by Brian E. Thomas

CIO value proposition: Negotiating key IT vendor contracts

May 11, 2017
Collaboration SoftwareIDG EventsIT Governance

While it's important for CIOs to provide a strategic advantage and to work on creating a partnership mentality, one area that needs to be smartly managed are those cumbersome and expensive vendor contracts.

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We’ve talked about how CIOs can bring value to the organization through flexibility, business capability, strategic advantage and the development of a partnership mentality. Companies nowadays are measuring the value of their IT departments and their services, comparing their company’s technology and capability to others’ technology acumen and agility. Are they creating benchmarks as a result of those outcomes? While it’s important for CIOs to provide a strategic advantage and to work on creating a partnership mentality, one area that needs to be smartly managed are those cumbersome and expensive vendor contracts.

Before you negotiate a key vendor contract, you need to have developed the right vendor management strategy; failure to do so can result in a dysfunctional relationship that can negatively impact your business, according to The Balance. While you need to be prepared to play hardball, you must also value your vendor and build a strategic partnership that is mutually beneficial for both parties. Although you want to be the hero and negotiate a rate that boosts the company’s bottom line, you don’t want to go too far and turn your vendor off. And you REALLY don’t want to cut corners on service, which can hurt your business and cause an eventual breakdown of the relationship.

So, how can you negotiate key IT vendor agreements so as to benefit your company as well as preserve the vendor relationship?

Recognizing the value

In terms of IT buyers, strategic partners are vendors that have not only provided effective delivery of systems and services, they have gone one step further to become transparent, responsive and trusted collaborators for generating value for the enterprise — consistently. Vendors who fail to achieve this competitive advantage will only have price to fall back on, bringing them too far down the competitive ladder. The “mutual win” can be put at risk if the most strategic vendor relationships are not pursued strongly.

Not only will buyers become slow to market, they will bypass critical project and implementation deadlines, thereby being denied business opportunities built on trust and transparency. Financial risks, professional losses,n lack of respect in the marketplace are all potential downfalls that can be prevented with proper execution of strategic partnerships.

Regain control

You may wonder: How can I as a CIO effectively negotiate IT contracts if the balance of power is heavily weighted towards my vendors? The answer is protection of your interests, and you can win back that even balance of control by boosting your leverage. This is made possible through a systematic, four-step negotiation process, including:

  • Be prepared: Make sure you have all your ducks in a row. This includes researching, defining and gathering information about your company’s business requirements as well as about each of your prospective vendors. You’ll need this information in order to create the contract, statements of work and project plans, as well as your negotiation strategy and role determination processes.
  • Insert the contract in the RFP: To avoid creating yet another contract that favors the vendor right off the bat, include in the RFP a contract customized by your own company and attorneys. From rules for vendor’s response to issue paper stipulations, you can cut down on how many changes your vendors ask for, thereby tightening up the time frame for response.
  • Make vendor evaluations easier: Going over each vendor contract painstakingly takes up a lot of time and energy. What if there was a way you could speed up this process? The answer is a matrix that illustrates each provision and each corresponding response. Not only can you evaluate the responses individually, you can also run a compare and contrast.
  • Stick to pre-established negotiation procedures: Maintain control of the process by adhering to a pre-set outline of negotiations that’s extremely detailed, even down to the hour.

Additional best practices

Vendor contract negotiations can be exhaustive, draining and time consuming, but with the right approach, you can keep a clear head and come out on top. Heed these additional tips:

  • Be flexible — on both sides: Go for shorter term contracts with options to renew so you’re not locked into something too restrictive. On the other side of the coin, be flexible on small sticking points from the IT vendor to show you’re willing to bend.
  • Keep track of performance: Thinking that the plan will progress exactly as you outlined in the beginning is downright foolish. Do your due diligence and make sure the contract is executed just as the original contract specifies.
  • Keep the lines of communication open: Assuming the vendor knows what you’re thinking or expecting is an exercise in futility. Well-maintained lines of communication will keep misunderstandings at bay and help you be proactive in your approach rather than reactive.

Remember, striking the right balance with negotiating a key vendor contract is just as much about the planning as it is about your approach. Transparency and communication will take you a long way, and it will truly convert “vendor” to strategic partner.