A Unique Opportunity

            One of my favorite events each year is the IT Procurement Summit produced by Caucus – the Association of Technology Procurement Professionals

            What sets the IT Procurement Summit (ITPS) apart from other conferences, seminars and workshops is that its intimate size creates an environment charged with enthusiasm for the profession. 

            Thanks to the efforts of the Caucus Executive Advisory Committee – a dozen dedicated volunteers from some of the nation’s leading enterprises – hundreds of topic suggestions and dozens of speaker applications are distilled into an information-packed two day, multi-track event. ITPS speakers are actual practitioners of the trade, bringing their practical experience and insight into every session. 

            The ITPS isn’t “pay to play;” that is, speakers don’t pay for the privilege, and they don’t attend with the purpose of hawking their wares. (In fact, supplier participation and access is carefully restricted.) 

            Speakers are carefully selected based on their professional experience and the topic of their presentation.  The result: a more compelling presentation and a more compelling conference. 

            And because of its intimate size, networking opportunities abound. So it’s a great chance to meet others in the profession, problem solve, and share ideas, information and experience.

            The 2011 IT Procurement Summit will be held on October 27 & 28 in Orlando, FL.

            There are two unique opportunities in connection with the ITPS will disappear on December 31.

            First, the Caucus Executive Advisory Committee issued its Call for Speakers earlier this fall.  If you’re a dynamic speaker with experience in the technology acquisition field, then you can contribute to the profession by submitting a speaking proposal by December 31.  More information may be found here. 

            Second, the Caucus Executive Advisory Committee has authorized steep discounts for those people who register by December 31 and pay by January 31.  Caucus members can register for $895 per person and non-members can register for $1,295 per person.  Email Caucus Members Services or phone (407) 740-5600 for more information.

            I hope you’ll consider taking advantage of these opportunities, so you can see why I think it’s such a great event.


OOPS! Know What Your Licenses Say!

            Lots of activity on the legal front over the past several weeks.  Recent court decisions effect how you might look at use of licensed software by third parties.

            [First the disclaimers:  I’m not an attorney and these comments do not constitute legal advice.  Consult your attorneys; for your convenience and theirs, links to the court decisions are provided below.]

            Autodesk provides its AutoCAD software under a Software License Agreement that all customers must agree to before installing the software.  The SLA states that: 1) Autodesk retains title to all copies of the software; 2) the customer has a nonexclusive and nontransferable license to use the software; 3) customers are prohibited from renting, leasing or transferring the software without Autodesk’s prior consent. In addition, there are other significant license restrictions including requiring the destruction of all copies of previous versions after an upgrade.

            Timothy Vernor purchased several unopened used copies of AutoCAD from one of Autodesk’s direct customers and resold the copies on eBay.  The District Court held that the sales were lawful and did not infringe on Autodesk’s copyright, because two of the Copyright act’s affirmative defenses apply to owners of copies of copyrighted works, the first sale doctrine and the essential step defense. 

            The Ninth District Court of Appeals in Vernor v. Autodesk, Inc., No. 09-35969, 9/10/10 overturned the lower court decision finding that Autodesk’s direct customers are licensees of their copies of the software rather than owners.  Because Vernor did not purchase the copies of the software from an owner, the first sale doctrine cannot be invoked and an essential step defense cannot be asserted.

            Because Vernor purchased the software from a licensee and not an owner, the sale did not constitute a transfer of ownership.  As a result, copyright infringement liability may be imposed upon Vernor and subsequent users of the software, because its subsequent use is in contravention of the original software license agreement. 

            What’s the lesson here for us?  Know your seller. Understand the terms of the license agreement before you buy.  And, begin with the end in mind.  Determine up front what your likely plan will be at the end of your use of the software.  Don’t expect to be able to sell, donate or transfer it unless the license specifically allows it. 

            Compliance Source develops, licenses and sells mortgage-financing forms to residential lenders.  Digital Docs develops, licenses and supports computer software that prepares residential-mortgage loan documents.  Jointly they developed technology that allows mortgagees to merge their own transaction-specific information with Compliance Source and Digital Docs proprietary forms and prepare customized loan documents. 

            GreenPoint Mortgage Funding signed a licensing agreement to use the technology to streamline its loan packaging process.  The licensing agreement allowed GreenPoint and its Originating Lenders access to closing documents.  It specifically prohibited GreenPoint from copying, selling or sublicensing the forms database.  The licensing agreement also included a specific license to “use the Software Products in a Production Environment at the Customer Site Locations.”  It specifically prohibited sub-licensing to third parties.  GreenPoint allowed its attorneys access to the technology to prepare loan documents. 

            Compliance Source and Digital Docs sued GreenPoint for breach of the license agreement, and the District Court found in favor of GreenPoint on the basis that use of the licensed property by a third-party solely on behalf of and for the benefit of the licensee is not a transfer or sublicense.

            In Compliance Source, Inc. and Digital Docs, Inc. v. GreenPoint Mortgage Funding, Inc. No. 09-10726, 10/18/10, the Fifth District Court of Appeals stated that because the license agreement expressly prohibited any use not explicitly permitted by the agreement itself, and because the attorney’s use was not explicitly permitted in the agreement, the District Court’s decision was in error, reversed and remanded for reconsideration.

            What’s the lesson here for us?  Simply granting any third party access to licensed technology may be considered a breach of your license agreement. Seek permission first, or better yet, negotiate up front your ability to grant attorneys or service providers access to or use of the technology in the normal course of business.

            Bottom Line:  Know what your licenses say!

Our guest blogger is Dan Wallace, a staff member at ICN and Caucus-The Association of Technology Acquisition Professionals. For advice on software license agreements, contact ICN. 

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.



The Procurement Assessment

Note:  This article originally appeared in a 2002  issue of ICN’s Tools & Tactics and has been updated for presentation here.

You’ve trained and coached your staff, coached key executives and IT project managers, made presentations, developed form agreements, created a deal repository . . .  But, are those involved in evaluating, buying and paying for technology acquisitions actually following your processes?  Have you changed your organization’s culture, making sure that the new procedures are “stick-ing”?  How much success are you having in negotiating those deals?

There is no doubt that best-in-class technology procurement organizations have processes and tools in place, and their personnel are both trained in the methodologies and use the tools and re-sources available.  Their results demonstrate cost savings, vendor management, resource and fi-nancial control and short and long-term risk avoidance. 

A Procurement Maturity Model (PMM)  might take this form:

How do we measure the maturity of your procurement organization?  The Procurement Assess-ment is the most comprehensive way for an organization to audit its current utilization of the methods, tools and resources you’ve put in place.  A Procurement Assessment will measure your progress toward achieving best practices and will help you establish annual goals for your or-ganization.

Look at the following four areas:

Level 1 Level 2 Level 3
Initial Efforts Methodology Established Integrated Method-ology, Standards
Common  language   established

Cultural and management change initiatives

Integrated  methodology establishedCross-functional teams Cultural and management supportPolicies established
Issues addressed organization Focus on individual projects Intangible benefits made apparent
Training Level 1 Tangible benefits   made apparent Form Agreements
  Training Level 2 Deal repository
    Training Level 3
Level 4 Level 5
Comprehensive Continuous Improvement
Integration of resources, tools, culture Continuous learning, process improvements
Vendor policy     and management Lessons learned, knowledge transfer
Qualitative and quantitative measurement of results Strategic planning

• Processes.  Robust processes based upon sound industry best practices provide the requi-site infrastructure to move a procurement organization forward. Processes provide consis-tency of approach and the organizational discipline that assure that best practices are syn-thesized within the organization.

• Resources. Appropriate, experienced, knowledgeable and professional resources must be available when required. An organization must commit to attracting top talent or out-source the IT procurement function to knowledgeable experts.

• Tools. Effective tools provide consistency of approach and also streamline the overall procurement process. Some of the more important tools include deal checklists, standard form contracts, templates for Requests for Proposals, Requests for Information, vendor evaluation matrices and so forth. These tools and others must be fully integrated into pro-curement processes.

• Organization. There must be organizational commitment that supports and nurtures the development and use of an IT procurement function.
Determine the effectiveness of your organization

The Procurement Assessment works as follows:

Develop the Survey Tool. The procurement management team develops a survey that will elicit responses from the organization on current practices and knowledge in the four categories:  proc-esses, resources, tools and organization. The survey asks a series of questions to ensure compli-ance with the required processes and procedures or to evaluate current practices as they relate to industry best practices. Although the internal procurement organization may perform this audit in some companies, having an outside party perform the audits gives the process a measure of inde-pendence, avoids “turf wars,” and may provide more focus for senior management.

Determine Survey Population.  The size of your organization will determine the number of par-ticipants.  Generally, a sample of ten to fifteen individuals from a variety of functional roles should be included.  A representative cross-section of people from the CIO office, procurement, vendor management, IT project managers who are involved in procurement activities, finance, end-user deal makers and legal should comprise the survey population.

Conduct Kick-off Meeting.  An initial meeting with the survey population to explain the proc-ess and answer questions is an important step in preparing them for their participation.

Conduct Interviews.  Using the customized Procurement Survey described above, interviews of the survey population are conducted.  Interviewing in-person on a one-on-one basis enables par-ticipants to be more candid in their responses. (Complete candor may be achieved when a third-party conducts the survey.) 

Summarize the results and prepare the findings.  Following completion of the interview phase of the survey, the obvious next step is to analyze the results and prepare a report that sum-marizes the current status of the company’s processes, resources, tools and organization. The outcome of the analysis should be a reliable indication of your company’s progress towards achieving a best-in-class technology procurement organization.  Based on the levels of the find-ings, the team can determine the maturity of the procurement process and create (or update) the plan to reach the next level. 

Conduct Executive Briefing.  The results of the Procurement Assessment, next action items, strategies and recommendations should be discussed in a briefing with appropriate personnel.  Because executive buy-in is critical to a successful implementation of best-practices procurement processes, the results should also be summarized and sent to the technology procurement stake-holders including the CIO, the procurement management, legal and key senior business manag-ers.

By performing a number of assessments over time, you can gain a sense of whether processes, tools and resources are being successfully integrated into your procurement organization and take appropriate corrective action if necessary.

Our experience has proven that most businesses can benefit – financially and functionally – when they evaluate the quality of their existing procurement programs.  By implementing the right procurement methodology, you can realize considerable savings with minimal impact on your core business.

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.

Work out details later? No! Now!

By Joe Auer

Suppliers often skillfully avoid tougher service-level guarantees by convincing the customer that service-level agreements (SLA) should be negotiated after a 90-day transition period. The supplier convincingly argued that service levels could be better determined once it understood the customer’s operations.

Suppliers suggest that the two sides work together to identify service levels during the transition. The customer many times falls for this, believing that information gathered during the transition period would produce more favorable SLAs. The customer signs a contract with no specific SLAs, no “out” clause if the two parties failed to agree on service levels and no recourse if the supplier failed to perform.

And guess what usually happens! At the end of the transition period, the supplier is willing to sign only a few weak SLAs with no remedies. For example, the supplier agrees to make applications “generally available” and that help desk calls would be answered “as soon as practical.” As you might suspect, the supplier escapes accountability with these “commitments” because no one could agree on what those terms really meant. As a result, the customer ends up with a multiyear contract that heavily favors the supplier.

To avoid this kind of mess, start with specific SLAs and remedies in your request for proposals. Let a qualified supplier perform due diligence of your operating environment under a nondisclosure clause as part of its preparation before making its proposal. A supplier’s bid should be based on your required SLAs, which should at least match the service you are currently receiving. In most cases, the SLA should exceed the current levels because you’re considering services provided by “experts.” The key is to specify desired service levels up front, early in the supplier evaluation process.

The critical error is signing a long-term contract without agreement on a fundamental issue – service quality. With a signed contract and no SLAs, a supplier won’t be motivated to guarantee exemplary service, only a minimal quality commitment that would leave the customer without meaningful recourse for unsatisfactory service.

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.

A Strategy for the Right Service Levels

by Joe Auer

Service levels are an important part of any results-oriented contract where specific supplier performance is required—and where it must be measured. Service levels are especially important in outsourcing and telecommunications deals in which the customer becomes vulnerable because he depends on the supplier. A results-oriented contract with meaningful service levels and remedies is an effective mechanism to help customers actually get what they’re paying for and minimize exploitation by opportunistic suppliers.

Establishing realistic service levels and remedies for supplier nonperformance can be very difficult. With some pressure from a prospective customer, suppliers are generally willing to contract for service levels and, sometimes, remedies to go along with them. But suppliers usually try to make service levels as broad and as loose as possible, which makes them easier to achieve—and tougher to measure. Meanwhile, customers want service levels to be as tight as possible to ensure maximum and measurable performance. The challenge manifests itself during contract negotiations.

As a customer, remember that the supplier is always trying to minimize its risk by placing as much of the burden of proof on your shoulders as possible. Here’s a recent example:

During negotiations for a global telecom deal, a customer was faced with the service-level challenge. Several prospective suppliers proposed their standard service levels. The customer believed those levels were too broad for some critical components of its network. The suppliers stuck to their standard rhetoric, stating that their service levels were reasonable and consistent with industry practice.

The customer didn’t fold and argued that while the levels may be consistent with industry practice, they weren’t sufficient for the company and some parts of its network. The customer’s procurement team focused the prospective suppliers’ discussions and proposed solutions on the actual network. The team presented its network map and pointed out there were certain locations that were critical to operations. The supplier-proposed service levels weren’t adequate for these critical locations because they left the customer vulnerable to too much downtime in the event of a network failure. (But the proposed service levels were acceptable for some other noncritical locations.)

The customer then stressed the need for location-specific service levels to guarantee the robustness and serviceability of its network as well as the continuity of operations. This argument seemed to be new to the suppliers and was met with some initial skepticism.

The customer pulled an ace out of its sleeve by saying, “This is a way to distinguish yourself from your competitors. It’s an opportunity to excel and gain an edge. It’s an opportunity to win a global deal without assuming an inordinate amount of risk. We’re willing to accept your standard offering for most locations if you give us a display of confidence in your ability to perform for the critical ones. These locations are critical for us, and we need to more fairly allocate the risk of network failure.”

Two suppliers agreed and proposed their best location-based service levels. That’s just what the customer needed to be competitive and maintain negotiating power. Isn’t that what it’s all about? Suppliers with real confidence that they can do the job shouldn’t be afraid of performance guarantees. What’s more, having supplier competition on service levels helps both the evaluation and negotiations processes for the customer.

The difficult task ahead is actually agreeing on the specific metrics that ensure that all three critical service-level components—time, money and quality—exist and are meaningful. In other words, every performance factor must be measurable, including how long it will take, what the maximum cost is and how acceptable (to the customer) quality will be verified.