CHICAGO -- One of the biggest mistakes data center managers make when negotiating a sales contract is to trust...
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the salespeople. Not that they're bad people, it's just that managers should never believe that a salesperson has their best interest in mind -- ever.
An unnecessary adversarial approach? Not if you've ever been burned because you didn't read the fine print.
"A sales contract is not for the marriage, it's for the divorce," said Jeffrey Gordon, principal, Ts&Cs: Contract Negotiators, a Raleigh, N.C.-based procurement firm. "Therefore, you must approach a contract with a leery eye."
Gordon, who spoke during the TechTarget Data Center Decisions 2004 conference last week, said too many IT managers are emotionally embroiled in the negotiations and are not prepared to play hardball.
"People don't even know what they're signing or buying," he said.
Companies selling you technology have one objective in mind -- to make money. They've got quotas to meet, and products to push.
"They'll push so hard it'll make you bleed," Gordon said.
Calling the shots
Bruce Peterson, vice president of systems for The ServiceMaster Co. in Downers Grove, Ill., is one of a growing number of managers who never goes it alone when negotiating a sales contract. Before anyone signs on the dotted line at his company, sales contracts must be reviewed by a team of experts. As an IT specialist, Peterson sets the initial requirements for the technology and lets the experts hammer out the legal details.
Peterson said his team is in control. Long before anyone sits down to negotiate, the requirements are established.
"If it's not our boiler plate, we don't play," said Peterson.
Dan Musil, a senior systems engineer for health care firm Baxter International Inc. in Deerfield, Ill., said his department works largely the same way with a team of experts brought in to negotiate. Musil said his role is sort of like a watch dog.
"We used to call [the vendor's] bluff, if necessary."
As surprising as it seems, many companies don't consider the long-term effects of a bad contract, which usually means getting stiffed on maintenance costs, support or, worse, battles over intellectual property.
Establishing what you will and will not compromise on is vital to getting a contract you can live with, said Gordon. Your contract can be anything you want it to be. Build it however you want, in your own writing.
And never, ever do the negotiating before the vendor has the opportunity to tell you the price.
"Most of these [managers] have leverage, they just don't use it."
With friends like these …
The old adage, "get everything in writing," is never more true than in negotiating a technology contract. Too often, managers believe that what is said verbally will be upheld. This is not generally the case.
It's important to make sure the warranty has everything the vendor offered in his sales pitch. That's where you're getting all the juicy things -- the special perks offered to sell you the technology. If you don't, the vendor doesn't have to do anything at all.
"They can just shrug their shoulders and say, 'sorry, we didn't say we would do that,'" said Gordon.
Many managers also make the mistake of thinking the vendor is a partner and will often give them information about budgets and products. It's like handing the vendor all your negotiating leverage, said Gordon.
"Because they thought it was a buddy thing."
Time to say bye-bye
At some point, however, managers need to be comfortable with walking away from the table because the vendor is refusing to budge. What then?
Gordon said managers need to establish a "risk matrix." Essentially, list items that you must have, as well as items you want but can live without. You have to be able to compromise, but there will be some things that are non-negotiable.
"Companies are invested so much into it, they're often not willing to back off," said Gordon, "and vendors know this and are going to use this."
Big mistake, said Gordon. Managers should never sign a contract if they're not 100% comfortable with the terms. Managers should be willing to do battle if they have to and stick it out -- if not, then walk away. A bad contract will always come back to haunt you, more than a failed negotiation.
"Companies have to realize that in technology negotiations they have the upper hand."