No Jitter is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Using Leverage for Vendor Negotiations

2016 poses big challenges for the enterprise. The right procurement and negotiation strategies are paramount for successfully delivering an acceptable set of services at an affordable price.

The primary challenge is that enterprises are migrating to new digital technologies that offer cost reductions, flexible configurations, increased capacity, and control, at the same time the carriers are scrapping support for their copper TDM networks and opting for IP-based services.

Enterprises must stay a step ahead of service providers and define what they want, rather than let the providers force their agenda (and increase costs).

I was recently given access to the materials from a two-day event, Negotiating Network & Infrastructure Deals, organized by CCMI with presenters from LB3 and TechCaliber. One of the presentations was about the foundations of a successful deal, which according to the speakers can be divided into three parts as shown in the graphic below from the presentation.

Start planning with an assessment of your negotiating leverage. You have leverage because you are the buyer, but your leverage can be strong or weak. It's influenced by your prior relationships. How you approach the relationships, the behavior you display, and the actions you take during the procurement process will be evaluated.

You want good bidders. You should not discourage anyone from considering a bid. Define the deal you are looking for in a well-understood structure. Whatever the time constraints are, ensure everyone knows them upfront, not later. Your willingness to move your business to a new provider and your ability to do so will enhance your leverage.

Remember that the provider is looking to capture (lock you in) and hold your business. This leads to sales forces being measured on their success to close business with you. They are incentivized to do this. When working with sales people, restrain your commitment. If the business changes, over commitment produces less flexibility. Ensure that the commitment benefits you, not the provider.

You should know what you need to include in the RFP. This is the underlying commitment. Wants should be flexible. Establish your functional requirements for new technologies. The requirements baseline is the requirements that should be your absolute minimum evaluation criteria.

You should produce the baseline requirements and your set of demands, not the provider. Spell out what you already have that needs to continue, and what is up for change. This should include key protections and critical services. Define the acceptable penalties and the desired flexibility. Do not settle for less than what you already have.

Don't wait until the last months of your present contract. The less time left to the contract, the less leverage you have. Make clear what you will or will not accept. Disqualify any proposals that do not meet your requirements both for the proposal document itself (incorrect format or structure) as well as what is being proposed. Providers can hide important elements within boilerplate that they can refer to later as part of the proposal but you missed in the bloated proposal.

List your key requirements, including the items, requirements, penalties, and revisions you won't accept from the provider:

  • Include detailed worksheets containing the proposed demand sets that will make it easier to compare responses.
  • Insist on completion of your worksheets. How can you evaluate information that is missing? If you make assumptions based on other information such as a provider presentation, you own the responsibility for that assumption, not the provider who can deny it.
  • Have the boilerplate section separated so you do not spend time reading unnecessary content. I once evaluated a proposal where the boilerplate descriptions did not match what was bid. The vendor was disqualified because the provider did not address the requirements. What we discovered is that the boilerplate described an acceptable response but the pricing was for an inferior service.

Don'ts

  • Do not ask for already available public or irrelevant material. The size of the proposal does not equal the value of the proposal.
  • Adding a draft contract to the RFP will only extend the negotiations and distract the proposal evaluation team trying to resolve your contract with their contract.
  • If there is "nice to have" requirement, so state that. If there are requirements that will not be used in the proposal evaluation, leave them out.
  • Let the bidder provide multiple pricing scenarios and what-if options. Do not ask for them as they can distract the evaluation team.

Success is found when you can clearly compare offers and you can clearly explain your decision process to those not on the evaluation team. Success is also when you have few questions and RFP changes once the RFP has been issued. Answering a lot of bidder questions can mean you wrote a confusing or incomplete RFP.