The Art of the New Deal

Take it from the masters of vendor management: Despite a looming recession, now is the right time to push vendors for a better deal and to make industry consolidation work for you.

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Fight Back on Maintenance

Even when the economy froths with prosperity, the one negotiating point guaranteed to provoke both parties is the price of software maintenance. It takes special skill to argue straight-faced that the maintenance fees vendors devise are scientific. The wiggle back and forth on those fees can get contentious, says John Doucette, who has spent the last seven years as CIO of United Technologies, a $60 billion conglomerate that includes Pratt & Whitney, Sikorsky, Otis Elevator, Carrier, UT Fire and Security, and Hamilton-Sundstrand. Lately, Oracle has asked Doucette for annual maintenance fees equal to 22 percent of license costs, while SAP wants 17 percent to 20 percent. Both are too much, Doucette says. Microsoft calls its product care plans different names, such as "software assurance," and asks for about one-third the cost of the software, Doucette says. But it all looks like maintenance to him—and expensive maintenance at that. "Thirty-three percent!" he rails. "Repaying for your software every three years? It's frustrating."

So far, Doucette has pushed back and negotiated his vendors down. What aggravates him, he says, is that he knows vendors are developing big chunks of their product lines offshore, where labor is cheaper than in the U.S.

United Technologies itself hires offshore outsourcers for some programming. "I know I'm five times more productive than several years ago, so [the vendors] have to be, too," says Doucette. "But my price from Oracle and these other companies has not gone down at all." Average software maintenance costs amount to 26 percent of the total cost of ownership for the software, which IT managers say is too high, according to a recent Forrester Research survey. A "fair" maintenance cost would fall between 10 percent and 12 percent of the cost of ownership, according to the poll of 215 business and applications professionals. "We get pressure from our CEO and CFO every day about productivity," Doucette says. "We don't think we're getting any price productivity from software providers."

The Lesson:

Object to high maintenance fees as many times as it takes. Then find a way around them if necessary. One way to avoid getting locked into high maintenance fees is to hire third-party service providers to do the job, says Forrester analyst Ray Wang.

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