ISM Presentation July 1 2009

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

 Non Disclosure Agreement:

 Protect confidential information
 Unilateral or bilateral

8

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

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

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

 The Master Services Agreement

12

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

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

MSA
 Invoicing and payment
 Payment Terms
 Penalties for late payment
 Confidentiality
 Intellectual Property:
 Ownership
 Indemnity for use of IP
 Non-solicitation
15

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

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

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

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

SOW

20

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

SOW
 Key components include (cont’d)

 Attachments:

 A-1 Project Status Report Form

 A-2 Change Order Form

 A-3 Travel Policy

22

SOW

 Identify Key Roles and Assignments

 Change Control

 Pricing and payment

 Termination

 Total authorized dollars

23

SOW

 Deliverables
 Estimated Due date

 Materials

 Expenses

 Maximum Amount Payable

24

SOW

 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

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

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

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

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

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

 The “Change Order”

30

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

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

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

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

SLA

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

“Entire Agreement” means…..

37

SLA

 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

SLA

 Too simple: Lacks critical terms

 Too Complex: Difficult to administer

39

SLA
The Contract
 Definitions:

 Affiliates, update, upgrade

 Term and Termination:

 Perpetual was the rule

 Annual

 Multiple year

40

SLA
 Pricing, Payment and Delivery

 Delivery

 Invoices and payment

 Related Services

 Acceptance

 Representations and Warranties

41

SLA
 Indemnification
 Confidential Information
 Source code escrow
 Dispute resolution
 Assignment
42

SLA
 90 day pilot

 Metrics

 Audits

 True and True Down

 May include maintenance terms or be

separate
43


 Audits

44

SLA
Software License Agreements: Audits
 Revenue stream

 Costly

 How often?

 Most likely to?

 If I outsource?

45

SLA
 Contract Language

 Notice
 No interruption of work
 Scope
 Cost of the audit
 Confidentiality
 Effect of finding of out of compliance
 Outsource provision
46

SLA
 If you become knowledgeable:

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

47

SLA
License Models
 Named User

 Concurrent-User

 Role Based

 Employee Based

 Financial Based

 Transaction Based

48

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

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

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

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
immediately 52

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

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

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

55

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

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

Software Maintenance

58

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

 Maintenance Agreements
 Services:
 Upgrades: Previous versions/platforms
supported
 Customizations and required support
 SLA's:
 Term:
 Pricing and Payment Term
60

 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

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

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

 Finding Shelfware:
 Why:
 Reduce maintenance cost
 Reduce administrative cost
 Understand first hand what not to do in the
future with license agreements

64

 Finding Shelfware:
 How:
 Make it visible
 Follow the money
 Analyze the user base
 Check client, serve, mainframe and cloud

65

 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:
 Mission statements drive goals.
 Common goals drive teamwork.

68

IT Contracts:

 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:
 Two Types of Negotiation

 Internal Negotiation

 External Negotiation

71

IT Contracts:
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:

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:

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 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:
 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 identify
potential sources of supply.
76

IT Contracts:
 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 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:
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:

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:

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:

Soft Skills and Hard Skills

83

IT Contracts:

Soft Skills and Hard Skills

Driver
Analytical
Amiable
Expressive

84

IT Contracts:

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

People
85

IT Contracts:
 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

Basics of Negotiation
 Anybody can negotiate

 Attitude

 Preparation

 Relationship Rule

 Time

 The Iceberg

 Practice

 Knowing what you are up against

88

How is IT negotiation different?

 Reporting structure
 Pace
 Impact to the business
 Cost and perception
 Niche
89

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

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

 The Iceberg Rule

92

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

Formal Informal
 Formal Team  Members as needed
 Written Objective Statement/
 Fewer deciding members
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

94

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


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

 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

 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

 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


 Professional Services
 Scope
 Risk
 Deliverables
 Acceptance
 Dependencies
 Penalties
100


VSOE

101


VSOE: Vendor Specific Objective Evidence

 What is it?
 How does it impact software sales and
contracts?
 AICPA Statement Of Position (SOP) 97-2, Software Recognition

102


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


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

104


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

105

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 how to best work with your
company.” 106

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

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

Negotiation
 Opening, Target and Bottom Line
 55% with metrics
 90% with no metrics

109

Negotiation
 The power of competition

110

 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

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

Negotiation

113

Negotiation

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

114

Negotiation
 The power of silence

115

Negotiation
 The power of silence

 House hunting
 S250K offer

116

Negotiation
 The power of third party research

117

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

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

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

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

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


123


Preparation For Formal Project

124

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

125

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

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

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

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

Part Four
 Meet with the supplier
 Reassess
 Repeat until concluded

130

Term
 License Models: Grant Of Usage

 Enterprise
 Perpetual
 Annual
 Concurrent User
 Term per user
 Which one for which deal?
131

 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

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

Maintenance Cost: Planning
 Communication

 Timing

 Sourcing to contact supplier and convey:

 Shock
 Opening
 Communication

134

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

135

 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

Maintenance Cost: Supplier Response
 Supplier submits

 Expedite

 Savings is $800K annually

137

Example Two: Enterprise Software
List Price $100M

 Iceberg
 Preparation
 Delivery
 Results
138

Example Three: ESD
 Three year agreement showing “Deliver Media”
 Total Tax implication: $900K.

139

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

140

Example Five: Financial Systems Software
 Incumbent
 Annual software maintenance renewal in three
months
 Preparation
 Tactics Used
 Result
 Supplier response
141

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

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

143

Cost Savings:

Hard Cost Savings

Soft Cost Savings

144

Cost Savings:
Hard Cost Savings
 From budget

 From previous buy

 From first proposal

*What you caused to happen
145

Cost Savings:
Soft Cost Savings
 Payment terms

 Penalties for late

 Limited potential future increases

*What you caused to happen 146

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
suzanneha@yahoo.com
Cell 831 332 3450

151

ISM Presentation July 1 2009

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