“Know the enemy and know yourself; in a hundred battles you will never be in peril” Sun Tzu
Successful negotiation is an art form that comes naturally to some, but must be learned by most. Never has truer words been written than when it comes to negotiating software contracts which are time-consuming and weighed down with uncertainty about terminology, exact usage, requirements and entitlements.
Prior to negotiations, it is helpful to maintain pre-approved contract language that has been vetted by your legal team. Smaller organizations may not have the financial strength to enforce these contract terms and conditions but they should definitely attempt to control the contract as much as possible.
Too many companies think of contract negotiations in terms of the purchase price, when that’s a small component of the deal. In reality, the devil is in the detail. This means businesses would benefit from focusing on the contract terms and conditions, and the vendor’s definitions of those terms.
Leverage your bargaining power by letting the vendor know it has a credible competitor, if there is an alternative. It’s also crucial that the negotiator understand the industry landscape and the relative importance of the deal to the vender.
For instance, buying a large bundle from a vendor that’s coming off a disappointing financial quarter or a vendor trying to break into your vertical industry can work to your advantage.
Another area to negotiate is the cost to purchase additional licenses. I have seen software OEM vendors insist that the customer pay list price, rather than the discounted price they were given when they first purchased the software. Vendors also want list price for back support and maintenance, which is another area that should be negotiated.
Most small organisations, that purchase software through a reseller, don’t negotiate any of these areas. Larger organisations that are buying directly, may focus on discounting rather than the audit clauses. By working with your legal team to carefully review the contract terms and conditions, you may uncover other areas that could potentially save the organisation a lot of time and unplanned expense.
Many companies fail to escrow the software’s source code just in case the vendor goes under, discontinues the product, gets bought, or fails to meet the contract’s terms. Before escrowing software, consider whether or not you have the team needed to maintain the application. If not, software escrow may not be an option to consider.
So what does this quote by Sun Tzu have to do with all of this? Well, taking steps up front to understand everyone’s motivation in the deal is key. The vendor may be motivated not only by price, but may want to grow market share in your vertical or may want your business as a customer reference.
Understanding the needs of your business and how software is deployed and used, will ensure that the sourcing or procurement professional negotiates beneficial terms and conditions that can reduce hidden costs and risks.
By Patricia Adams, former research director at Gartner, as an IT Asset Management evangelist at LANDESK