Tag Archives: contract negotiation

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.

End-of-Contract: Don’t Let the Cloud Opportunity Drift Away

Katherine Rudd Blog

Katharine Rudd, Managing Director –

The end of an outsourcing contract term requires a careful review of existing operations, coupled with an assessment of alternative technology, provider and delivery model options. In today’s dynamic marketplace, you simply can’t assume that what you have in place today will be adequate moving forward.

Consider cloud, where offerings are evolving at an especially frenetic pace, and where end-of-contract represents an ideal time to explore new opportunities. In many cases, service providers are too busy managing to the SLA and operational requirements of your agreements to keep pace with innovation in public and private cloud.

New cloud offerings can deliver major benefits to infrastructure management in terms of cost savings, labor requirements and agility. As competition heats up, most if not all of the major U.S. and India-based outsourcing providers have developed a healthy menu of hybrid, private and public cloud offerings. Brokerage services have matured, enabling clients to use third-party outsourcing providers to procure on-demand public cloud offerings and oversee and manage commercial, operational and technical requirements. Clients benefit by leveraging purchasing power, avoiding lock-in with one provider and offloading day-to-day management responsibility of multiple providers.

Hybrid cloud is generating a lot of industry buzz right now that can translate into big dividends in how you contract with your service provider. Adequately leveraging your existing infrastructure investments, while also taking advantage of agile PaaS and IaaS for growth or specific applications, can be a great way to deliver on a cloud roadmap in a less disruptive way.

These opportunities needn’t be restricted to the end of a contract period. Mid-term can be a great time to do a health check on a relationship to ensure that providers are driving innovation and not sitting on legacy infrastructure associated with high management costs.  Many contracts contain innovation or tech refresh clauses that can provide a window of opportunity to assess possibilities. However, depending on the structure of the agreement, the introduction of innovation may reduce resource requirements and negatively impact provider revenues. So sitting around and waiting for a provider to “offer” you innovation may leave you doing just that – waiting.

“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.

Contractual Discipline – a Financial Services Imperative

Photo of Wooden file cabinet

David England, Director

“The best contract is the one you never have to pull out of the drawer.”

That adage describes the idyllic sourcing relationship of old – one built on trust, open communication and aligned objectives. In such an environment, specific contractual terms and obligations rarely need to be called upon, since both sides understand their roles and are committed to success.

While a nice sentiment, the idea that detailed scrutiny of contracts needn’t be a top priority is rapidly becoming a dangerous anachronism. This is especially true in the Financial Services sector, where increasingly rigorous regulatory requirements are raising the bar of third-party risk management to unprecedented heights. In today’s environment, any bank or other financial institution that fails to rigorously document its contractual obligations regarding supplier oversight and compliance, and to thoroughly demonstrate its due diligence in ensuring that those obligations are met, faces the prospect of significant fines and penalties.

Anyone who doubts that the stakes are high should refer to Bulletin 2013-29 from the Office of the Comptroller of the Currency (OCC), which states that a “bank should adopt risk management processes commensurate with the level of risk and complexity of its third-party relationships.”

What that ultimately means is that banks must demonstrate adherence to regulatory standards and are liable for risks occurring at any point throughout the entire sourcing lifecycle. All information associated with the relationship must be captured, documented and accessible to regulators to ensure due diligence and compliance at each phase.

Three key issues raised include:

Pre-contracting documentation: Under emerging guidelines and standards, all activity occurring before a contract execution must be captured, documented and accessible. Specifically, communications during initial planning, RFP development and provider evaluations are subject to regulatory scrutiny to ensure that evaluations of suppliers were properly conducted.

Organizational communication: The contracting process typically involves multiple organizations – IT, vendor management, compliance and audit, for example. Seamless handoffs are imperative, but in most enterprises, standard contracting review processes either don’t exist, are imperfect or are rarely observed. This increases the risk that one department will mistakenly assume that its rigorous compliance processes are followed by other departments. The result is actions slip through the cracks. Rigorous oversight of contracting practices across business units is therefore imperative.

Prioritization: The contracting process creates a Pandora’s Box of potential compliance violations. Simply identifying and addressing them haphazardly will lead compliance teams down a series of gopher holes. While this approach will extinguish ad hoc sparks of risk, unattended bonfires will likely be blazing elsewhere. Standard, disciplined approaches are needed to identify risks and rate them by various criteria, such as likelihood and scale of monetary, brand and customer impact.

Bottom line: the notion that rigorous oversight of specific contractual terms is secondary to a relationship of trust – if it was ever true in the first place – is no longer valid. Today, trust and innovation must be built upon a foundation of contract discipline that clearly defines, specifies and verifies mutual obligations from the outset of the relationship and throughout the sourcing lifecycle. Without that foundation in place, clients and providers place themselves in significant peril.

Put differently, a contract that’s been sitting in a drawer for several years will lead to some very unpleasant surprises when the regulators come calling.

13 Insightful Questions to Ask in Your Outsourcing Business Case

One of the toughest jobs in outsourcing is tracking the impact various changes may have on your outsourcing business case. Knowing what these changes are and how to best manage them will make a meaningful difference on your business case. The latest report by Alsbridge spells out thirteen questions that outsourcing buyers need to ask in their outsourcing business case in order to be better prepared for the potential changes and hence have a more successful business case.

“What happened to the savings promised in your outsourcing business case?” is a question that is often raised by the higher management, twelve to eighteen months post signing the outsourcing contract.  In order to ensure you have the right answer to this question, you should anticipate any potential changes in your outsourcing business case by proactively asking questions related to the following areas:

  1. Addressable Costs
  2. Inflation rate
  3. Foreign Exchange Rate
  4. Growth Rate
  5. Corporate Overhead
  6. Retained Staff
  7. Downsizing
  8. Transition
  9. Provider Under Bid
  10. Pent up Business Demand
  11. Inspecting Invoices
  12. Contract Obligation and Delivery Management
  13. Rebadging and On/Offshore Mix

The outsourcing business case should include the financial impact from any clauses that were agreed to in negotiations that would alter your updated outsourcing business case as well as methodically taking into account any changes in assumptions that would have material impact on your bottom line.

There are a number of actions and forces – some you can control and others you can’t – that can significantly alter the savings, quality improvements, and capability uplift you planned to achieve in your outsourcing contract. Knowing what these changes are and how to best manage them will make a meaningful difference on your business case going forward.

Rarely do we ever find an environment totally static. Therefore to be better prepared for tackling the potential changes affecting your outsourcing contract, ask the above 13 questions in your business case. For complete details on these questions, download the full report 13 Insightful Questions to Ask in Your Outsourcing Business Case.

Misaligned SLAs Could Lead Enterprises to the “Seeing Green But Feeling Red” Trap

Without the proper alignment of IT service levels to the needs of the business, companies can fall into the trap of “seeing green but feeling red,” meaning that the service level measures are exceeding their targeted performance levels yet there are still IT delivery issues. The latest report by Alsbridge- 4 Basic Measurements to Aligning SLAs to the Outsourcing Contract- provides a good framework to evaluate the service levels companies are currently using or are developing as part of an outsourcing contract.

When negotiating a new outsourcing contract, clients face the challenge of determining the service levels that are most meaningful to the business. The intent of a service level agreement (SLA) is to measure the provider’s overall performance by virtue of concise, unambiguous metrics with targeted levels of performance that are easily understandable by the client community and are simple to validate from a client’s perspective.

As the outsourcing industry has matured, providers have developed a multitude of service level measures that they can propose to their clients in an outsourcing contract – some more relevant to the client’s business than others. Chip Wagner, CEO, Alsbridge Inc., says “Without the proper alignment of IT service levels to the needs of the business, companies can fall into the trap of “seeing green but feeling red.” “Fortunately, there are several common service levels within the outsourcing marketplace that align nicely to the perception of lines of business and end users,” adds Wagner. The report by Alsbridge throws light on four basic metrics that can serve as a guideline for defining service level requirements, including:

  1. Service Desk
  2. Projects
  3. Change Management
  4. General

“When dealing with an outsourcing contract, there are literally hundreds of “typical” IT metrics that can be reported on,” says Dieter Thompson, president, Alsbridge Inc., “While true that some IT-specific metrics should be in place, most should have a focus squarely on measuring the delivery of services to the end users.”

For further details access the complete report 4 Basic Measurements to Aligning SLAs to the Outsourcing Contract.

About Alsbridge Inc.

Alsbridge is a global consulting firm that helps companies transform and optimize the way they purchase, manage and leverage technology and business processes.   We have over 200 team members on 3 continents serving over 200 clients a year including more than 40% of the Fortune 500.  Alsbridge has helped hundreds of companies reduce costs and get more value from their vendors.  Our experienced consultants leverage proprietary tools and information databases to identify and engage the optimal vendors for your situation, negotiate best practice terms at fair market prices, and improve the way you work with your service providers.  Alsbridge clients utilize the most cost effective and value added sources globally for IT infrastructure services, network carrier services, hardware and software, application support and development, business processes and cloud services.