Attacking 'value leakage' in vendor contract negotiations
IT contracts can be hamstrung by outdated performance metrics
Computerworld - CAMBRIDGE, Mass. -- IT managers who help negotiate contracts with vendors often end up with less than they had hoped for, largely due to the process by which contracts are agreed to and delivered upon.
During contract negotiations, "customers often come up with great ideas to tie value to performance," said Todd Larson, director of application development at Eaton Vance Management, a mutual fund company in Boston. But by the time a contract is signed, said Larson, "most of those ideas have dissipated."
Larson was one of the attendees who discussed contract management issues at a conference held here by Cutter Consortium, an IT consulting firm in Arlington, Mass.
Stuart Kliman, a senior consultant at Cutter and a partner at Boston-based Vantage Partners LLC, said one of the big problems that leads to what he described as contract "value leakage" is a lack of coordination within technology vendors.
"There are big gaps between vendor salespeople, contract managers and the people who deliver [products and services]," Kliman said.
Contract negotiations are beset by other problems, said Kliman. "In practice, most organizations believe there's a trade-off that has to occur between obtaining either a good working relationship [with vendors] or obtaining good business results," he said. When confronted with such a choice, most IT contract negotiators opt for good business results instead of making organizational changes to try to accommodate both.
Another option, Kliman said, would be to present these choices to end users and other stakeholders, let them prioritize the most important goals of a project "and then present their interests at the negotiation table."
IT contracts are often hamstrung by outdated performance measurement metrics, said Michael Mah, another Cutter Consortium consultant. "We're in a knowledge society, but we're using industrial economy metrics," such as output per unit cost, to measure performance, said Mah, who is also a partner at QSM Associates Inc. in Pittsfield, Mass.
"The relationship is the most important thing in an outsourcing deal," said Joseph Imbimbo, vice president of IS technology operations at Tufts Health Plan in Boston. Imbimbo, who helped negotiate a seven-year, $20 million applications outsourcing deal with Keane Inc. four years ago, said, that "you can't get to know a vendor" sufficiently under a request-for-proposal bidding process. He said he spent a year working with Keane, a business and IT outsourcing firm based in Boston, to craft the applications outsourcing deal for Tufts.
Imbimbo said he spent a lot of time during precontract due diligence considering all of the things that could go wrong under the pact and how or whether Tufts wouldbe able to extricate itself should Keane fail to meet performance targets.
Martha Crow, managing director of the New England region for Keane, said many of the contracts the consulting firm now signs contain an "above-and-beyond clause," where the two companies agree in writing that they will share the benefits of any innovation that Keane delivers.
Read more about IT Careers in Computerworld's IT Careers Topic Center.
- 15 Non-Certified IT Skills Growing in Demand
- How 19 Tech Titans Target Healthcare
- Twitter Suffering From Growing Pains (and Facebook Comparisons)
- Agile Comes to Data Integration
- Slideshow: 7 security mistakes people make with their mobile device
- iOS vs. Android: Which is more secure?
- 11 sure signs you've been hacked
- SDCRAA Case Study: Adapting ERP to business needs This case study goes in depth about San Diego County Regional Airport Authority's created flexibility for a changing industry.
- HP HAVEn: See the big picture in Big Data HP HAVEn is the industry's first comprehensive, scalable, open, and secure platform for Big Data. Enterprises are drowning in a sea of data...
- What Datapipe customers need to know about the new PCI DSS 3.0 compliance standard This handy quick reference outlines what PCI DSS 3.0 is, who needs to be compliant and how Alert Logic solutions address the new...
- The 12 PCI DSS 3.0 requirements addressed by Peer 1 Hosting This handy quick reference outlines the 12 PCI DSS 3.0 requirements, who needs to be compliant and how Alert Logic solutions address the...
- Meg Whitman presents Unlocking IT with Big Data During this Web Event you will hear Meg Whitman, President and CEO, HP discuss HAVEn - the #1 Big Data platform, as well...
- The New Way to Work Knowledge Vault This Knowledge Vault focuses on how, in today's increasingly virtual world, it's more important than ever to engage deeply with employees, suppliers, partners,... All IT Careers White Papers | Webcasts