Are You Acquiring Results or Resources?

 by Joe Auer

Are you acquiring results or resources? The answer to that question will yield a fifth important, essential “truth” whenever you negotiate a technology deal. About six months ago, I mentioned 10 of these truths, and detailed four of them.

The answer to this “results or resources” question establishes which side will bear responsibility for the results you’re expecting from a deal, and you need that answer before your acquisition process begins. In a “results deal,” the vendor is responsible, while in a “resource deal,” it’s the customer.

For more than 20 years, I have testified as an expert witness in court cases involving customer-vendor disputes, and almost every one revolves around the question of who’s responsible. In most of these cases, contractual responsibility for the success of the deal is unclear or mutual, or the vendor’s form contract has disclaimed any responsibility. The bottom line: If you, as a customer, fall short in a contract of clearly and completely assigning full responsibility for final results to the vendor, you’re responsible.

A results deal. In a results deal, you, the customer, effectively get the supplier to fully accept the risk of failing to produce the solution, or the expected outcomes or results. If the vendor’s representatives talk about “solutions” to your executives or end users, the vendor is held accountable for producing them.

This sounds good, but you can shoot yourself in the foot if you’re not careful putting the deal together. You might say, “OK, we have them committed to results. But we’re going to manage the deal. After all, it’s our money and our project.” Don’t do it! That shifts some responsibility for results to you, and the vendor is off the hook. The vendor must have complete authority to have complete accountability.

Another thing you might say is, “We have them committed to results, but we’re going to tell them the policies, equipment and staffing levels they must use.“ This also ruins a results deal. I’ve seen countless vendors avoid accountability because they were “forced” to do things according to their customers’ dictates. The customers got too proscriptive and shared responsibility for the outcomes.

Another important point about a results deal: Make sure your obligation to pay a vendor is triggered only by its producing the agreed-upon results, whether by reaching certain milestones or upon project completion.

If it’s a results deal, why should a vendor’s invoice force you to pay? Why should a set monthly date, the signing of a contract, accepting delivery or anything short of contracted-for results require you to pay? Make sure your money is tied directly to the vendor’s performance. The satisfaction of having a good contract is exceeded only by holding payment until the vendor produces.

A resource deal. In certain instances, there’s nothing wrong with a resource deal, especially if you don’t expect the vendor to produce the final results or outcomes. Maybe you just need some equipment, software or support to help you produce the results. Actually, sometimes you can’t predefine the results, or you may just need some tools to distribute — like 3,000 desktop PCs. Or maybe you need help on a general software development team or ongoing maintenance work and the results aren’t predetermined. These are resource deals. In these deals, you must pay attention and manage the resources, tasks, time frames and progress, because you’re responsible for the results.

The first thing I do when I’m asked to help on a deal gone bad is try to determine whether it’s a results or resource deal. Who has the responsibility for the outcomes? In most deals I look at, the answer is unclear. If that’s the case, you’ll never win a dispute that goes to mediation or court, where you’re trying to blame the vendor for not producing the results or solutions that it so eagerly promised verbally during its sales pitch.

IF YOU WANT TO SEE MORE ABOUT THIS, there is a SLA Lab at the AMA in Chicago May 27-28 produced by ICN.

JOE AUER is president of International Computer Negotiations, Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates Professionals on IT Procurement, Sourcing, and Vendor Management. ICN sponsors CAUCUS: The Association of Technology Procurement Professionals. Contact him at joea@dobetterdeals.com.

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Don’t Let Vendors Hold You Hostage

By Joe Auer

The following onerous provision regarding a customer’s payment obligations was uncovered during a review of a vendor’s proposed software licensing contract: Licensee shall pay vendor the fees set forth. . . . Without limiting vendor’s remedies, if licensee fails to pay in a timely manner any amount due, vendor may, in its good-faith determination, place licensee on “hold.” During any hold period, licensee will not receive any support or updates. Licensee shall reimburse vendor for any and all collection costs (including attorneys’ fees) incurred by vendor in the collection of past due amounts.

The vendor, in its self-proclaimed infinite wisdom, is demanding a unilateral right to cease its performance obligations if it perceives that the customer has an unpaid balance.

Never agree to such a provision. You have an obligation as a user of a vendor’s intellectual property to pay all valid amounts when due, but a vendor shouldn’t have a unilateral right to cease performance without notice if it believes you haven’t paid some amount.

Several issues need to be dealt with in this vendor’s boilerplate language. A vendor’s fundamental objective is to make sure it gets paid, and we, as customers, should provide assurance that we will pay. But that assurance shouldn’t require that we assume any additional and unreasonable risk.

Clarity Beats Faith

A big problem in this provision is that the vendor can cease providing support and updates if it believes money is due. It would be more reasonable if, after providing appropriate notice, the vendor were to invoke a hold period only if the customer fails to pay a support bill.

What if the unpaid invoice is for consulting services or shipping charges? Then suspension of support shouldn’t be tolerated. In an equitable agreement, the remedy must match a vendor’s loss but isn’t intended to give it any additional benefits or create additional risk or hardship for a customer.

Another intolerable part of this provision is the vendor’s right to act “in its good-faith determination.” A vendor’s idea of good faith may be very different from yours. Both parties must define and agree to what’s being said in such good-faith provisions. Clarity beats faith every time.

Under this standard vendor boilerplate, the vendor also retains all other remedies, such as the right to go to court and obtain an injunction.

Don’t be inclined to give a vendor multiple remedies for a single infraction on your part. The remedy should attempt to make a vendor whole for a single infraction and nothing more.

Here’s a better way to write the provision – one that gives a vendor adequate protection but isn’t overly restrictive for a customer.

Licensee shall pay vendor the fees set forth. . . . If licensee fails to pay any valid amount due according to the specified payment terms, vendor will so notify licensee and licensee shall have a 10-day period to pay any such valid and undisputed invoice.

After such 10-day period, if licensee fails to pay any support invoice, vendor may cease to provide support for the licensed software. All other fees remaining unpaid after the notice and 10-day grace period will be subject to arbitration.

Although such wording provides one solution to the problem, there are several variations that can be just as effective. The key is to work with your vendor to arrive at fair and equitable terms that neither automatically place your applications in jeopardy nor provide excessive remedies to the vendor.

In general, the goal of all supplier contracts should be to make a customer’s payment obligation totally dependent on satisfactory vendor performance.

As much as possible, avoid customer payment obligations – such as a monthly due date, signing the contract or receiving an invoice – that are triggered by something other than an acceptable act of performance.

 JOE AUER is president of International Computer Negotiations, Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates Professionals on IT Procurement, Sourcing, and Vendor Management. ICN sponsors CAUCUS: The Association of Technology Procurement Professionals. Contact him at joea@dobetterdeals.com.

Negotiations Pioneer Announces New Course

(Orlando, FL – 04/08/10)  Today, procurement and technology negotiations pioneer International Computer Negotiations (ICN) announced the addition of a new advanced course to its curriculum.  For 35 years, ICN has been training Global 1000 companies in how to Do Better Deals, and its new SLA Lab: Results-Based Contracting was developed to teach best practices in the use of service level agreements with suppliers.

CEO Joe Auer states, “Early in the acquisition process, effective negotiating teams must agree upon the concept of which contractual approach they will use to drive the deal. ICN’s advanced training course SLA Lab: Results-Based Contracting helps you understand the difference between contracting for resources and contracting for results and shows you how to implement a ‘results deal’.”

This “results versus resources” decision establishes which side of the bargaining table will bear the responsibility for the outcome you’re expecting from the deal. In a “results deal,” the vendor is responsible, while in a “resource deal,” it’s the customer.

Auer continues, “In SLA Lab, you’ll gain an understanding of critical elements that can help you shift risk and responsibilities to the vendor and monitor ongoing compliance.”

The training classes are open to the public and are available privately all over the world. The first class will be conducted in Chicago (May 27-28, 2010) at the AMA. Registration information along with a detailed outline is available at http://www.dobetterdeals.com or 407-740-0700.

Since 1975, Winter Park, FL based ICN has provided critical training and consulting in IT procurement, vendor management, and negotiations, establishing a reputation that sets it apart from the competition.  Internationally, ICN has presented both public and customized on-site seminars in countries around the world including the United Kingdom, the Netherlands, Malaysia, Canada, Australia, New Zealand, Hong Kong and Singapore.

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Tyrus Cooper

ICN PR

1133 Louisiana Ave

Suite 100

Winter Park, Fl 32789

1.407.740.0700