Forrester: Tips for software contract negotiation

Forrester's Mark Bartrick offers four essential tips on negotiating successful IT contracts

Many of you will have found yourself being called into software contract negotiations too late: The supplier has already been told that they are the only game in town, the budget is "good to go" and they need the product in ASAP. It's a perfect storm for any negotiator to face.

Being given insufficient time to do your job properly can cause you to accept deals that you wish you could reject or, worse, get blamed for problems that appear months later. More often than not, the net result is not only that you pay too much today. You'll pay even more tomorrow when the nasty nuances in the contract reveal themselves.

At Forrester, we get many inquiry calls from clients looking for advice on software negotiation best practices. To help them, we developed the Strategic Software Sourcing Playbook, which highlights four key best practices that you can address if you want to negotiate great software deals and obtain the maximum value for your organisation.

Best negotiations start before you even know what you want to buy

Good software negotiations do not start with insufficient time to prepare or plan. Instead, they should represent a well-prepared execution of a coherent software sourcing strategy. 

Once your internal stakeholders appreciate the real value that your sourcing and supplier management practice brings to the negotiating table, they will never leave you out of the loop again. This means applying the four cornerstones of best negotiation practices: education, preparation, support and control. 

Consistently successful contract negotiation begins with the knowledge that it is an ongoing process and not a one-hit wonder (see Figure 1).

Figure 1: Best practices in software negotiation

1. Educate your stakeholders

Educating stakeholders as to what constitutes good and bad procurement practice is a key, ongoing task for executives in charge of sourcing and supplier management. This is something that you have to keep doing, as stakeholders often have short memories. They will soon forget what they are supposed to do when faced with another pushy sales rep or a looming deadline. 

The best way to educate stakeholders is to conduct a post mortem of a poorly negotiated previous deal. This often crystallises all that is wrong with current procurement practices into one succinct, real example of how not to do it. 

2. You can never do enough preparation

Preparation, preparation, preparation. How many times have you heard that? It does not matter whether it is buying software, getting ready for a football game or planning a meal. Since the beginning of time, the one who prepares the best does the best.

So if it is a new supplier you face, then it is time to start your due diligence by researching the market, the supplier and its competitors. You need to clarify what your business needs to buy, why and when, and review your contracts database. 

Let the past be your guide to the future – compare previous deals with the current one, prioritise what is important this time around and what might you offer as concessions and ascertain what leverage you have. Also, you need to compare your contractual entitlements to your actual licence deployment.

3. Gather relevant support in your negotiating team

Even an individual athlete still benefits from having a support team around her to ensure she prepares well, eats right and is ready for the race. Negotiation is no different – you need to gather together not only relevant individuals from within your organisation, but also external advisors who have "been there, done that" to maximise your opportunity at the negotiating table. 

To do this, buyers should get the right people involved, leverage their internal expertise, and obtain some outside advice on the supplier from either your peers or from a market analyst such as Forrester.

4. Control the negotiation

Managing a negotiation is like conducting an orchestra; there are many moving parts, and they all need to move in harmony to get the best results. 

As the lead sourcing professional, you should exert control over the supplier and influence over your colleagues as to who does what, when and where. Make sure to lay down some rules for the supplier, allocate sufficient time for the process, and ensure that there are no information leaks. 

Give yourself ample time and surround yourself with the right people

Negotiating software contracts is as much an art as it is a science. Of course, you need to have enough time to prepare and get all the facts right. But you also need to manage people, both from your own organisation as well as external suppliers. People buy based on gut feel, the excitement of getting new toys or perceived pressure to get things done quickly, rather than logic and facts.

If you prepare well, manage the process and educate your organisation on what constitutes good practice, then you can minimise the emotional distractions and maximise your success at the negotiating table – and play a tremendous value-added role within your organisation.

Mark Bartrick (pictured) is a senior analyst serving sourcing and vendor management professionals at Forrester Research.

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