Gaining the Advantage in Sole-Source Negotiations

Anticipate your Supplier's Negotiation Tactics

Suppliers develop their own negotiation strategies, and particularly in a sole-source negotiation they'll employ a number of tactics to extend an existing contract (where there may be limited incentive for suppliers to cooperate). These tactics include:

Seeking longer contract terms and higher commitments
Adding new commitments that can only be met with orders for new services
Pushing for exclusivity
Introducing new commercial constraints, such as longer per-service commitments (e.g., network suppliers routinely ask for multiyear circuit terms in return for pricing concessions that would never be necessary in a competitive negotiation)
Introducing new "standard contract terms" under the guise of "necessary updates based on industry developments." These are almost always disadvantageous to the customer.
Conditioning offers on removing commercial terms that the supplier dislikes. A prime example is removing or weakening rate review/benchmarking clauses. If a supplier pushes to weaken or eliminate your rate review/benchmarking rights, take that as a firm signal that you have a good clause, and that giving it up would be costly.
Shedding account team support, and then adding charges for reports and standard activities that the account team used to provide as part of the service

Incumbent suppliers' most effective weapon in a sole-source negotiation, however, is delay.

Delay postpones rate reductions and secures concessions because it leads the customer to drop issues with the supplier's offer or contract documents. Of course, suppliers do have deal review boards and committees and other internal procedures that do take time, but don't let them use these processes to their unreasonable advantage in the negotiation. Most customers will have heard the "we can take that request back but it will take time to get an answer" response, which really means "we'll happily take a week or two to get back to you and confirm that the answer is 'No.'"

In our experience, suppliers' propensity to delay and lengthen any negotiation has become significantly worse in recent years. Even relatively straightforward negotiations take far longer than they should, both during the pricing and commercial negotiations, and during the negotiation of the applicable contract documents that follow. Be prepared for that delay, and it won't surprise you. It's difficult for customers to prevent suppliers' delay tactics, especially once the commercial deal is agreed and there's internal pressure to complete the contract documents so that the benefits of the deal can be realized. The negotiation leverage that you've generated and constant executive pressure on the supplier and its turnaround time for offer updates and contract documents are your main weapons.

Summary

The varying levels of competitive leverage that customers have in any individual negotiation has a great deal of influence on pricing levels achieved in their negotiations, but the strategies and tools used in the negotiation are equally important in driving the best possible deal.

Getting the basics right (knowing the details, written communications, etc.), having an effective negotiation strategy, leveraging executive escalations at the right time, having access to market intelligence and benchmarking, and anticipating your supplier's negotiation tactics are all key to successfully negotiating best-in-class pricing and terms in a sole-source negotiation process.

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