Ten Truths of Negotiations – Truth #1

          Now, more than ever, we need to focus on doing better deals and managing deals better. One reason, of course, is technology itself, which has become a huge part of organizations. We depend on technology like never before. A second reason for focusing on our deals is that we continue to face some challenging financial times. People who know how to do better deals and manage deals better are going to be essential, viable and in demand.

          In recent months, I’ve been reflecting on my 40 plus years in this business and I’ve come up with what I consider to be the ten most important truths of technology negotiation. Although it may be presumptuous to say, I believe that if you focus on these ten truths, you can do better deals than more than 90 percent of the people doing deals today. I know that seems like a high expectation, but I sincerely believe it to be a fact. Let me describe for you those ten truths.  I will be letting one or two truths out every now and then for the next few weeks.

          Truth #1. If it’s not part of the contract, it’s not part of the deal. Why is that a truth? Vendors have written in their contracts, right near the signature line, that if something is not in the contract, it’s not part of the deal. Period. Yet somehow we tend to forget this critical point. Our decisions on what supplier to do business with are based on things that are not in the contract. And we make plans for things that aren’t in the contract. Think about it…in many cases, the contract disclaims a lot of the things we are dependent on. Sometimes we bet our jobs on a deal going right, but we act naïve in the face of a legal document that says that if something isn’t part of the contract, it’s not part of the deal.

          Recently, I was reminded of something that International Computer Negotiations, Inc. (ICN) did some time ago that worked well. In fact, it worked so well that we’ve used that same concept many times. We held a vendors’ conference for a large electric utility. We told the vendors that we had reviewed all their documents, and that they all said that what’s not in the contract is not in the deal. So we said, “We’re going to give you a Request for Proposal (RFP) that talks about our requirements. And your response—your proposal—has to be your contract. This will hold true unless you’re willing to remove the provision, ‘If it’s not in the contract, it’s not part of the deal,’ from your contract right now. If you do take it out, then we’ll agree to consider things outside the contract. Is any vendor here willing to strike that provision from their contract?”

          How many vendors do you think raised their hands? You’re right…none. We then said, “We’re going to evaluate only your contract and base our decision on what’s in the contract. Feel free to include in your contract any representations and inducements—about your reliability, acceptance testing and what great results we’re going to get. But we’ll evaluate you based on only your contract.”

          We followed through on this and guess what? We got some wonderful contracts. Our ground rules eliminated a lot of the superfluous sales posturing, a lot of unrealistic user expectations and a lot of other unnecessary things. That experience and others like it have convinced me that the closer we can get to that type of situation in our procurement process, the better our results will be.

          The more we bring the contract and the issues related to it to the front of the deal, the better off we are. I would never even consider doing a Request for Proposal without a contract in it. That’s right, and I mean our contract in the RFP. I would make every vendor react to every provision in one of three ways: we fully accept that provision, we totally reject that provision or we accept this provision as modified. I would tell them their response to the contract is worth 35, 40 or even 50 percent of the evaluation. They’re being judged on their contractual willingness.

          In other words, why would we even consider making a decision without paying attention to how willing the vendors are to back up everything in their contracts? Just remember, if it’s not part of the contract, it’s not part of the deal.

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Technology Acquisition Professionals to Convene in Chicago

(Orlando, FL – 07/28/10) CAUCUS, The Association of Technology Acquisition Professionals, announced it is holding its 2010 IT Procurement Summit (ITPS) in Chicago on September 20-21.  This is the 15th year Caucus will hold this significant industry event.  “Our members have been working hard to organize this event,” said Sarepta Ridgeway of CenterPoint Energy and Conference Chair.  Professionals, both members and nonmembers, will attend to learn the very latest best practices for putting together cloud computing and SaaS deals, software license agreements, telecom transactions and service level agreements.  Risk management , supplier relationship management and CTPE / CTPS Certification classes with exam  will be among the other subjects or areas to participate in.

The annual summit provides acquisition professionals with the latest information on all facets of the acquisition process.  “Networking opportunities abound, many of the interactions initiated at the conference develop into long-term business relationships,” said association founder Joe Auer. “If you do any type of technology acquisition, this is where you need to be on September 20-21.  The presenters are the very people that do these types of deals…everyday!”

Attendees come from a variety of disciplines including procurement, finance, legal, IT and contract management and represent organizations of all sizes from all sectors of the economy, including large global corporations;  small and medium sized businesses; not-for-profits, government agencies, states and municipalities.

The 2010 ITPS will be at the InterContinental Hotel on Michigan in Chicago and the early-bird has a deadline of August 12th.

Caucus – Established in 1994, Caucus is the only association serving the specialized needs of technology acquisition professionals. Members come from a variety of disciplines including procurement, finance, legal, information technology and contract management.  Membership gives them an invaluable edge – the Caucus Advantage. Caucus also provides certification in this field as a CTPE or CTPS.

Contacts:

ICN
407-740-0700
Ja4@dobettdeals.com
http://caucusnet.com

The “You’re Getting Our Best Price” Ploy

In this ploy, the vendor’s marketing representative attempts to convince the customer’s negotiators that the customer is getting the vendor’s very best price.  The implication of being able to “sell” the best price ploy to the customer is twofold.  First, since the customer is being offered the vendor’s best price, further negotiations to achieve additional price concessions would be a waste of time.  Second, because the vendor already has cut its profit to the bone, the customer shouldn’t expect soft dollar and contractual concessions from the vendor. 

By convincing the customer there will be further contractual concessions, the vendor is likely to gain another edge.  The vendor’s representative will note that the quoted best price has been based upon the vendor’s standard contract, not on a lengthy document that alters “traditional” liability relationships and includes other vendor concessions.

A Winning Ploy

The “Best Price” ploy is effective against big companies and small firms alike.  Large customers are susceptible to the ploy because they already are impressed with their own size and clout with vendors.  In dealing with many large companies, vendors have to do little further convincing that the quoted price is the best price.  Vendors feed a large company’s corporate ego by comparing that firm’s negotiating advantages to the disadvantages faced by smaller customers. 

The vendor’s script reads:  “Mr. Adams, we recognize that we’re dealing with one of our largest customers so we’d never consider having you pay the same price as  our smaller customers.  They don’t have the same purchasing power, and you’re a terrific negotiator. So, rather than beat around the bush, we’ve quoted you our best price from the start.” The amount of money and contractual protection large customers leave on the table as a direct result of this “ego inflation” tactic can be staggering.

Smaller customers also can be victimized by this same approach.  The vendor’s marketer tries to convince the customer’s staff that, because of their personal relationship, their strong negotiating ability or the importance of the transaction to the vendor, the vendor is giving the customer its very best price, which is seldom available to much larger customers and is virtually never offered to smaller firms.

In this approach, the vendor’s representative says, “Because this transaction is especially important to our senior management and because your negotiating team has a reputation for driving a hard bargain, we’ve quoted you our best price from the outset.  I hope you appreciate the fact that this is a significant discount.  I know for a fact that [insert the names of a few Fortune 500 companies] haven’t been offered this price. But, we want your business, and we want to expedite this transaction to meet your installation deadlines.” 

The vendor’s representative also may assure the customer’s staff that the vendor’s standard form contract, which the customer has the audacity to ask to modify, has been accepted virtually unchanged by a number of named national firms.  In some situations, the salesperson is simply misrepresenting the situation, but this is easy to check out with a series of telephone calls to the supposed signers.  In many other instances, the sales representative will be all too correct. 

ICN often has observed that, until enlightened by training publications, consultants, or other customers, some of the nation’s largest companies have left the most contractual protection and the most money on the negotiating table.

Securing Favorable Treatment

Regardless of the customer’s size, the vendor should be required to back up its “best price” puffery in writing by agreeing to a “most favored nation/customer” provision in the contract.  If the vendor agrees to include such a provision in the contract, the customer will gain meaningful contractual protection and considerable peace of mind.  If the vendor balks at such a provision, the customer may learn a great deal about the candor of the vendor and the relative importance the vendor really attaches to the customer’s business.

Consider the following situation, where the vendor began by saying:  “John, this is obviously our very best price.  As you know, you get our best price.  We can’t sell it for less than this amount, even to a company of your size.” 

Unlike most customers, however, John replied:  “Great!  If that’s the case, I’m sure you won’t mind a contract provision stating you are selling us your system for the maximum allowable discount which gives us the minimum total price.  Furthermore, since you represented the fact verbally, let’s put it in writing that this system has not been sold for less money to anybody else.  Of course, if at a later date we find out you have sold it to somebody for less money prior to our date of signing, we’ll be entitled to a retroactive discount.”

As might be expected, a request for this kind of provision normally separates puffery from reality.  The customer’s negotiator will find out if the vendor is telling the truth.  If a vendor will put a “most favored” provision in the contract, the customer can be pretty well assured that the vendor has undertaken a high-level review of the negotiations to make sure that the customer, in fact, is being given the maximum allowable discount. 

If, after making grandiose verbal representations, the vendor is not willing to put this provision into an agreement, then the customer has a simple and dramatic remedy—throw the vendor’s negotiators out of the office.  Once the vendor overcomes the shock of being ejected and the protestations have ended, two possible scenarios might occur.

If the vendor’s negotiators were serious about offering the customer the vendor’s “best price,” they’ll regroup, figure out a way to save face and come in with the discount price and the “most favored customer” clause.  However, the vendor may try to restructure the transaction to scramble the actual discount and protect itself with other favored customers. 

On the other hand, the vendor may come back with a new story coupled with an absolute refusal to provide the “most favored customer” clause.  If this is the reaction, the customer should ignore the vendor’s stated rationale and zero in on the relevant question:  Why won’t the vendor supply the clause in writing?. 

The Real Reason

While it’s possible that the vendor has a firm policy against “most favored” provisions, this is the exception.  The more likely reason is the vendor has offered a better discount to another customer.  In essence, the larger (or smaller) customer was not so “favored” after all.
 

Most Favored Nation Provision

Notwithstanding any other provision of this Agreement, all of the prices, warranties, benefits, and terms granted by the Vendor to the Customer hereunder are hereby warranted to the Vendor to be comparable to, or more favorable to the Customer than the equivalent prices, warranties, benefits, and terms that: (a) have been offered by Vendor to any of its other      (1)      customers      (2)      during the period from      (3)      to the effective date of this Agreement; and (b) are being and will be offered by Vendor to any of its other      (1)      customers       (2)      during the period from the effective date of this Agreement through and including      (4)     If at any time during the periods stated in subparagraphs (a) or (b) above, the Vendor shall contract, or have contracted, with any other      (1)      customer      (2)      for the      (5)   of substantially similar equipment as that listed in Schedule A hereto, on a basis that provides prices, warranties, benefits or terms to the customer more favorable than those provided to Customer hereunder, then: (i) Vendor shall within (30) calendar days after the effective date of such other contract notify Customer in writing of such fact, explaining the more favorable basis in detail; and (ii) regardless of whether such notice is sent by Vendor or received by Customer, this Agreement shall be deemed to be automatically amended, effective retroactively to the effective date hereof, to provide the same prices, warranties, benefits, or terms to the Customer; provided that Customer shall have the right and option at any time to decline to accept any such change, in which event such automatic amendment shall be deemed to be null and void effective retroactively to the effective date of this Agreement. 

The provisions of this section shall survive the closing and termination of this Agreement.

Notes:

(1)        Insert any limitation describing the type of customer or business, such as “aerospace.”

(2)        Insert any geographic or other limitation, such as “located in the Commonwealth of Massachusetts” and/or “purchasing a system with a list price of $1.2 million or more.”

(3)        Insert earliest date Vendor will agree to accept.

(4)        Insert latest date Vendor will agree to accept.

(5)               Insert any descriptive limitations based upon the type of transaction involved, such as “purchase” or “lease.”