Over the course of 37 years in the business of technology deal-making, I’ve learned a lot about the people and 10 truths that play a part in every negotiation. Two truths, which I detail here, are useful anytime but critical in an economy that’s undergoing a “correction.” Now more than ever, with pressures from the CEO’s office to be very careful about—or even cut—IT spending, we need to focus on doing better deals and managing deals better. One truth is that you have to hear some “no’s.” In other words, you must have some deadlocks and impasses in your contract negotiations. This should be no surprise, given the contrasting goals of a vendor, who wants to maximize revenue, and you, the customer, who is dedicated to minimizing costs, especially in a down economy.
Here’s an interesting scenario: A vendor makes you an offer, “$1 million.” You respond, “Not a dime more than $900,000.” The vendor says, “Done deal.” How good is the deal you got? With a response as quick as that, you obviously left some substantial bottom-line dollars on the table.
Based on the conflicting financial objectives between client and vendor, you must be assertive enough on these issues to hear some “no’s”—and not just one. That means you have to go beyond “vendor acceptability” several times to find where it really is. You have to ask for what you want—assertively. That’s not easy, because almost no one likes conflict; we’d all rather just do the deal. That may be fine for some deals, but not for better ones. To get better deals, understand that you don’t get what you don’t ask for. So, be convincing when you say, “Excuse me. Unless we have this and this and this, we can’t do business.”
Another truth is one that seems to be frequently overlooked or, at best, given minimal attention. That is: Contract remedies are essential. If the vendor doesn’t face any consequences if it doesn’t produce specified results, the contract probably isn’t worth the paper it’s written on. Sometimes the vendor will live up to its responsibilities, even without stringent remedies in place. But in most cases, remedies are the catalyst to a good deal.
There are different theories on remedies, two of which I disagree with. Some people believe remedies should exist to punish the nonperformer. And, some believe remedies should exist to compensate the side that has suffered the loss of performance.
Both theories are wrong. Remedies—which vendors don’t like—should motivate them to perform, not punish them. I’m not talking about cases where you pay extra for something the vendor should have done. Remedies should be designed to spur the vendor in case it doesn’t live up to the terms of the contract.
My favorite question to a vendor when negotiating remedies is: “How much confidence do you have in your ability to perform?” Most vendors answer, “100%!” My response: “Good. Then you’ll have no problem with these remedies. If you were worried about the remedies, I’d be concerned that you can’t do the job.” Remedies are evidence of the vendor’s confidence in its ability to perform.
Remedies also should have three tiers. The bottom tier should be problem-solving remedies. This level would include things like having to add more people, bringing in different equipment or bringing the two companies’ CIOs together. The next level, attention-getting remedies, might involve the customer receiving liquidated damages (money) based on a predetermined performance guarantee. The third level is what we call global thermonuclear war remedies. This is where you talk about getting out of the deal and getting your money back.
If you don’t have remedies in a contract and you suffer as the result of a vendor’s lack of performance, what are your alternatives? You can go to court, or you can begin arbitration or mediation. None are good. They’re costly and time-consuming—and there’s no guarantee that you’ll win.
If you focus on these two truths—and the other eight I’ll discuss in future columns—you’ll do better deals than 98% of all companies.
JOE AUER is president of International Computer Negotiations Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates users on high-tech procurement. ICN sponsors CAUCUS: The Association of High Tech Acquisition Professionals. Contact him at joea@dobetterdeals.com.
Copyright by Computerworld, Inc., 500 Old Connecticut Path, Framingham, MA 01701. Reprinted by permission of Computerworld.