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How to Take Control When Negotiating Vendor Contracts

When you're signing on the dotted line, vendors often have plenty of clout. But you can get control of the deal.

It's difficult for CIOs to negotiate IT contracts if the balance of power is heavily tipped toward vendors. Since vendor contracts are typically extremely one-sided, CIOs need to protect their interests. CIOs can gain control and increase leverage by taking a systematic, four-step approach to negotiations, which may include negotiating with more than one vendor simultaneously. Some transactions require only some of these steps to be applied. But each step can ensure that the negotiation process results in a fair and balanced contract.

Step 1: Prepare. Your company's preparation should include researching, defining and collecting information about your company's business requirements and about each of your prospective vendors, since all this information will be incorporated into (or used to draft) the contract, statements of work and project plans. This step should also include devising a negotiation strategy and determining roles and responsibilities for all parties.

Step 2: Include a contract in the request for proposal (RFP). To avoid contracts that decidedly favor the vendor, consider including in your RFP a contract that your company and its attorneys have prepared. The RFP should also include the rules for each vendor's response to the contract. An issue paper approach -- where each vendor must respond to each provision of the contract in a separate issue paper -- can reduce the number of changes vendors propose and shorten the negotiation time frame. Vendors tend to be savvy negotiators, so you need to present a united front and use the RFP to outline the ground rules for communication with your company (such as permitting contact with only one individual). Then stick to these rules. By doing so, you can avoid common vendor negotiating tactics, such as using a divide-and-conquer strategy with your company or pulling a bait and switch.

Step 3: Simplify vendor evaluations. Evaluating each vendor's response to a contract takes time. Consider creating a matrix showing each contract provision and each vendor's response. A matrix makes the evaluation process easier to focus on the big picture because you can evaluate each vendor's response individually and in comparison with one another.

Step 4: Establish negotiation procedures. Your company should enforce and adhere to pre-established negotiation procedures and control communication throughout the process. This can include an outline of each day of negotiations and a detailed, hour-by-hour schedule for each negotiation session.

Negotiations also work better and take less time if the negotiation teams include decision makers from each side of the table. If each team includes people who have the authority to say yes (or no), you will reduce time-consuming and costly delays and the all-too-common vendor response "We'll get back to you." Finally, limit time spent negotiating with each vendor, and stick to the schedule. This encourages focus and an efficient use of time and reduces delays.

While vendors may balk at the prospect of ceding some control in negotiations, each party will find that the process is fair and manageable, takes less time, and costs less. By maintaining control and leverage, your company will benefit from an IT contract devised on its own terms.

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Matt Karlyn, J.D., M.B.A., is a member of Foley & Lardner LLP's Information Technology & Outsourcing Practice Group in Boston. Write to him at mkarlyn@foley.com.

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