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IT Contracts and Deal
Points

Software License Agreement:
Your greatest leverage exists
during new acquisitions, or if
there is the threat of
replacement .
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IT Contracts and Deal Points
SLA
Software License Agreements

 First you get the pitch, promises, the power
points, the white papers, the demo, then…
 The Contract

“Entire Agreement” means…..

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IT Contracts and Deal Points
SLA
Software License Agreements

 One sided to protect the supplier
 It takes time to identify and negotiate to
eliminate and minimize risk
 The process takes time. Plan for it.
There is no perfect license model

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IT Contracts and Deal Points
SLA
Software License Agreements

 Too simple: Lacks critical terms

 Too Complex: Difficult to administer

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IT Contracts and Deal Points
SLA
The Contract
 Definitions:

 Affiliates, update, upgrade

 Term and Termination:

 Perpetual was the rule

 Annual

 Multiple year

40
IT Contracts and Deal Points
SLA
Software License Agreements
 Pricing, Payment and Delivery

 Delivery

 Invoices and payment

 Related Services

 Acceptance

 Representations and Warranties

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IT Contracts and Deal Points
SLA
Software License Agreements
 Indemnification
 Confidential Information

 Source code escrow

 Dispute resolution

 Assignment

42
IT Contracts and Deal Points
SLA
Software License Agreements
 90 day pilot

 Metrics

 Audits

 True and True Down

 May include maintenance terms or be

separate
43
IT Contracts and Deal
Points

 Audits

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IT Contracts and Deal Points
SLA
Software License Agreements: Audits
 Revenue stream

 Costly

 How often?

 Most likely to?

 If I outsource?

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IT Contracts and Deal Points
SLA
Software License Agreements: Audits
 Contract Language

 Notice
 No interruption of work
 Scope
 Cost of the audit
 Confidentiality
 Effect of finding of out of compliance
 Outsource provision
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IT Contracts and Deal Points
SLA
Software License Agreements: Audits
 If you become knowledgeable:

 Inform the CFO
 Potential Liability
 “Off Balance Sheet”

47
IT Contracts and Deal Points
SLA
License Models
 Named User

 Concurrent-User

 Role Based

 Employee Based

 Financial Based

 Transaction Based

48
IT Contracts and Deal Points
SLA
Named User
 Advantage:
 Traceability
 Additions not required for multiple instances,
failover or backup
 Easier when combining after a merger
 Disadvantage:
 Definitions of Name user can be misinterpreted
 If the older, unused login ID’s the vendor could
count those as well
 Multiple people can not user the same login ID

49
IT Contracts and Deal Points
SLA
 Concurrent User:
 Cost effective for multiple time zones
 Cost effective for the “occasional” user
 Disadvantage:
 Often this term is not well defined in he
contract and subject to interpretations
(average users versus maximum users)

50
IT Contracts and Deal Points
SLA
 Role Based:
 Professional, employee, casual, normal,
super users
 Multiple role-based user models reflect the
value used
 Disadvantage:
 Tracking usage can be difficult
 It can be difficult to maintain the number
of licenses required for reach category
 Contract language can be vague 51
IT Contracts and Deal Points
SLA
Employee Based
 Advantage:
 The number of employees reflect the value
received
 Simple model for tracking purposes
 Simple contract language
 Predicable increases and decreases
 Disadvantage:
 The term “employee” can have multiple
definitions
 The contract needs clear language about the
impact of employee downturn
 If a merger or acquisition happens cost can go up
52
IT Contracts and Deal Points
SLA
Financed Based Model
This model uses total revenue, operating
budget, or cost of goods sold.
 Advantage:
 The vendor can track the metrics for annual reports and public
information.
 Usually just one number to track
 Easy to budget for
 Disadvantage:
 No correlation between revenue and value received
 Customer cost of doing business can go up without a decrease in
software cost
 Surveys show that customer is perception that this model
increases cost
53
IT Contracts and Deal Points
SLA
Transaction Based
This model is becoming popular in the application
software space.
 Advantage:
 Customers can negotiate the cost per transaction
 Disadvantage:
 Transaction costs may not accurately reflect the value
 Often poorly defined in the contract
 May be difficult to count
 May vary from month to month, quarter to quarter making
budgeting difficult
 Suppliers want increases but no decreases in cost

54
IT Contracts and Deal
Points
SLA
Items for consideration:
 License Type  ESD
 Discount  Payment due upon
 Metrics Based acceptance testing
 No cost for
 Indemnification
Development License  Term and
 No cost for cold server termination
 Escrow
 Bankruptcy
 Reporting
 Assignment

55
IT Contracts and Deal Points
SLA
 Software License Agreements
 Price protection for future requirements

 Third party usage (example: Outsource

services from India, China, Mexico)
 Acceptance testing

 Warranty

 True Up

 Audits

56
IT Contracts and Deal Points
SLA
Negotiation Points To Consider
 Who are the vendors under consideration
 Is their more than one?
 Could we “make” the solution?
 What discounts have they offered?
 When is their end of quarter, end of year?
 Can you get a third party to provide contract
guidance?
 What other motives does the supplier have?
57
IT Contracts and Deal
Points
Software Maintenance

58
IT Contracts and Deal
Points
Software Maintenance
General Guidelines for Software Maintenance
 Ranges from 15% to 25%

 Computed off of list or discounted price

 Include price caps

 Include language on what happens after caps

 Include language to drop support on unused

 Select the appropriate level

 Penalties for not making SLA’s

59
IT Contracts and Deal Points
Software Maintenance
 Maintenance Agreements
 Services:
 Upgrades: Previous versions/platforms
supported
 Customizations and required support
 SLA's:
 Term:
 Pricing and Payment Term
60
IT Contracts and Deal Points
Software Maintenance
 Maintenance Agreements
 Price Protection
 CPI
 Security/System Access:
 Personnel/Subcontractors: No
subcontractors used unless authorized by
your company
 Co-terminus maintenance for staggered
license deployments.
61
IT Contracts and Deal Points
Software Maintenance
Maintenance Agreements
 Inventory review

 Is it global?
 Biggest spend
 Same supplier versus same product
analysis
 Can we co-term agreements
 Identify maintenance we wish to
terminate 62
IT Contracts and Deal
Points
Software Maintenance
Software Maintenance and Shelfware

 Standard Shelfware: Never deployed
 Under-Utilized Shelfware: Little usage
 Bundled Shelfware:
 Purchased together but not all launched
 Each software module is embedded
 Shadow User Shelfware: Purchased for all
geographies but not fully deployed
 Shadow Device Software: Licensed to run on several
devices, used on one

63
IT Contracts and Deal
Points
Software Maintenance
 Finding Shelfware:
 Why:
 Reduce maintenance cost
 Reduce administrative cost
 Understand first hand what not to do
in the future with license agreements

64
IT Contracts and Deal
Points
Software Maintenance
 Finding Shelfware:
 How:
 Make it visible
 Follow the money
 Analyze the user base
 Check client, serve, mainframe and
cloud

65
IT Contracts and Deal
Points
Software Maintenance
 Actions on Identified Shelfware:

 Renegotiate support
 Stop using and cancel
 Start using of the software to drive
value
 Lessons learned

66
IT Contracts:
Sourcing and Information
Technology

“A match made in heaven.”
S. Harris

“Begin with the end in mind”.
Stephen R. Covey
Author, The 7 Habits of Highly Effective People

67
IT Contracts:
Sourcing and Information
Technology
 Mission statements drive goals.
 Common goals drive teamwork.

68
IT Contracts:
Sourcing and Information
Technology

 If 90 % of negotiation is preparation,
then internal preparation is the key
to success.
 Preparing with relationships
 Preparing with data
 Preparing with a strategy

69
IT and Strategic Sourcing
Maturity Model
Maturity Model

 Step A- Survival –Administrative interface with Purchasing
 Step B- Aware — Realization that infrastructure and operations are critical to the business-continued
administrative interface with Purchasing
 Step C- Committed — Moving to a managed environment, tactical interface with Purchasing
 Step D- Proactive — Gaining efficiencies and service quality through standardization, policy
development, governance structures and implementation of proactive interfacing with tactical interface
with Purchasing. The start of cross-departmental process alignment.
 Step E- Service-Alignment — Managing IT like a business; customer-focused; trusted IT service
provider and interface with Strategic Sourcing.
 Step F- Business Partnership — Trusted partner to the business and sees Strategic Sourcing role for
increasing the value and competitiveness of the business process.

70
IT Contracts:
Sourcing and Information
Technology
 Two Types of Negotiation

 Internal Negotiation

 External Negotiation

71
IT Contracts:
Sourcing and Information
Technology
STRATEGIC SOURCING and IT DEVELOPMENT
MODEL
 Diagnose your relationship with IT to

determine how to negotiate with your
internal Customer/business partner:

 Administrative or Tactical

 Strategic

72
IT Contracts:
Sourcing and Information
Technology
Administrative or Tactical Role
 Supports IT by:
 Issuing purchase orders
 Some administrative negotiation
 Expediting orders
 Clearing disputes with Accounts payable
 Providing purchase order copies
 Retaining documentation
 Your Role: IT is your customer
 Their Attitude: Just get it done!

73
IT Contracts:
Sourcing and Information
Technology

Strategic Support is being a Trusted
Business Partner

Attributes of Sourcing Support:
 IT Knowledge

 Strategic Plan

 Budget

 Shared Goals

 Contract Expertise

 Negotiation Skills
74
IT Contracts:
Sourcing and Information
Technology
Sourcing Managers preparation should:
 Understand your company goals

 What has happened so far

 Budget

 Technical specifications

 Third party research

 Time

 Who are the major players

 What do we want and need out of this?

75
IT Contracts:
Sourcing and Information
Technology
 Supplier Negotiation:
 Expert Negotiator: Understand sales tactics and

how to maneuver around them.
 Planning: Acting as a partner with IT agrees on the

action plan between the supplier and the
company.
 Leadership: Takes the lead with the negotiation

process.
 Communication: The supplier sees you as the

decision maker and the central point of
communication for business issues. IT supports
this by not allowing the supplier to go around you.
 Supplier Identification: Uses previous experience

and knowledge, including third party research, to 76
identify potential sources of supply.
IT Contracts:
Sourcing and Information
Technology
 Supplier Negotiation:
 Roles: Understands and clarifies roles and

responsibilities between the team members when
necessary.
 Teamwork: Attends IT planning and status

meetings.
 Sourcing: Understands the strategic plan and the

implications of how the plan impacts the sole and
single source limitations to supplier selection and
negotiation.

Example: Oracle
 Preparation: Understands and demonstrates the
90% preparation rule.
 Goal Accomplishment: Shares in credit and failure.
77
IT Contracts:
Sourcing and Information
Technology
 Sourcing Manager Role For Projects:
 Identifies the SME/PM goals and objectives

Contacts Legal for participation

RFP as required: example corporate policy:
 3 bids for purchases over $100K)

Utilize your company standard contract templates
 Non disclosure agreement
 Master Services Agreement
 Statement of work
 Software license and maintenance agreement

Leadership for negotiating price, terms and conditions
 Receives the teams final agreement
 Administrative retention
78
IT Contracts:
Sourcing and Information
Technology
ROLES AND RESPONSIBILITES
Typical Cross Functional Sourcing Teams
 Strategic Sourcing
 “The Business” owner
 IT Subject Matter Expert
 IT Operations
 Project Manager
 Legal Counsel
 Others as assigned

79
IT and Strategic Sourcing
Development Model
 Step A- Survival –Administrative interface with Purchasing.
 Step B- Aware — Realization that infrastructure and operations are
critical to the business with continued administrative interface with
Purchasing.
 Step C- Committed — Moving to a managed environment,
developing a tactical interface with Purchasing.
 Step D- Proactive — Gaining efficiencies and service quality through
standardization, policy development, governance structures and
implementation of proactive interfacing and tactical interface with
Purchasing. The start of cross-departmental process alignment.
 Step E- Service-Alignment — Managing IT like a business;
customer-focused; trusted IT service provider and interface with
Strategic Sourcing.
 Step F- Business Partnership — Trusted partner to the business
and sees Strategic Sourcing role for increasing the value and
competitiveness of the business process and risk mitigation.

80
IT Contracts:
Sourcing and Information
Technology

TIPS FOR IMPROVING TEAMWORK
 Understand their business

 Develop your negotiation skills

 Relationship building: Honey versus

vinegar
 Presentations: Get to know them

 Ask for suggestions on how to improve

the working relationship
81
IT Contracts:
Sourcing and Information
Technology
TIPS FOR IMPROVING TEAMWORK
(Cont’d)
 Roles and Responsibilities
 Corporate Policy
 What is in it for them
 Examples of wins and show value
 Responding within their time frame
 Understanding what you are buying
 Don’t have bureaucratic procedures
 Display leadership on business issues 82
IT Contracts:
Sourcing and Information
Technology

Soft Skills and Hard Skills

83
IT Contracts:
Sourcing and Information
Technology

Soft Skills and Hard Skills

Driver
Analytical
Amiable
Expressive

84
IT Contracts:
Sourcing and Information
Technology

“The Social
Styles
Task
Handbook”
by Wilson ANALYTICAL DRIVER
Learning
Tell
Ask
AMIABLE EXPRESSIVE

People
85
IT Contracts:
Sourcing and Information
Technology
 Preparing To Gain Contract
Approval
 Business Summary Template
 Show the work
 Show the savings
 Approvals versus signature
 How does the signatory want to
interface?
86
IT Contracts: Negotiation
.

87
IT Contracts: Negotiation
Basics of Negotiation
 Anybody can negotiate

 Attitude

 Preparation

 Relationship Rule

 Time

 The Iceberg

 Practice

 Knowing what you are up against

88
IT Contracts: Negotiation
How is IT negotiation different?

 Reporting structure
 Pace
 Impact to the business
 Cost and perception
 Niche
89
IT Contracts: Negotiation
Contract Templates:
 Provides a baseline of terms

acceptable
 Provides a starting point in the RFP

 Provides a a standardization of terms

which you are the expert

90
IT Contracts: Negotiation
The power of attitude:
 “They have more power than me.”

 “It is just company money.”

 “I can’t ask for that.”

 “No time to plan.”

We lose sight of the fact that we are up
against a skilled negotiator.
91
IT Contracts: Negotiation
 The Iceberg Rule

92
IT Contracts: Negotiation
Negotiation Points To Consider
 Who are the internal players

 Is the budget approved

 When is it needed

 What have we done so far

 Is the project Formal or Informal

 What are the goals of the business owners

 What are the goals of the IT owners

 What are your goals

93
IT Contracts: Negotiation
Formal Informal
 Formal Team  Members as needed
 Written Objective  Fewer deciding members
Statement/Goals  Renewals
 Milestones and status  Smaller new deals
 Consensus  Not seen as strategic
 Slower  Information, RFI
 Strategic
 Increased Visibility
 Requires a fully
documented business
case
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IT Contracts: Negotiation
How does the supplier prepare?
 Starts with looking at your home page
 Are you profitable
 Do you have budget
 Who will talk to him
 What is their leverage
 Who is the competition and what is their
motivation
 They start high to see what they can get
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IT Contracts: Negotiation
From the Software Sales Point of
View:
 They spend 90% of their time preparing
 The “Real Estate” mind set
 If we are:
 Adversarial

 Ask for unreasonable concessions

 Don’t appear to be a decision maker

 What do they do….
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IT Contracts: Negotiation
From the Software Sales Point of
View:
 What motivates them to give you the best
deal?

 What are the chances?
 Real estate mind set

 What about you motivates them to give
you the best deal?
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IT Contracts: Negotiation
From the Software Sales Point of View:
 What about you motivates them to give you
the best deal?
 Homework
 Your business acumen
 Their perception that you have decision making
power
 They are unable to go around you
 You share what needs to be done to get it done
 Tough, but respectful
 Make reasonable requests

Know when enough is enough 98
IT Contracts: Negotiation
From the Software Sales Point of
View:
 90 day increments
 Predictable
 Identify who has the relationship
 Most have a significant base salary
 License price versus maintenance cost
 Lose early
 Qualifying questions
 Cross validate
 Two weeks before end of quarter 99
IT Contracts: Negotiation
From the Software Sales Point of
View:
 Professional Services
 Scope
 Risk
 Deliverables
 Acceptance
 Dependencies
 Penalties
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IT Contracts: Negotiation
From the Software Sales Point of
View:

VSOE

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IT Contracts: Negotiation

From the Software Sales Point of
View:
VSOE: Vendor Specific Objective
Evidence

 What is it?
 How does it impact software sales and
contracts?
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IT Contracts: Negotiation

From the Software Sales Point of View:
VSOE: Vendor Specific Objective Evidence
 Example:

 Customized or configured software delivered but
requires professional services

Software Agreement

SOW
 Example:
 Software shipped to the VAR or SP
 Parked software
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IT Contracts: Negotiation
From the Software Sales Point of
View:

“What don’t we ask Sales that we should?”

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IT Contracts: Negotiation
From the Software Sales Point of
View:

 Our Preparation:
 What questions do we ask Sales?

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IT Contracts: Negotiation
What should we be asking Sales?

 “Help me understand….
 “What are the discount thresholds?”
 “What puts me in a different tier?”
 “Every company is different, how does your
work?”
 “We appreciate the time you have spent
getting to understand us and our
requirements. I would like to understand 106
how to best work with your company.”
IT Contracts: Negotiation
What Sales people want to say to us….
 Adversarial
 Your professional acumen
 Reasonable
 Ask for it all but….
 Maintenance discounts
 My concession on free professional
services
 When you ask to change your sales person
 What is in it for me!
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IT Contracts: Negotiation
Negotiation
 Opening, Target and Bottom Line
 The power of competition
 Consolidation: Co-terminus maintenance
 Using competition (when you don’t have it)
 The power of time
 Silence
 Third party research
 Focusing communication 108
IT Contracts: Negotiation
Negotiation
 Opening, Target and Bottom Line
 55% with metrics
 65% with metrics
 82% with metrics
 90% with no metrics

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IT Contracts: Negotiation
Negotiation
 The power of competition

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IT Contracts: Negotiation
 Competition:
 Do they know it? And can you keep it
from them if they don’t?
 If they don’t know, act as if there is
competition
 If they do know it acknowledge it

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IT Contracts: Negotiation
Consider using the following:
 We may not buy it at all
 It may exceed our budget
 We may elect to make it in house
 It may not be confirmed in our Strategic Plan
 We need to make the decision or
recommendation now
 Don’t call him back
 Tell him you that there is a perception that other
customers of his received a better deal

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IT Contracts: Negotiation
Negotiation
 The power of time

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IT Contracts: Negotiation
Negotiation
 The power of time

 $1.1M in professional services
 Opening $800K
 Target $900K
 Bottom line $1.1M

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IT Contracts: Negotiation
Negotiation
 The power of silence

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IT Contracts: Negotiation
Negotiation
 The power of silence

 House hunting
 S250K offer

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IT Contracts: Negotiation
Negotiation
 The power of third party research

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IT Contracts: Negotiation
Negotiation
 The power of third party research

 $100M list price enterprise software
 No price protection for future purchases
 Opening: asking for three years
 Target: One year
 Bottom Line: No years
 Achieved:
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IT Contracts: Negotiation
Benefits of Gartner or other third party
services:
 Annual named user seat holder license
 Research papers on specific technologies
 “Magic Quadrant” for suppliers
 Analyst provide guidance:
 Pros and Cons
 Pricing
 BIC Contract terms

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IT Contracts: Negotiation
Third party research benefits:
 Who are the major players
 How are the major players ranked
 Leaders, niche, visionaries, challengers
 Pricing targets
 Contract term targets
 Negotiating tactics
 The suppliers motivation
 Changing product line
 Competition is coming

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IT Contracts: Negotiation
Third Party Research Telecom:
 Add a business technology migration clause
 Add a business downturn clause
 Add a rate review clause
 Data circuits: identify and negotiate the
biggest usage

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IT Contracts: Negotiation
Tactics
 The power of “We don’t need it”.
 The power of “We are thinking of making it
internally.”
 Good guy, bad guy
 Asking Sales, “What is the best you have
ever given another customer like me?”
 Asking Sales, “How are you compensated?”
 The budget
 Requiring higher authority approval,
reluctantly
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IT Contracts: Negotiation

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IT Contracts: Negotiation

Preparation For Formal
Project

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IT Contracts: Negotiation
Formal Project
 Scope:
 Develop the team
 Objective Statement:
 Musts Versus Wants
 Develop the objectives
 Request For Proposal

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IT Contracts: Negotiation
Preparation For Formal Project
Part One:
 PMO Leads

 The Objective Statement

 “To select the best software application to manage
OUR Company financial operations”.
 Musts and Wants

 Selection of who is on the bid list
 Consider incumbents, suggestions from research

with third parties, suggestions from team
 RFP- include your contract templates

 Taylor questions so that answers will be quantifiable

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IT Contracts: Negotiation
Preparation For A Formal Project
Part Two:
 Analyze the responses

 Provide a copy to your third party adviser

(Gartner)
 Determine the two (or one) on the short list

 Spreadsheet their offer(s) against your goal

 Review with Legal

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IT Contracts: Negotiation
Negotiation Points:
 Type:
 Enterprise, single user, concurrent
 Does the supplier offer different choices?
 What are the costs of these choices?
 What is the strategic plan?
 Why are you recommending one of the
other?
 Ownership Language:
 What happens if you are sold or taken over?
 “Sure, I will sell it to you again!”
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IT Contracts: Negotiation
Part Three
 Schedule a negotiation preparation

meeting
 Identify items for negotiation
 Legal
 Business
 Opening, target and bottom line
 Who is on the negotiation team (roles)
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IT Contracts: Negotiation
Part Four
 Meet with the supplier
 Reassess
 Repeat until concluded

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IT Contracts:
Negotiation
Term
 License Models: Grant Of Usage
 Enterprise
 Perpetual
 Annual
 Concurrent User
 Term per user
 Which one for which deal?
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IT Contracts: Negotiation
 Example One: Maintenance Cost
 Four Years ago bought a $5.0 M software
license package (perpetual) with
maintenance cost of $1.0 M per year
 Maintenance is up for renewal in 3 months
 In 3 months it is the suppliers end of quarter
 License Application suite is for Marketing
 Documentation showed 10 different
applications
 Supplier threw in the other 8 for “free”

This is called “shelfware”.
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IT Contracts: Negotiation
Maintenance Cost: Preparation Meeting
 Meet with IT and reviewed the history

 Did we still need it?
 Will we need it in the future?
 Can we buy another product cheaper?
 How many times have we called for support or
updated:
 How many of the ten applications have we
launched?
 Will we ever want the other eight?
 Cancellation Requirement: Requires a thirty day
written notice 133
IT Contracts: Negotiation
Maintenance Cost: Planning
 Communication

 Timing

 Sourcing to contact supplier and convey:
 Shock
 Opening
 Communication

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IT Contracts: Negotiation
Maintenance Cost: Supplier Response
 First thing supplier does
 SME calls Sourcing
 IT steps in
 Supplier provides first offer
 Asks about internal process

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IT Contracts: Negotiation
 Maintenance Cost: Our Response
 CIO does not take rushes on his desk.
 30 day cancellation letter
 Call the supplier
 We don’t need it for that price.
 What we are ready to do

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IT Contracts: Negotiation
Maintenance Cost: Supplier Response
 Supplier submits

 Expedite

 Savings is $800K annually

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IT Contracts: Negotiation
Example Two: Enterprise Software
List Price $100M

 Iceberg
 Preparation
 Delivery
 Results
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IT Contracts:
Negotiation
Example Three: ESD
 Three year agreement showing “Deliver
Media”
 Total Tax implication: $900K.

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IT Contracts:
Negotiation
Example Four: ABC John’s
 Hosted solution
 Incumbent, 10% reduction last year
 Renewal is due in < three months
 Preparation
 Tactics Used
 Result

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IT Contracts:
Negotiation
Example Five: Financial Systems
Software
 Incumbent
 Annual software maintenance renewal in
three months
 Preparation
 Tactics Used
 Result
 Supplier response 141
IT Contracts: Negotiation
Preparation
 Research the Current Situation
 Is there a budget, if so what is it?
 Understand what you are buying
 What has already been done by IT
 What are their goals?
 Make or Buy
 Sole, single or multi source

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IT Contracts: Negotiation
 Research the supplier base
 IT recommendations
 Gartner For IT Leaders
 Forrester
 Tower Group
 Supplier websites

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IT Contracts: Negotiation
Cost Savings:

Hard Cost Savings

Soft Cost Savings

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IT Contracts: Negotiation
Cost Savings:
Hard Cost Savings
 From budget

 From previous buy

 From first proposal

*What you caused to happen
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IT Contracts: Negotiation
Cost Savings:
Soft Cost Savings
 Payment terms

 Penalties for late

 Limited potential future increases

*What you caused to happen
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IT Contracts: Negotiation
Cost Savings:

 What is the biggest problem here?

147
Summary
 Each contract is different
 Goal alignment
 Preparation is key to success
 Practice negotiation
 Declare Hard and Soft cost savings

148
Summary
 Suggestions:
 Compile data on renewals
 Look for co-terminus opportunities
 Look for “shelfware”
 ESD
 Use third parties
 Sharpen the Saw on soft and hard skills
 Strive to be “Strategic”
 Create or review templates
 Use formulas or definitions for cost savings

149
Summary
Training For IT Contracts
 Shadow others
 Contract Templates, line by line
 Learn how to research sources of supply
 Develop a process to determine financial stability
 Attend IT meetings
 Ask to see the strategic plan and understand the
budget
 Network with those that know how
 Teach someone
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Time For Q & A
 Questions and Answers

 Contact me at:
Suzanne Harris
suzanneha@yahoo.com
Cell 831 332 3450

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