February 21, 2005 (Computerworld) --
Few readers require an introduction to Joe Auer. He has been offering procurement and negotiation advice for nearly 30 years, through his consultancy -- Winter Park, Fla.-based International Computer Negotiations Inc. -- and, for several years, in an award-winning Computerworld column. Computerworld contributing writer Steve Ulfelder recently sat down with Auer to discuss hardball negotiating.
Is it a good idea to play hardball with vendors? Don't you risk alienating a long-term partner? First, it's a fantasy that it's a partnership. Vendors use the term all the time, but about the only way it's really a partnership is that you divide things down the middle -- they take all the money, you take all the risk.
Having said that, sure, at some point the adversarial relationship does need to translate into an ongoing business relationship. That's largely a matter of style and approach. Suppliers respect companies that negotiate with them aggressively and correctly. Many years ago, when I was on the vendor side, if somebody just accepted our deal and paid our price, we left the room and said, "Can you believe how much those jerks left on the table?"
You can't love suppliers into a good deal; you've got to leverage them. Look at it this way: If you don't negotiate aggressively, you won't protect your company and you'll make a lousy deal.
Should IT managers play vendors off each other? Of course. Probably the biggest problem I see [with clients] is that people select a vendor before they negotiate. Not only that, they tell [the vendor] they've been selected, and the project time frame and the competitive pressures they're facing, etc. They become more and more dependent on the vendor. Then, when they've got no more options, they say, "OK, let's negotiate." What is the supplier's motivation to negotiate then? They know you're committed. They know your timetable. They don't have to meet your needs. They just need to dance around while the clock runs. We advise clients to narrow it down to at least two vendors, possibly three, and fully negotiate terms with them all.
Joe Auer of International Computer Negotiations Inc.
In fact, sophisticated companies have their own contracts, written from the user's point of view. You put that contract right in your [request for proposal] and say to vendors, "We want you to accept these provisions or tell us in writing what you can't accept." This is effective because it's early in the process, when there's a lot of pressure to win your business. The suppliers are worried that their competition is meeting your demands.
Don't vendors need a certain amount of information to meet the buyer's needs? Yes. The problem is that if you give out all this information before you've picked a supplier, your leverage is gone. In negotiation, information is power -- and generally, purchasers give the vendor way too much information.
In fact, it's a good idea to demand information of your own right at the outset. Many IT managers don't know it, but the sales rep you meet with early in the cycle probably lacks the authority to make a lot of concessions. So I may say to a vendor, "I need a detailed org chart right from you, up to the person who's going to sign the contract -- names, titles, contact info." You need to get up to the top guys for the best deals -- that's just a fact.
In addition to the bottom line, what parts of vendor contracts should people address when they're playing hardball? There are some clauses you just strike right out. Every vendor contract has a "disclaimer of fitness for purpose" provision that says the product won't necessarily do what they're selling it to you for. Ridiculous.
Also, when the sales rep tells you, "We're going to give you the best deal we've ever given anybody," you should say, "Fine, let's put that in writing." Insert a "favored customer" provision that guarantees this is the lowest price and that if you ever learn of someone else getting a better deal, you are entitled to that deal retroactively.
Other tips? Get formal training in procurement and negotiation. The vendors' people get, what, 10 to 20 times as much training as the buyers?
In general, keep in mind that there are a tremendous number of concessions not given simply because they're not asked for. Many people will do a deal with a vendor without ever hearing "No," without an impasse, without a deadlock. If that's the case, you just overpaid.
Ulfelder is a Computerworld contributing writer in Southboro, Mass. Contact him at sulfelder@charter.net.
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