Top 20 tips for negotiating new software deals

The rise of cloud computing and open source hasn't simplified negotiations with software vendors. Leeds Building Society CIO Tom Clark advises how to strike the best deal

1. Understand the budget cycle of the company you are dealing with
Ask them what they work to - you will be in a better position to get a good deal at the end of a reporting period than at the start, especially if they have not met their targets. US companies, in particular, can be very driven by the quarterly returns.

2. The people you deal with are not your friends
Be civil and friendly - it will help get through some potentially difficult situations - and treat people how you would want to be treated. But some people can get sucked into thinking they are friends, and don't treat matters as objectively as they should.

3. A huge proportion of a contract is about what can go wrong
Think far and wide as you work on the paperwork of the various scenarios that can play out, and prepare for the worst but plan for the best.

4. Get trained in contract law
Or (perhaps easier) get support from specialist IT contract lawyers. It can seem expensive, and can extend the process, but ultimately it will pay for itself. Make sure you have a non-disclosure agreement in place very early on too.

5. Aim for win-win every time
You might feel better about "getting one over on them" but, ultimately, if you are going to be dealing with a company over an extended period of time, there has to be benefits for both sides.

6. Do not fall for the "this offer is just available this day/week/month" trick
You shouldn't fall for this trick when you're buying double glazing, so don't do it with software! Of course it will be available again - when they need to make the sale at that price, then they will.

7. Don't care too much
This might sound odd, but basically the more you want the outcome to happen the weaker position you will be in to negotiate and will make concessions/agreements that you needn't make. So always have at least two options running concurrently throughout most of the contract negotiation, so you don't jump at one option and compromise your negotiating position.

8. Plan to shut the contract down
You need to negotiate what the exit position will be, how you will approach it and what the charges will be to make sure you do not store up problems for the end of the contract.

9. Understand and define how growth and decline in usage will be handled
For example, what are the incremental charges, in what size licence tranches, that would apply if your usage grows - if possible, try to get an enterprise deal.

10. Huge concessions can be made as you draw close to the signature date
Keep back the things that they are less likely to shift on until they can smell the deal and then you're more likely to get them.

11. Understand your objectives before you start
Keep these in mind so you know when to walk away. This could be price, service levels, capacity or whatever. But by setting your own red line before you start, you will be clear on your objective. But never share it - they may be willing to over-deliver against this, and if you share it, then that's all you will get.

[For tips 12-20, please turn to page two]

Top 20 tips for negotiating new software deals

The rise of cloud computing and open source hasn't simplified negotiations with software vendors. Leeds Building Society CIO Tom Clark advises how to strike the best deal

12. Software prices are highly negotiable
They have built it already and any new copies they sell are a bonus, so negotiate hard on the initial software price, but be fair on the ongoing maintenance charges as this is their ongoing income stream. Some software/hardware may be sold at or near cost in order to make profit from professional services afterwards - get a feel for which parts they can be flexible on.

13. Build in a rate card for future work
Along with the timing and percentages acceptable for a regular review.

14. Beware the cheap software deal
It will invariably need time-and-materials implementation consultancy to deliver and you will ultimately spend more.

15. YOU set the timeframe for the negotiation, not the vendor
And never feel pressured into signing. Don't be afraid of calling time out if one of the team feels something needs discussing out of the room. It's far better to do that than not be aligned or for one member of the team to contradict the others.

16. Build in mutual success conditions wherever possible
For example, deferred fees, profit sharing and so on, all based around a successful outcome.

17. Be aware of your relative scale
For example, a small company buying from a global multinational will probably have a "take it or leave it" choice when it comes to pricing, and terms and conditions. Alternatively, you could be their first customer and therefore punch above your weight to help them get a product off the ground.

18. Be prepared to invest your own time and effort
Some suppliers value their customer input and, in some models, the design done by a customer ends up in the final packaged solution, which is shared with all the market - you could get something bespoke to your needs by putting the time in.

19. Always ask for references of other customers
And ask them what they would change in how they dealt with the supplier.

20. Agree the role of all stakeholders at the very outset and clearly determine what level of engagement/discussion they will have with the supplier
The thing to remember is that the negotiation begins from the first point of contact and is ongoing throughout every meeting thereafter - the relative success of the negotiation will be affected as much by the ongoing dialogue (formal and informal conversation) as it will from the point to point negotiation.

And there's one important bonus point:

21. All the above applies to negotiating with cloud service vendors
The key points remain the same: due diligence up-front, understanding what growth and decline in service usage looks like, the support model, the exit approach/clauses - and making sure you know exactly what it all means.

Tom Clark is CIO at Leeds Building Society

Got your own tips for dealing with software vendors, handling licence audits or getting the best deals from cloud providers? Share them with us below or email [email protected]