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Slide 1: NEGOTIATION SKILLS FOR INFORMATION TECHNOLOGY CONTRACTS June 24, 2009 Suzanne Harris Newport Beach, CA Confidential Material 1
Slide 2: NEGOTIATION SKILLS FOR INFORMATION TECHNOLOGY CONTRACTS Welcome! Institute For Supply Management Confidential Material 2
Slide 3: Agenda Introductions Basic IT Contracts and Deal Points Sourcing and Information Technology Negotiation Summary Question and Answers Confidential Material 3
Slide 4: 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) Confidential Material 4
Slide 5: Introduction To IT Contracts Your name Company Title What organization do you report to What you are hoping to learn Confidential Material 5
Slide 6: 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 Confidential Material 6
Slide 7: 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 Confidential Material 7
Slide 8: IT Contracts and Deal Points Non Disclosure Agreement: Protect confidential information Unilateral or bilateral Confidential Material 8
Slide 9: 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? Confidential Material 9
Slide 10: 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 Confidential Material 10
Slide 11: 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! Confidential Material 11
Slide 12: IT Contracts and Deal Points The Master Services Agreement Confidential Material 12
Slide 13: 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. Confidential Material 13
Slide 14: 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. Confidential Material 14
Slide 15: 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 Confidential Material 15
Slide 16: IT Contracts and Deal Points MSA Warranty Provides protection of the SP failing to provide quality services against the SOW. Provides language on notice of failure and “reasonable” response to cure the failure. Indemnification Held harmless by SP Limitation of Liability Confidential Material 16
Slide 17: 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 Confidential Material 17
Slide 18: 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 Confidential Material 18
Slide 19: 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 nonperformance 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. Confidential Material 19
Slide 20: IT Contracts and Deal Points SOW Confidential Material 20
Slide 21: 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 Confidential Material 21
Slide 22: 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 Confidential Material 22
Slide 23: 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 Confidential Material 23
Slide 24: IT Contracts and Deal Points SOW Statement Of Work: Key components include (cont’d) Deliverables Estimated Due date Materials Expenses Maximum Amount Payable Confidential Material 24
Slide 25: 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 Confidential Material 25
Slide 26: 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 Confidential Material 26
Slide 27: 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 Confidential Material 27
Slide 28: 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 Confidential Material 28
Slide 29: 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 Confidential Material 29
Slide 30: IT Contracts and Deal Points SOW Cons For Fixed Bid Scope is not certain Supplier knows the scope is uncertain Supplier inflates the price because of the “unknown” and risk is shifted to him It doesn’t meet the “reasonable” test The “Change Order” Confidential Material 30
Slide 31: 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 Confidential Material 31
Slide 32: 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” Confidential Material 32
Slide 33: 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 Confidential Material 33
Slide 34: 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 Confidential Material 34
Slide 35: IT Contracts and Deal Points Software License Agreements Confidential Material 35
Slide 36: IT Contracts and Deal Points Software License Agreement: Your greatest leverage exists during new acquisitions, or if there is the threat of replacement . Confidential Material 36
Slide 37: 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….. Confidential Material 37
Slide 38: 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 Confidential Material 38
Slide 39: IT Contracts and Deal Points SLA Software License Agreements Too simple: Lacks critical terms Too Complex: Difficult to administer Confidential Material 39
Slide 40: IT Contracts and Deal Points SLA The Contract Definitions: Affiliates, update, upgrade Term and Termination: Perpetual was the rule Annual Multiple year Confidential Material 40
Slide 41: IT Contracts and Deal Points SLA Software License Agreements Pricing, Payment and Delivery Delivery Invoices and payment Related Services Acceptance Representations and Warranties Confidential Material 41
Slide 42: IT Contracts and Deal Points SLA Software License Agreements Indemnification Confidential Information Source code escrow Dispute resolution Assignment Confidential Material 42
Slide 43: 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 Confidential Material 43
Slide 44: IT Contracts and Deal Points Audits Confidential Material 44
Slide 45: IT Contracts and Deal Points SLA Software License Agreements: Audits Revenue stream Costly How often? Most likely to? If I outsource? Confidential Material 45
Slide 46: 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 Confidential Material 46
Slide 47: IT Contracts and Deal Points SLA Software License Agreements: Audits If you become knowledgeable: Inform the CFO Potential Liability “Off Balance Sheet” Confidential Material 47
Slide 48: IT Contracts and Deal Points SLA License Models Named User Concurrent-User Role Based Employee Based Financial Based Transaction Based Confidential Material 48
Slide 49: 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 Confidential Material 49
Slide 50: 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) Confidential Material 50
Slide 51: 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 Material vague Confidential 51
Slide 52: IT Contracts and Deal Points SLA Employee Based Advantage: The number of employees reflect the value received Simple model for tracking purposes Simple contract language Predicable increases and decreases Disadvantage: The term “employee” can have multiple definitions The contract needs clear language about the impact of employee downturn If a merger or acquisition happens cost can go up immediately Confidential Material 52
Slide 53: 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 Confidential Material 53
Slide 54: 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 Confidential Material 54
Slide 55: 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 Confidential Material 55
Slide 56: 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 Confidential Material 56
Slide 57: 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? Confidential Material 57
Slide 58: IT Contracts and Deal Points Software Maintenance Confidential Material 58
Slide 59: 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 Confidential Material 59
Slide 60: 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 Confidential Material 60
Slide 61: 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. Confidential Material 61
Slide 62: 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 Confidential Material 62
Slide 63: 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 Confidential Material 63
Slide 64: 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 Confidential Material 64
Slide 65: 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 Confidential Material 65
Slide 66: 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 Confidential Material 66
Slide 67: 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 Confidential Material 67
Slide 68: IT Contracts: Sourcing and Information Technology Mission statements drive goals. Common goals drive teamwork. Confidential Material 68
Slide 69: 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 Confidential Material 69
Slide 70: 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. Confidential Material 70
Slide 71: IT Contracts: Sourcing and Information Technology Two Types of Negotiation Internal Negotiation External Negotiation Confidential Material 71
Slide 72: 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 Confidential Material 72
Slide 73: 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! Confidential Material 73
Slide 74: 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 Confidential Material 74
Slide 75: 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? Confidential Material 75
Slide 76: 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 identify potential sources of supply. Confidential Material 76
Slide 77: 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. Confidential Material 77
Slide 78: IT Contracts: Sourcing and Information Technology Sourcing Manager Role For Projects: Identifies the SME/PM goals and objectives Contacts Legal for participation RFP as required: example corporate policy: 3 bids for purchases over $100K) Utilize your company standard contract templates Non disclosure agreement Master Services Agreement Statement of work Software license and maintenance agreement Leadership for negotiating price, terms and conditions Receives the teams final agreement Administrative retention Confidential Material 78
Slide 79: 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 Confidential Material 79
Slide 80: 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 crossdepartmental 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. Confidential Material 80
Slide 81: 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 Confidential Material 81
Slide 82: 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 Confidential Material 82
Slide 83: IT Contracts: Sourcing and Information Technology Soft Skills and Hard Skills Confidential Material 83
Slide 84: IT Contracts: Sourcing and Information Technology Soft Skills and Hard Skills Driver Analytical Amiable Expressive Confidential Material 84
Slide 85: IT Contracts: Sourcing and Information Technology “The Social Styles Handbook” by Wilson Learning Ask Task ANALYTICAL DRIVER Tell AMIABLE EXPRESSIVE Confidential Material People 85
Slide 86: 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? Confidential Material 86
Slide 87: IT Contracts: Negotiation . Confidential Material 87
Slide 88: IT Contracts: Negotiation Basics of Negotiation Anybody can negotiate Attitude Preparation Relationship Rule Time The Iceberg Practice Knowing what you are up against Confidential Material 88
Slide 89: IT Contracts: Negotiation How is IT negotiation different? Reporting structure Pace Impact to the business Cost and perception Niche Confidential Material 89
Slide 90: 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 Confidential Material 90
Slide 91: 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. Confidential Material 91
Slide 92: IT Contracts: Negotiation The Iceberg Rule Confidential Material 92
Slide 93: 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 Confidential Material 93
Slide 94: IT Contracts: Negotiation Formal Informal Members as needed Fewer deciding members Renewals Smaller new deals Not seen as strategic Information, RFI Formal Team Written Objective Statement/Goals Milestones and status Consensus Slower Strategic Increased Visibility Requires a fully documented business case Confidential Material 94
Slide 95: 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 Confidential Material 95
Slide 96: 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…. Confidential Material 96
Slide 97: 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? Confidential Material 97
Slide 98: 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 Confidential Material 98
Slide 99: 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 Confidential Material 99
Slide 100: IT Contracts: Negotiation From the Software Sales Point of View: Professional Services Scope Risk Deliverables Acceptance Dependencies Penalties Confidential Material 100
Slide 101: IT Contracts: Negotiation From the Software Sales Point of View: VSOE Confidential Material 101
Slide 102: 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? AICPA Statement Of Position (SOP) 97-2, Software Recognition Confidential Material 102
Slide 103: 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 Confidential Material 103
Slide 104: IT Contracts: Negotiation From the Software Sales Point of View: “What don’t we ask Sales that we should?” Confidential Material 104
Slide 105: IT Contracts: Negotiation From the Software Sales Point of View: Our Preparation: What questions do we ask Sales? Confidential Material 105
Slide 106: 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 how to best work with your company.” Confidential Material 106
Slide 107: 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! Confidential Material 107
Slide 108: 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 Confidential Material 108
Slide 109: IT Contracts: Negotiation Negotiation Opening, Target and Bottom Line 55% 65% 82% 90% with with with with metrics metrics metrics no metrics Confidential Material 109
Slide 110: IT Contracts: Negotiation Negotiation The power of competition Confidential Material 110
Slide 111: 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 Confidential Material 111
Slide 112: 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 Confidential Material 112
Slide 113: IT Contracts: Negotiation Negotiation The power of time Confidential Material 113
Slide 114: IT Contracts: Negotiation Negotiation The power of time $1.1M in professional services Opening $800K Target $900K Bottom line $1.1M Confidential Material 114
Slide 115: IT Contracts: Negotiation Negotiation The power of silence Confidential Material 115
Slide 116: IT Contracts: Negotiation Negotiation The power of silence House hunting S250K offer Confidential Material 116
Slide 117: IT Contracts: Negotiation Negotiation The power of third party research Confidential Material 117
Slide 118: 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: Confidential Material 118
Slide 119: 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 Confidential Material 119
Slide 120: 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 Confidential Material 120
Slide 121: 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 Confidential Material 121
Slide 122: 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 Confidential Material 122
Slide 123: IT Contracts: Negotiation Confidential Material 123
Slide 124: IT Contracts: Negotiation Preparation For Formal Project Confidential Material 124
Slide 125: IT Contracts: Negotiation Formal Project Scope: Develop the team Objective Statement: Musts Versus Wants Develop the objectives Request For Proposal Confidential Material 125
Slide 126: 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 Confidential Material 126
Slide 127: 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 Confidential Material 127
Slide 128: 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!” Confidential Material 128
Slide 129: 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) Confidential Material 129
Slide 130: IT Contracts: Negotiation Part Four Meet with the supplier Reassess Repeat until concluded Confidential Material 130
Slide 131: IT Contracts: Negotiation Term License Models: Grant Of Usage Enterprise Perpetual Annual Concurrent User Term per user Which one for which deal? Confidential Material 131
Slide 132: 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”. Confidential Material 132
Slide 133: 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 Confidential Material 133
Slide 134: IT Contracts: Negotiation Maintenance Cost: Planning Communication Timing Sourcing to contact supplier and convey: Shock Opening Communication Confidential Material 134
Slide 135: 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 Confidential Material 135
Slide 136: 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 Confidential Material 136
Slide 137: IT Contracts: Negotiation Maintenance Cost: Supplier Response Supplier submits Expedite Savings is $800K annually Confidential Material 137
Slide 138: IT Contracts: Negotiation Example Two: Enterprise Software List Price $100M Iceberg Preparation Delivery Results Confidential Material 138
Slide 139: IT Contracts: Negotiation Example Three: ESD Three year agreement showing “Deliver Media” Total Tax implication: $900K. Confidential Material 139
Slide 140: 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 Confidential Material 140
Slide 141: IT Contracts: Negotiation Example Five: Financial Systems Software Incumbent Annual software maintenance renewal in three months Preparation Tactics Used Result Supplier response Confidential Material 141
Slide 142: 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 Confidential Material 142
Slide 143: IT Contracts: Negotiation Research the supplier base IT recommendations Gartner For IT Leaders Forrester Tower Group Supplier websites Confidential Material 143
Slide 144: IT Contracts: Negotiation Cost Savings: Hard Cost Savings Soft Cost Savings Confidential Material 144
Slide 145: IT Contracts: Negotiation Cost Savings: Hard Cost Savings From budget From previous buy From first proposal *What you caused to happen Confidential Material 145
Slide 146: IT Contracts: Negotiation Cost Savings: Soft Cost Savings Payment terms Penalties for late Limited potential future increases *What you caused to happen Confidential Material 146
Slide 147: IT Contracts: Negotiation Cost Savings: What is the biggest problem here? Confidential Material 147
Slide 148: Summary Each contract is different Goal alignment Preparation is key to success Practice negotiation Declare Hard and Soft cost savings Confidential Material 148
Slide 149: 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 Confidential Material 149
Slide 150: 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 Confidential Material 150