Category Archives: contract renegotiation

Tick, Tock – Timing is Essential to Contract Renewal Leverage

Steven Lytle Blog

Steven Lytle, Managing Consultant – 

The end of a contract term can be an ideal time to take advantage of new product offerings, pricing structures and technology innovation. But starting early is essential to an effective renewal strategy. Clients need time to engage business and technical teams to thoroughly assess new products against requirements and to effectively leverage the negotiation process to get optimal terms and conditions.

Early attention to renewal can also prevent unpleasant surprises, particularly for Microsoft customers who use an “honor system” of self-reporting estimated year-on-year growth of assets.  While rough guesstimates of asset growth are easily done, a detailed inventory is a time-consuming process. If a customer comes to a renewal discussion poorly prepared and conveys doubt and uncertainty regarding specifics on software assets and licensed users, that customer will likely be tagged as a prime candidate for a software audit – which can be an expensive and onerous proposition.

Given the importance of early attention to the renewal process, customers surprisingly often find themselves running out of time and coming down to the wire when a contract is due for renewal. If deadlines are looming and customers’ backs are to the wall, they often have to settle for a sub-par agreement. Or worse, leave themselves vulnerable to a potentially costly compliance review.

Why the foot-dragging? One reason is simple inertia and basic human nature – customers see that their renewal is due in, say, eight months, and make a note to set up a meeting with their vendors to assess their options to add new capabilities and optimize spend. However, other projects and priorities arise and, best intentions notwithstanding, next thing they know the renewal is due in a month and they haven’t prepared.

But procrastination is not the only factor at play. When negotiations are done in a last-minute, deadline-driven manner, vendors own the leverage and are better positioned to drive the outcome in their favor. This means vendors have a vested interest in delaying the process as much as possible. Typical stalling tactics are subtle and seemingly benign – “I need to get back to you,” or, “We need to have Joe involved and he’s on vacation for two weeks.”

Subtle or not, customers need to be prepared. The basic message: prepare for the renewal process well in advance of the contract termination date. Six months out is a good place to start. Equally important: assume that your vendor team will be in no mad rush to get things done and pad schedules accordingly.  Renewals of larger deals should be a priority, and ensuring involvement of the right mix of individuals is imperative.

Negotiating leverage is key to any contract discussion. For customers renewing software agreements, the longer they wait, the more that leverage slips away.

WTF(S)?

Questions, questions, questions... the Concept photo

Jeff Seabloom, Managing Director – 

I’ve recently been involved in a number of Unlimited License Agreement (ULA) negotiations where the contracts were full of arcane, intricate and complex terms and conditions – nothing new there, that’s the nature of the beast. However, I was struck by the fact that on three occasions, my team and I – all industry veterans – encountered no less than 20 items that we had never seen in an agreement. What was more surprising was that in two instances we discovered specific terms that directly negated or contradicted other specific terms – within the same agreement.

This led to several hours of consideration and head scratching, after which we deemed the items in question as falling into the category of “Why the Final Signature?” (WTFS). In other words, why bother? Why spend days and weeks pouring over the minutiae of a complex agreement in the belief that this attention to detail is necessary to build a partnership that benefits both parties – only to learn that the agreement is so one sided to the provider that very little “partnering” is considered.

Existential musings aside, the answer is that the Ts & Cs in today’s contracts have to be painstakingly analyzed, parsed and understood in all their complex glory.  Otherwise, clients are likely to have those minutiae used against them later in the contract term.  As hardware and software agreements – particularly ULAs – become increasingly impenetrable, clients need access to narrow, deep and specific expertise around individual vendor licensing strategies and sales techniques.

Lacking that expertise, clients are at risk of signing bad deals. One trap is that the myriad intricacies and multiple price points in the contract come back to haunt you. Customers will sign on to a ULA only to learn after the fact that the additional licenses they expected to acquire may be excluded from the umbrella agreement. Or they’ll realize that vague language on assignment and usage – such as, for example, how “North America” is defined – doesn’t mean what they initially thought.

This “fine print” strategy of the ULA works hand in hand with the “you’re getting a special deal” approach. Vendor account teams plead year-end management pressure to make their numbers, and convince clients they have “leverage” to drive a favorable agreement. The ULA   that is offered upfront as a prized concession loses its luster downstream when specific language and clauses turn out be not an advantage or premium after all.

Bottom line: Negotiating a software contract is a challenging proposition under the best of circumstances. Proceeding without technical and contractual expertise and specialized knowledge of vendor strategies makes it downright scary.

Feeding the Microsoft Money Machine

Louis Pellegrino Blog

Louis Pellegrino, Director – 

If you’re a Microsoft Enterprise Agreement customer these days, you might be feeling like a walking ATM. It seems that the more products and licenses you purchase, the harder the sell becomes to buy even more.

The reality is that Microsoft Enterprise sale teams are assigned aggressive growth targets for increasing account spend year over year. And the bigger the account, the greater the pressure to grow revenue from that customer.

The problem is that the opportunity for organic growth simply isn’t there.  Many large customers – those with 5000 devices or licenses – are already well-stocked with core Microsoft products.  Ironically, however, it’s the customers with a lot of products – who would seem to have the least need for more – are the ones most aggressively targeted to drive additional revenue.

One common tactic employed by Microsoft sales teams is pushing new online services that customers either don’t need, aren’t ready for or already have from other providers.

Another ploy is to use a dizzying mix of licensing metrics, shifting pricing models and executive relationships to fragment and confuse the buyer and convince them they’re getting a great value-proposition – but only if they Act Now.

Customers who push back can expect to be played the compliance card and threatened with software audits or with significant price increases.

In addition to finding themselves under constant siege, many customers ultimately come to realize that they don’t have the time, resources or know-how to leverage any of what was sold to them as a great value proposition.

Bottom line: If you’re a large Microsoft customer, be aware that your wallet is at risk.

I’ll be hosting a webinar on Thursday, April 30th at 11 a.m. to discuss how customers can effectively respond to Microsoft compliance audits and sales strategies, specifically focusing on volume licensing agreements.

Wireless Carriers Still Willing to Make a Deal

Businessman Holds Out His Hand To Make A Deal

Phil Hugus, Managing Director –

A recent report in CNET concludes that AT&T “wont chase customers” in light of a lull in the ongoing wireless price war. “After a particularly cutthroat holiday period,” the article states, “the carriers are raising fees and paring back on promotional offers.”

While this accurately describes the latest trends in the wireless consumer market, IT executives should take note that the enterprise space is an entirely different beast, both in terms of enterprise wireless contract renegotiation and the impact of the latest trends in enterprise BYOD programs where the wireless providers must work even harder to retain their client base, leveraging incentives where stipends will drive consumer behavior. We are seeing savvy clients signing new wireless deals and achieving 20 percent to 25+ percent price reduction results, along with significant contract term and technology benefits.

From Alsbridge’s perspective, while AT&T has become a bit more conservative in recent months following as they have stemmed the tide of net wireless unit losses to Verizon, they can still be driven to market leading pricing and contracts if properly leveraged. Verizon, meanwhile, is becoming a bit more aggressive in pursuing top-line revenues, again while properly leveraged. While we’re seeing subtle shifts in negotiating tactics, clients can still win with a leveraged approach capitalizing on the best market intelligence and negotiating tactics.

In other words, done right, it’s a buyer’s market.

“Innovation Investments,” Discounts and Monopoly Money

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Monopoly

Jeff Seabloom, Managing Director-

As enterprise technology vendors scramble to gain market share, we’re seeing a significant new trend emerging where customers are offered myriad “discounts” on core products. These are presented under the guise of a wide range of nebulous terms such as “special services,” “training,” “consulting,” and – a new term being used quite frequently – “innovation investment.”

I was recently involved in a negotiation where a major hardware vendor’s premium product – which is never discounted – was offered at a significant mark down. This didn’t seem right, so I did some exploring to decompose the actual deliverables and found that the “free” training and special services that were added as a special deal incentive were in fact charged elsewhere in the contract. And, upon further exploration into what this “training” and “special services” would entail in terms of vendor resources, it was clear that the answer would be, not very much at all.

In other words, the shuffling around of charges created the appearance of a discount, when in fact there was none.

This is all perfectly legal and very common. But the growing use of these “bundles” raises some important issues. The obvious concern is that buyers don’t have an understanding of the entire pricing picture and quote. Perhaps more importantly, this strategy creates an inaccurate representation of the playing field and makes it increasingly difficult for buyers to understand what they’re paying for products and services, and how their fees compare to what the market will and should bear.

Enterprise clients need to take a close look at the details of their agreement terms and demand to know specifically what they are paying for and what they are getting. This includes defining what exactly is meant by terms such as training, special services and innovation investments. That’s the only way to ensure that the incentives vendors are putting on the table aren’t made of monopoly money.

Contract Renegotiation: Are you Missing Something?

man wearing a suit sitting in a table showing a contract and whe

Lores Schwind, Director ·

For a client organization, the end of an outsourcing contract term always brings with it the renew/renegotiate/repatriate quandary and its myriad options and considerations. Are we getting a good deal? Can we do better? If we can do better, is it worth the disruption of finding and bringing in a new provider?

In today’s rapidly changing marketplace, the choices are more complex than ever – and the stakes are higher than ever if you make the wrong decision.

For one thing, ongoing technology innovation and stiff competition are exerting steady downward pressure on IT services. This means that a deal that was competitive as little as six months ago may now be significantly out of sync with the market. Moreover, in addition to evaluating how much, say, storage costs have dipped since your last contract, you now have to consider the potential risks and benefits of moving your storage to a cloud platform, versus staying with existing technology. In other words, it’s no longer enough to compare the apples of six months ago to the apples of today; now it’s about normalizing and comparing the apples of existing technology against the oranges of moving to a new technology. And, speaking of new technologies, the game-changing specter of Robotic Process Automation is on the horizon and is already having an impact on the pricing of outsourcing contracts.

In this environment, benchmarking existing operations against market standards is more important than ever to an end-of-contract strategy. The good news is that the growing automation of data collection and analysis tools, as well as heuristic models that enable projections of future scenarios, have greatly enhanced benchmarking capabilities. As a result, today’s benchmarks are increasingly agile, cost-effective and adept at rapidly assessing multiple alternative options over time.

But end-of-contract considerations today go far beyond issues of pricing and technology platforms. Industry-specific expertise is becoming increasingly important to client organizations in all sectors. Consider banking, where regulatory compliance and supplier oversight across the entire service delivery chain has become a critical priority. Here, the end of a contract term offers an opportunity to assess the provider landscape – have new players emerged who have the requisite expertise and can demonstrate success at navigating the regulatory landscape?

From this perspective, the end of a contract term needn’t be confined to the details of pricing and service delivery, or to an assessment of technology options, but rather can encompass a high-level review of business strategy and operational requirements. Signing on for more of the same and hoping for the best is not an option. The world is changing too rapidly for that.