Negotiation Skills For Information Technology Contracts
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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
Indemnification
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. 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
20
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” 30 test
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
35
IT Contracts and Deal Points Software License Agreement: Your greatest leverage exists during new acquisitions, or if there is the threat of replacement . 36
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….. 37
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 38
IT Contracts and Deal Points SLA Software License Agreements
Too simple: Lacks critical terms
Too Complex: Difficult to administer 39
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 41
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
44
IT Contracts and Deal Points SLA Software License Agreements: Audits Revenue stream Costly How often? Most likely to? If I outsource? 45
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 46
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 52 If a merger or acquisition happens cost can go up
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 Discount Metrics Based No cost for Development License No cost for cold server Escrow Reporting
ESD Payment due upon acceptance testing Indemnification Term and termination Bankruptcy 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:
Utilize your company standard contract templates
3 bids for purchases over $100K) 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 Handbook” by Wilson Learning
Task
ANALYTICAL DRIVER 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
Formal Team Written Objective Statement/Goals Milestones and status Consensus Slower Strategic Increased Visibility Requires a fully documented business case
Informal
Members as needed Fewer deciding members Renewals Smaller new deals Not seen as strategic Information, RFI
94
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 95
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…. 96
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?
97
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 100
IT Contracts: Negotiation From the Software Sales Point of View:
VSOE
101
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? 102
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 103
IT Contracts: Negotiation From the Software Sales Point of View: “What don’t we ask Sales that we should?”
104
IT Contracts: Negotiation From the Software Sales Point of View:
Our Preparation:
What questions do we ask Sales?
105
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! 107
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% 65% 82% 90%
with with with with
metrics metrics metrics no metrics
109
IT Contracts: Negotiation Negotiation
The power of competition
110
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
111
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 112
IT Contracts: Negotiation Negotiation
The power of time
113
IT Contracts: Negotiation Negotiation
The power of time
$1.1M in professional services Opening $800K Target $900K Bottom line $1.1M
114
IT Contracts: Negotiation Negotiation
The power of silence
115
IT Contracts: Negotiation Negotiation
The power of silence
House hunting S250K offer
116
IT Contracts: Negotiation Negotiation
The power of third party research
117
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: 118
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 119
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 120
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
121
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
122
IT Contracts: Negotiation
123
IT Contracts: Negotiation
Preparation For Formal Project
124
IT Contracts: Negotiation Formal Project
Scope: Develop the team Objective Statement: Musts Versus Wants Develop the objectives Request For Proposal
125
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 126
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 127
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!” 128
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) 129
IT Contracts: Negotiation Part Four
Meet with the supplier Reassess Repeat until concluded
130
IT Contracts: Negotiation Term License Models: Grant Of Usage
Enterprise Perpetual Annual Concurrent User Term per user
Which one for which deal? 131
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”. 132
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
134
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
135
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
136
IT Contracts: Negotiation Maintenance Cost: Supplier Response Supplier submits Expedite
Savings is $800K annually
137
IT Contracts: Negotiation Example Two: Enterprise Software List Price $100M
Iceberg Preparation Delivery Results 138
IT Contracts: Negotiation Example Three: ESD
Three year agreement showing “Deliver Media” Total Tax implication: $900K.
139
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 140
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 142
IT Contracts: Negotiation
Research the supplier base
IT recommendations Gartner For IT Leaders Forrester Tower Group Supplier websites
143
IT Contracts: Negotiation Cost Savings: Hard Cost Savings Soft Cost Savings
144
IT Contracts: Negotiation Cost Savings: Hard Cost Savings From budget From previous buy From first proposal *What you caused to happen 145
IT Contracts: Negotiation Cost Savings: Soft Cost Savings Payment terms Penalties for late Limited potential future increases *What you caused to happen
146
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 150
Time For Q & A
Questions and Answers
Contact me at: Suzanne Harris [email protected] Cell 831 332 3450 151
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
Indemnification
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. 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
20
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” 30 test
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
35
IT Contracts and Deal Points Software License Agreement: Your greatest leverage exists during new acquisitions, or if there is the threat of replacement . 36
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….. 37
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 38
IT Contracts and Deal Points SLA Software License Agreements
Too simple: Lacks critical terms
Too Complex: Difficult to administer 39
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 41
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
44
IT Contracts and Deal Points SLA Software License Agreements: Audits Revenue stream Costly How often? Most likely to? If I outsource? 45
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 46
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 52 If a merger or acquisition happens cost can go up
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 Discount Metrics Based No cost for Development License No cost for cold server Escrow Reporting
ESD Payment due upon acceptance testing Indemnification Term and termination Bankruptcy 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:
Utilize your company standard contract templates
3 bids for purchases over $100K) 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 Handbook” by Wilson Learning
Task
ANALYTICAL DRIVER 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
Formal Team Written Objective Statement/Goals Milestones and status Consensus Slower Strategic Increased Visibility Requires a fully documented business case
Informal
Members as needed Fewer deciding members Renewals Smaller new deals Not seen as strategic Information, RFI
94
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 95
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…. 96
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?
97
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 100
IT Contracts: Negotiation From the Software Sales Point of View:
VSOE
101
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? 102
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 103
IT Contracts: Negotiation From the Software Sales Point of View: “What don’t we ask Sales that we should?”
104
IT Contracts: Negotiation From the Software Sales Point of View:
Our Preparation:
What questions do we ask Sales?
105
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! 107
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% 65% 82% 90%
with with with with
metrics metrics metrics no metrics
109
IT Contracts: Negotiation Negotiation
The power of competition
110
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
111
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 112
IT Contracts: Negotiation Negotiation
The power of time
113
IT Contracts: Negotiation Negotiation
The power of time
$1.1M in professional services Opening $800K Target $900K Bottom line $1.1M
114
IT Contracts: Negotiation Negotiation
The power of silence
115
IT Contracts: Negotiation Negotiation
The power of silence
House hunting S250K offer
116
IT Contracts: Negotiation Negotiation
The power of third party research
117
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: 118
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 119
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 120
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
121
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
122
IT Contracts: Negotiation
123
IT Contracts: Negotiation
Preparation For Formal Project
124
IT Contracts: Negotiation Formal Project
Scope: Develop the team Objective Statement: Musts Versus Wants Develop the objectives Request For Proposal
125
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 126
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 127
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!” 128
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) 129
IT Contracts: Negotiation Part Four
Meet with the supplier Reassess Repeat until concluded
130
IT Contracts: Negotiation Term License Models: Grant Of Usage
Enterprise Perpetual Annual Concurrent User Term per user
Which one for which deal? 131
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”. 132
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
134
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
135
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
136
IT Contracts: Negotiation Maintenance Cost: Supplier Response Supplier submits Expedite
Savings is $800K annually
137
IT Contracts: Negotiation Example Two: Enterprise Software List Price $100M
Iceberg Preparation Delivery Results 138
IT Contracts: Negotiation Example Three: ESD
Three year agreement showing “Deliver Media” Total Tax implication: $900K.
139
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 140
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 142
IT Contracts: Negotiation
Research the supplier base
IT recommendations Gartner For IT Leaders Forrester Tower Group Supplier websites
143
IT Contracts: Negotiation Cost Savings: Hard Cost Savings Soft Cost Savings
144
IT Contracts: Negotiation Cost Savings: Hard Cost Savings From budget From previous buy From first proposal *What you caused to happen 145
IT Contracts: Negotiation Cost Savings: Soft Cost Savings Payment terms Penalties for late Limited potential future increases *What you caused to happen
146
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 150
Time For Q & A
Questions and Answers
Contact me at: Suzanne Harris [email protected] Cell 831 332 3450 151
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