Vendor Management Tips: The Details

The devil's in the details when it comes to vendor management. Don't forget a step with these tips from IT managers on planning, pricing and contracts.

Start with a pilot to minimize initial spend. See how flexible the vendor can be. -- Rod Traver, senior vice president of technology, Robert E. Nolan Co., Weatogue, Conn.

Develop and follow a strategic IT plan before making any long-term decisions on hardware, software, maintenance and/or consulting services. Decisions such as lease or buy, in-house or outsourced, single- or multiyear agreements, upgrade or replace can only be properly assessed in the context of a strategic plan. -- Timothy C. O'Rourke, vice president for computer and information services, University of Miami, Coral Gables, Fla.

On larger purchases we frequently quote several vendors, as well as make the vendor aware they are not the only bidder. This assures us that we are getting the best deal possible. If a vendor is not in line with the other quotes, we bring it to their attention in case they misquoted and allow a requote. -- Rick Peltz, senior vice president, Marcus & Millichap, Encino, Calif.

Keep them in the loop. Make sure the vendor knows you are also looking at strong, legitimate competition. -- Rod Traver

Network with peers in your industry to understand pricing models and trends. Develop and propose your own pricing models (for example, "per business process" or "volume-based" versus "per seat" or "per server") that fit your situation. Another angle, while only suitable for certain types of systems, is value-based pricing -- paying only for the benefits achieved. Let the vendor react to those proposals. -- Rod Traver

Don't let the vendor manage the project. Make sure that someone in your organization is responsible and accountable for organizing the project and delivering results within time, scope and budget. -- Don Eginton, deputy CIO, city of Phoenix

Prohibit your technical staff from negotiating with a vendor. Your organization's technical staff is vital in providing technical guidance through the negotiation process, but your negotiating team is better able to interact with the vendor's sales representative. Also, technical staff are normally concerned with things other than finances. -- Timothy C. O'Rourke

Hire a good project manager. A professionally certified and experienced project manager will be accountable to your organization, possess the right skills and be familiar with the tools and techniques for successful vendor negotiation. -- Don Eginton

Consider establishing a biyearly IT budget review process with vendors, and advise your vendors of the review dates in advance. Ask them to provide you with two or three cost optimization proposals (I don't like "cost savings" -- use "cost optimization" instead). Those should convince you and your business that future cooperation with the vendor will fit within your financial model and budget. Ask key vendors to attend a short meeting and present this strategy to you and another member of the senior staff. Usually, vendors will be able to work out some good deals to impress you, on every meeting. Good proposals received from some vendors may be implemented for others. -- Andrew Guzowski, IT manager of information, Australian Council for Educational Research, Camberwell

Think big. Put together the biggest deal you can from the outset. The bigger the deal, the more attention you will get from the most qualified people on the vendor's staff. You can always scale back the deal depending on how well their terms fit your needs, but you will have the advantage of "volume" pricing from the start. -- Pat Smith, corporate vice president of MIS, Stiefel Laboratories Inc., Coral Gables, Fla.

Setup is key. Site preparation and doing an orientation (making sure everyone has the hardware/software needed and knows how to use it) and co-locating vendors with your own staff is imperative. Having vendors in close proximity to your staff (technical and users) working on a project is very beneficial and can help assure that both sides have the advantage and opportunity to develop a faster and usually better orientation (to how we do our business) and working relationship. Sometimes the informal communications this offers is more important than the formal reports and briefings. It also affords a nonthreatening way to monitor vendors and how hard they are working and it allows you to know who their real stars are. -- Mark Mazza, IT department, state of Wisconsin

Timing is everything. It's amazing how aggressive public companies become at the end of the quarter. Use that to your advantage. -- Stephen R. Smith, Entity CIO, Hospital of the University of Pennsylvania, chief technology officer, University of Pennsylvania Health System, Philadelphia

Balance the assignments. On large complex projects you need to make sure there is a conscious effort to balance the work assignments (long/short, good/bad, hard/easy) between the assigned staff (vendor and our business and technical staff) so that everyone is given a balanced and varied workload. Partnering with vendor staff can be a great learning experience but if one group feels they are consistently given the toughest assignments you run the risk of burning people out and increasing your absenteeism and turnover to say nothing of generating bad blood between your staff and the vendor. -- Mark Mazza

Try EAI. In tackling legacy application conversions, look at enterprise application integration (EAI) tools as a possible solution, especially versions of the Enterprise Service Bus technology. Though originally intended as app-to-app connectivity tools, many EAI tools work as well for intra-app processes. By implementing EAI and Web services linking the legacy application to new modular development, you can offload bite-sized programming rewrites a module at a time, gradually turning off legacy functionality. You control the pace of conversion, avoiding typical all-or-nothing conversion nightmares and preventing vendors from painting you into corners too early in development. -- Bob Jackson, senior vice president, deputy director of systems and technology, Sedgwick Claims Management Services Inc., Memphis

Do your homework. Take the time to read the book Getting to Yes, then agree on operating principles or pre-existing standards to base negotiations around with the vendor. -- Geordie Conyngham, CIO, Cerebos, Seven Hills, Australia

Have a starting point. Get to an agreed price (the first quote is always a "starting point") then agree to negotiate. This appears to be a standard Asian negotiating technique. -- Geordie Conyngham

Concrete Contracts

Make sure they stay on. It's important that you get the best qualified vendor staff bid to do your project, but it's even more important that you keep them for as long as they are needed. Many vendors bid their best personnel only to roll them off a project as soon as possible and rebid them on another upcoming project. Incorporate penalties that protect you from this practice and make sure you identify the key personnel that have to remain on your project unless you agree to release them. -- Mark Mazza

Make sure your vendor contract includes payment after services are rendered and accepted. If possible, leave at least 20% for payment after the last phase of the project. -- Don Eginton

Separate out the specifications and procurement process from the implementation process. Ideally, separate vendors should assist in developing specifications and in implementing the solution. -- Don Eginton

Check renewal statements. When a contract contains an autorenewal provision, send a letter immediately after signing that terminates the contract at the end of the current term, adding a statement about discussing a renewal prior to the end of the current term. This strategy prevents a forced continuation should you forget to give timely notice later and it provides a better negotiating position at renewal time. -- David Lewis, CIO, Deseret Mutual Insurance Co., Salt Lake City

Include usage rates. When writing a contract with baseline price, credit for nonusage and overage for excess usage, work with multiple business scenarios to model and see what rates for credit and excess usage will result in optimal contract. -- Shelly R. Selvaraj, ON Semiconductor, Phoenix

On-time delivery. Based on the project completion success experience (on-time delivery), write a longer-term contract to get lower cost and negotiate hard on early termination. -- Shelly R. Selvaraj

Watch the line items. When vendors quote "project management" as a line item for small professional services projects done on your site, don't pay them. And don't let them mark back up the professional services fees after the quote. Remind them at the hourly rate you are paying for professionals, any back-office "project management" from vendors should already be embedded in professional fees. -- Bob Jackson

Legal Eagles

Contract renewal tips. Make sure you have at least a 90-day window prior to contract renewal to use exploring alternatives, competitors and pricing. This allows you to negotiate from an informed position. The volume of sales calls and e-mails requires you to focus on only those solutions that appear on your advance planning goals and business requirements. Reading trade publications and analyst reports helps focus your attention to the leaders in the space. I depend very much on peer-to-peer feedback to weed out hype and identify reputable vendors. This includes attending local IT gatherings and networking opportunities. One unique resource is to develop a good relationship with professional technology salespeople. They tend to move often and choose vendors whose solutions are superior. This provides me with a higher level of trust when I'm dealing with someone with whom I've had a positive history of purchases and deployments. -- David J. Graham, senior director of IT, Vignette Corp., Austin

Get legal sign-off. Be sure to include your purchasing and legal functions in the review of any agreements and ask them to review product master agreements, hosting agreements, master services agreements and statements of work for conflicting terms and conditions, maintenance provisions and vendor audit provisions. -- Jeff Gott, director of corporate business systems, Abbott Laboratories, Abbott Park, Ill.

Everything in writing. Remember the mantra that "If it's not in the contract, it's not part of the deal." Don't rely on verbal promises. -- Dave Nagy, senior director of technical services information technology, Abercrombie & Fitch Co., New Albany, Ohio

Look at contract terms early. Salespeople will promise you the world. Get a contract early in the negotiation process and make sure it says the same thing your salesperson promised you. During the actual contract negotiation process, read each version carefully to make sure that your terms were not changed in successive versions during the negotiation. -- Pat Smith

Use the advice of good counsel. A contract is not only about how to get a project or service started but also about how to handle a divorce if relations should deteriorate and require either party to leave the deal. -- Dave Nagy

Special Report

Guide to Managing Vendors

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Copyright © 2005 IDG Communications, Inc.

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