Cost Containment and Contract Negotiation for IT System Purchases April 20, 2009 Copyright © The...

Cost Containment and Contract Negotiation for IT System Purchases

April 20, 2009

Copyright © The Tambellini Group, LLC. Confidential & Proprietary 2009

Topics

• Institutions and Vendors have common goals.

• Vendors Know a lot About You.

• Institutions can Benefit from “Inside” experience.


More Topics

• Vendors sales/contract negotiations process.

• You can Even the Playing Field.

• Develop a Solid Plan Before you release an RFP.


Common Goals

• Expedited procurement process to maximize staff time and productivity.

• Reduced risk for project failure and project issues.

• Excellent reference/best practices for implementations.

• Better relationships on campus, with peer institutions and with vendors.


Common Goals

• (Near) on-time and (Near) on-budget implementations.

• #1 Stay out of the News.


Vendors Know a Lot About You

It’s at least one persons job to know everything about your campus:

1. Your personal history on campus.

2. Your reputation for getting things done.

3. Your influence in the decision.

4. Your history of project success or failure.

5. Your budget for the project.

6. Your job history and the job history of every one that is involved in reviewing the procurement.

7. The history of technology procurements.


Vendors Know a Lot About You

8. They know who is on your board.

9. They know what software is used by the companies that are represented on your board.

10. They know who your major donors are and if they have any connections to the software or technology industry.

11. They may have a government lobbyist.

12. They will know your entire organization chart.

13. They have studied your organization and the behavior of your organization for years.


Institutions Can Benefit from “Inside” Experience

You need:

1. Someone on your team that knows as much about them as they know about you.

2. Insight at critical moments regarding vendor positioning and options for negotiating strategies.

3. Access to pricing data regarding what peer institutions have favorably negotiated.

4. Legal consulting to determine what vendors are likely to negotiate given previous agreements.

5. Contracts which keep the vendor(s) interested in a successful implementation.


Institutions Can Benefit from “Inside” Experience

6. Access to peer references for similar technology implementations which vendors may or may NOT disclose.

7. Lower total ownership costs over longest period of time possible.

8. Ability to anticipate risk and associated expenses.

9. Feedback about what the vendors “can and cannot” do versus what they choose to do.


There’s no substitute for first-hand knowledge

• Working side-by-side with someone who understands your issues is important.

• Working with someone who understands how to work with vendors to get the most from your negotiations is even more important.

• It can be difficult to distinguish between vendor’s marketing terminology (or spin) and the commitments it will make in a contract until you are in final negotiations-when it is often too late for much negotiating leverage.


There’s no substitute for first-hand knowledge

• Working with someone who has worked for a vendor (“on the inside”), and who understands their mindset and business goals, can be extremely valuable.

• Former “insiders” can help navigate more effectively through problematic issues because of an enhanced understand of the vendor’s culture and business model.

• Important to understand the value of treating the vendor as a potential long-term partner while, at the same time, obtaining effective contractual commitments that protect and benefit the institution.


Vendors Sales/Contract Negotiations Process

• Each Vendor has a different style.

• Each vendor has different approval requirements.

• Each vendor has different business goals.

• Each vendor has different internal and organizational issues to work through.


Drivers for Institutions and Vendors

Institutions• Minimize capital

outlay.• Obtain favorable

business and legal terms.

• Maximize return on investment/value.

• Ensure quality service.

• Reduce contract risks.

• Ensure all costs are identified in advance.


Vendor – Private• Maximize cash flow.

• Achieve annual performance targets.

• Reduce risks.

• Make concessions that do not need to be reported to shareholders.

Vendor – Public• Maximize revenue

recognition.

• Achieve quarterly performance targets.

• Reduce risks.

• Make concessions based on revenue recognition rules.

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http://www.oracle.com/index.html

Institutions Need:

• Lower total ownership costs.

• Ability to anticipate risk and associated expenses.

• Honest, no bull information about what the vendors “can and cannot” do versus what they choose to do.


Institutions Need:

• Insight at critical moments regarding vendor positioning and options for negotiating strategies.

• Access to pricing data regarding what peer institutions have favorably negotiated.

• Access to legal consulting to determine what vendors are likely to negotiate given previous agreements.


Private Company Process• Assigned sales rep uses existing pricing schedule.

• Reviews exceptions with immediate supervisor.

• Elevates proposal to senior vice president of sales, maybe COO or CEO, to obtain non-standard pricing concessions.

• Decisions driven by long-term cash and customer relations based on company ownership.


Private Company Process• Depending on the vendor, they may also follow SEC

guidelines for revenue recognition which will make negotiations more like those of a public company.

• Depending on the vendor, the approval process may be very formal and lengthy or it may be short and informal.


Public Company Process

• Assigned sales rep uses existing pricing schedule and pre-approved pricing concessions based on volume.

• Reviews concession requests with immediate supervisor and other key stake-holders within organization.

• Elevates contract concession requests using a very formal process which can take many days to complete.


Public Company Process

• Decisions driven by size and type of transaction.

• SEC guidelines for revenue recognition are strongly adhered to which will make some desired concessions impossible.

• Approval for variances can take many days to turn around and multiple requests should be minimized.


Vendors Strategies

• All vendors pricing is based on quantity:– The more students, budget dollars, employees, users,

etc., the less expensive per “unit”.

• Vendors will provide the best pricing when they know the maximum size of the agreement in advance of negotiations.


Vendors Strategies

• Negotiations will bring some concessions, but the largest concessions will come when the most details can be provided to the vendors, including legal terms and conditions.

• Most vendors care the “most” about the fees associated with the software license agreement.


Proposed Negotiations Approach

• Ensure vendors are aware of the competition.

• Understand the top motivators for each vendor finalist.

• Understand recent financial performance and track record for each vendor finalist.



• Institutions will gain the best advantage if they understand “who they are dealing with” in advance.

• Planning prior to releasing the RFP makes the most sense because you can set the vendor expectations and you can also set the expectations within your institution.

• Provide as much detail as possible so that the vendors can give their best pricing. Examples include: maximum number of student FTE over the next 3-5 years



• Work with the vendor’s most senior sales executive who has more flexibility on terms and pricing.

• Ensure vendors are aware of the competition.

• Understand the vendors sales compensation plan.



• Ask vendors specific questions about how institutional growth and changes will impact your pricing.

• Do not “tip your hand” as to your preferred vendor until you extract maximum price concessions from vendor.

• Effective negotiations do not require a dictatorial," beat up the vendor” approach; work to obtain practical and effective concessions while viewing the vendor as a long-term partner and trying to work within the parameters of its business model.


Be Transparent

• Vendors are often able to work the most favorable pricing when they understand where they “stand”.

• Telling a vendor what they have to do to earn your business is the best way to get what you want.


Suggested Contractual Terms That Help Contain IT Costs

• Obtain as broad a license as possible in your initial license purchase.

• May be able to negotiate significant additional license “units” (FTE’s, users, employees, students, etc.) at little or no additional fee.

• Be sure to obtain rights for multiple campuses, sites and facilities and for various subsidiaries and related educational entities (a true “enterprise-wide” license).



• Evaluate breadth of rights needed today, and then build in a “cushion” for expanded use, to minimize need to go back to vendor for small, add-on purchases; vendor often willing to “throw in” additional rights at time of initial purchase.

• Lock in fees for future license purchases for as long as possible.

• Negotiate lowest possible maintenance or subscription rate for initial year, and then negotiate lowest possible annual escalator.



• Consider as long of a maintenance or subscription term as is feasible within your institution.

• Lock in rates for future services.

• Negotiate scope of services for all professional services provided by vendor.



• Obtain milestone payments, especially in Fixed Fee engagements.

• Consider Fixed Fee implementation fees only when the scope of work is specific, clear and “tight”.

• Obtain a time an materials estimate, including hourly rates and estimated hours and expenses for significant implementations.


Suggested Strategies That May Help Avoid Costly Disputes

• Conduct effective due diligence by talking with peer institutions of similar size and type.

• Ensure, in RFP and in negotiations, that the institution is clear as to critical functionality required in software and that customizations are clearly defined.

• Include description of critical functionality in contract through relevant portions of RFP or exhibits.


Suggested Strategies That May Help Avoid Costly Disputes

• Review and negotiate scope of services for professional services in contract.

• Gain contractual commitment for key implementation staff.

• Research financial stability of vendor.

• Ensure vendor’s executive commitment to project.


Don’t Spend a Fortune in Time or Money on Help

• Excellent help does not have to cost six-figures.

• Even the most complex negotiations can be completed within 90 days.

• If you have selected a vendor, negotiations should not take more than 45 days.


Acknowledgements

• Paula K. Goldman, Esq.

• Michael F. McCarthy, Esq.


What People Say

“The University of Nebraska system utilized both Vicki Tambellini and Paula Goldman of Tambellini Group (at that time Synergy3) in negotiations with finalists in our recent negotiations to purchase an SIS solution. Several things come to mind where they brought significant value to the process.

In brief:

A process that could have taken months was reduced to weeks. Their responsiveness, whether it was schedule changes (to meet with vendors, internal audiences, our Board) or contract turnarounds was outstanding.

They drove honesty into the process, cut out a lot of the vendor intramurals and we got to a financial result with which we were very pleased.

I appreciated the sense of partnership in pursuing our solution. The Provost and I ran the process, but they were a steady hand on the shoulder through this important undertaking.

I was very pleased with their efforts and would be happy to discuss my recommendations with you.” David Lechner, VP Finance


What People Say

“In the spring of 2008, Mercer University engaged Synergy3 to help us negotiate pricing and contract terms and conditions with Campus Management Corporation for the purchase, implementation, and ongoing support of their One Campus Ecosystem. As anyone who's ever completed this process knows, contract negotiations for an institutional ERP system can be a long and potentially difficult process. Vicki Tambellini and her colleagues helped to navigate us through the process offering insight, advice, suggestions, and support all along the way making it much easier to reach our goals. I'm confident that, due to the expertise and advice that Synergy3 provided, Mercer's needs were much more equitably accommodated throughout this process. We couldn't have done nearly as good of a job without their very able assistance!”


About The Tambellini Group

• More than 45 years of experience in sales, marketing, and management with technology companies and more than 8 years of providing contract advisory services.

• Vicki was the General Manager for PeopleSoft’s education division from 1995-1999 was a manager with Oracle from 1990-1995.

• Vicki has negotiated hundreds of multi-million dollar plus ERP contracts in higher education and the public sector.


Resources

• www.edu1world.org –FREE Virtual community for higher education administrative professionals, vendors, associations, supporters and faculty who are interested in and work with technology. It is a community where members can connect, collaborate, communicate, and access information they need in order to improve individual performance and effectiveness in their work.

• www.advantiv.com - Advantiv is the leading provider of web-based system assessment, requirements definition, and vendor selection tools and services to Public Sector, Higher Education, and Healthcare organizations.


http://www.edu1world.org/

http://www.advantiv.com/

Resources

• www.morantechnology.com – technology consulting and advisory services

• www.thetambellinigroup.com - We focus on the contract terms to help organizations reduce their total cost of ownership, mitigate their project risk and increase service levels.


http://www.morantechnology.com/

http://www.thetambellinigroup.com/

Thank You!


Cost Containment and Contract Negotiation for IT System Purchases April 20, 2009 Copyright © The...

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