Contract negotiation is not a science; it is an art that can be learned. A lawyer and a CIO have teamed up to offer this proven advice.
Co-written by Kevin Field.
With the steady increase in IT outsourcing over the years, CIOs rely more and more on their vendor partners, whether they be cloud, mobility, security, data warehousing, AI, or software-as-a-service (SaaS). As a result, effective technology vendor contract negotiation strategies and skills need to be taught. “Winging it” is not a negotiating strategy. Without great negotiating skills, your results may be disappointing, even on a good day.
Negotiating is a process that should end in a deal that compromises everybody's initial positions. However, compromise is not the same as meeting in the middle. You do have to “give” to “receive”, so be strategic; go in with “giveaways” and then give them away.
Good negotiators can achieve a contract that’s acceptable whereas great negotiators claim more of the value while leaving the other side to perceive that they “won” the negotiation.
Your negotiating mindset
When preparing to negotiate with a large or mega vendor, don’t be intimidated; they want your business or they wouldn’t be talking to you. Certainly their salesperson doesn’t have a Jeff Bezos-sized house. He's a regular person who wants to close a deal and earn the commission, and that’s the motivation. Sure, the mega vendors may budge less than the small local vendor, but they all have some flexibility. The only way to find out how much is to push back.
Here are nine quick tips for going from good to great as a tech contract negotiator:
You must be a great listener and an investigational negotiator. Start by asking questions so that you can learn their wants, needs and agenda.
Every great negotiator can empathize with the other side’s position. Even if you believe that their position is insane, it’s still their position.
- Don't sign their first draft
Never accept and sign the vendor’s standard contract form without making any changes. Their forms, by default, were designed to favor themselves and may not capture all of the talking points of previous conversations. Think of the vendor’s form as a “first offer”. Read the agreement as if you’re buying the product or service for yourself personally and with your hard earned money. This will change your perspective. Don’t be shy about pushing back and asking for what you want and need.
- Push for better SLAs
Always negotiate for better support, uptime, and response time service level agreements (SLAs) than your vendor initially offers. Follow this up by requesting expedited escalation provisions so that, if your vendor is not getting the job done according to the promised service level, you can quickly escalate the issue through their chain of command. Good response time and escalation provisions can be worth their weight in gold when you're in crisis.
- Push for great warranties
A warranty describes the conditions and the period during which the vendor will repair, replace, or otherwise compensate for the defective item without cost to the buyer. Exactly how much of a warranty to request will vary from deal to deal, but of this we are sure: your negotiation is not complete until you’ve gotten the warranty provisions right.
- Be reasonable
Your proposed changes have to fit into some firmly established contracting norms. Don’t waste your time and efforts pushing where you are not likely to garner meaningful concessions.
- Focus on the Limitation of Liability clause.
It’s just one little clause but it can cause so much damage. Limitations of liability are always negotiable, so pay attention to them since a one-sided damage limitation will emasculate much of what you otherwise gained in your negotiation. Be leery of any limitation of liability clause that unfairly limits your vendor’s liability since it may limit your damages to a predetermined and unfairly low dollar figure.
Another important tip here is to exclude liability to third parties. If you don't and you're sued because your vendor infringed somebody's copyright, you may have no recourse against your vendor. If that happens, it just may be time to refresh your resume.
- Strive for clarity
When negotiating and documenting your deal, you and your lawyer, if you have one, have to write the final version so that it is clear enough to stand on its own. Assume that most of the people sitting at the negotiating table striking the final deal will not be around when a question arises about the agreement a few months or years down the road. If there is a dispute, you'll rarely get a chance to chime in with, “but that’s not what we meant.”
- Plan the ending
Last but not least, you should negotiate the termination and wind down of your agreement before you sign. You need to consider the transition services you will need from your vendor, and how long you will need them when the agreement terminates and you move to another vendor or back in house.
If you don’t get great wind-down provisions while you are in the process of negotiating your deal (while your vendor is still offering you skybox tickets), you certainly won’t get them at the end when your soon-to-be-former-vendor won’t even buy you a drink.
It’s surprising that so many customers don't read the standard contract form carefully, and even fewer will take the time to meaningfully negotiate them. But since you’re reading this article, you’re already on your way to becoming a better negotiator!
Negotiating isn't a science. Rather, it's an art honed from training and experience. Be prepared to make a ton of concessions and you'll get what you need.
You’ll know you’ve become a great negotiator when two things have happened: 1. you have moved your own benchmark for success from splitting the difference to claiming more value from your deals, and 2. you’ve left the other side perceiving they got everything they wanted.
Kevin Field is a CIO with experience in corporate, management consulting and private equity-owned companies. He has successfully led numerous transformations, mergers and acquisitions, and a large scale multinational turnaround.