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Negotiating for Commnications and IT Services making benefical agreements possible

June 1, 2008

During the past 20 years, the need for communications and technology services has been driven by three key factors:

  • Strong economic growth,

  • The Internet revolution, and

  • An intensive demand for worldwide communications and data access.

The dot-com era enabled the creation of a worldwide marketplace that demanded strong communications and technology services providers.

On the other hand, in recent years the demand for strategic services has been affected by a slowdown in economic growth. Weak economic growth has put many of service-intensive initiatives on hold. During these difficult times, organizations are reorganizing and closely monitoring IT services expenses more than they have in the past. The principal decisions regarding contract negotiations are based on economic decisions such as cost benefit analysis, rapid economic justification, and return on investment of the service acquired. How do these factors affect the negotiation for services contracts? Certainly that question depends on the service contract being negotiated, but more importantly slow economic growth is the principal driver for the slowdown in IT services spending.

Strategic Vendor and Contract Management

The contract negotiation process will likely require several months of dedicated effort from both the IT organization and the vendor. The following six steps are normally required

Negotiation Phase


Phase One

IT organization prepares a draft primary document based upon advice from executives and internal business counsel. The primary document is supplemented with information from consultants and/or the IT Team about the project’s scope and requirements.

Phase Two

The organization and vendor hold a discussion to identify the appropriate exhibits that must be developed and combined with the agreement.

Phase Three

Organization prepares an initial draft of the contract with the related exhibits and provides it to the vendor(s).

Phase Four

Meetings are held between the parties to identify the debatable issues — including pricing, length and warranty.

Phase Five

A final agreement is reached and the contract is provided to elected executives for ratification (or, in rare instances, a single IT sponsor may have signatory authority to approve a document without senior management approval).


Usually, phase four is repeated many times, with the parties debating various contractual issues and refining the related agreement documents.

Initiatives for IT Negotiation

Vendor contracts that provide critical services to ensure uptime should not be compromised just for the sake of a renegotiation. Reliable company communications and IT services are the cornerstone of any well-managed enterprise IT organization.

On the other hand, it is important that contract vehicles ensure that the services being provided meet the changing demands of organizations. Some strategies to consider are:

  • Consolidation of service suppliers: Aggregating multiple contracts into a fewer number of core contracts, whether it is for communication, software development, or other technology services, can increase the IT organization negotiation power and streamline the processes and points of contact when services are required.

  • Renegotiation of vendor contracts: Current contracts that do not meet the service level agreements or that require modification due to business changes should be reviewed. Contract renegotiation can lead to cost saving and higher quality of service.

  • In-house capability creation: Staffing internally to create the processes and systems to maintain and support the services required by the organization. This strategy is not for every organization, but it is a strong strategy for cost containment.

Negotiating Service Contracts

Previously, the importance of identifying your needs for software and hardware negotiations was discussed. During the negotiation of services contracts, the conditions and service level requirements are extremely important because, during the negotiation, vendors will explain how closely their services match the organization’s business requirements.

Your organization can compile requirements by asking business managers to write the description of the services they hope to obtain by implementing new communications or technology resources. Organizations that cannot or do not want to spend the time gathering the requirements should either outsource or network with other organizations that have recently completed a similar contract negotiation.

  • Auto renewal clauses: Auto renewal clauses allow a contract to automatically renew if the client does not formally cancel the service at a specified time. The result is a commitment to paying for a service the organization might not need or desire.

  • Fixed rates: Negotiate for a fixed contracting rate for three to five years, or agree to limited increases tied to a standard economic indicator (growth of IT industry, etc).

  • Ask for the best price: When a contract is on the line, vendors can be very accommodating. IT executives should be aware of the contract changes that provide real benefits for the organization and then ask for them

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