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Negotiating Competitive IT Infrastructure Contracts

June 5, 2008
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IT goods like computers, servers, and software are the lifeblood of the productivity of any organization. Unlike the acquisition of other business assets, these assets directly affect the ability of an employee and the company to produce results.

An unsuccessful acquisition will have unhealthy effects, like failing to obtain major benefits, distracting valuable operational manpower, and substantially increasing the costs of doing business. For example, in many software purchases the authorization of the license agreement is not carefully managed. After the lengthy project of selecting the appropriate software vendor, selecting add-ons and modules, and the implementation and maintenance services, the motivation is to sign the contract and get to the implementation process very quickly.

This reaction is common because vendor contracts are very long, technical, and printed in small fonts to minimize the number of pages of the contract. Nevertheless, this unmanaged approach can result in the loss of important benefits and remedies that a fully negotiated contract can provide.

Analyzing the Current Situation

Before starting any negotiation, it is a good idea to form a project team comprised of a cross-section of the technical experts plus a representative from business and possibly management, especially for software implementations. It is advisable to keep the team’s size to a minimum because they will take on many time-consuming responsibilities during the negotiation process, such as analyzing all the proposals that are received, attending vendor demonstrations, making telephone calls to vendor references, visiting references, and attending meetings.

The second step is to clearly define your requirements. An RFQ (Request for Quote) or RFP (Request for Proposal) is a typical tool used by clients seeking to obtain actual hardware and software proposals from vendors. A requirements statement or document can also be used if it’s a small purchase that needs to be negotiated. Use detailed specifications, particularly with regard to preparing functional specifications for the software that you need to purchase.

These are the typical sections of a Request for Quote document

Number

Section

Description

1

Company and Project Background

Provides the project’s business goals and history, and outlines the major hardware/software products needed.

2

Rules of Procurement

Informs vendors of the purchasing rules, including the contract or agreements that vendors must agree to.

3

Items

Describes various products that help the vendors size their proposal (number of software licenses, or servers to be licensed).

4

Response

Identifies the proposal or quote requirements, asking the vendors to identify references, company information, and any other information that will help the organization choose the right vendor.

Principles for Successful Hardware and Software Negotiation

Obtain a written document with all the vendor commitments: It is critical to understand the vendor commitments regarding the capabilities of the software or hardware purchased. All support warranties should be formalized in a written agreement with appropriate penalties, termination, and remedies in the event that these commitments are breached. The agreement is an important document to be negotiated in connection with any software or hardware acquisition.

  • Version Check: Technology changes rapidly. During your negotiations, ensure that the vendor provides the most recent versions of software and hardware at the time of installation. This is very important, as there might be new releases between the time the negotiations start and when the actual delivery takes place.

  • License Agreement: If you are unfamiliar with license agreements, delegate their review or preparation to an expert. Unless the client organization has defined the licensing agreement language during the negotiation, it will have to be carefully analyzed. This document defines what rights the client has with regard to the use of the vendor’s software, which is normally licensed in one of three ways: individual workstation, concurrent user, or site license.

  • Software and Hardware Warranty: Vendors generally offer a one-year warranty on parts and labor. However, the duration is negotiable and can be two years or longer. Again, unless you are very comfortable with the language of the warranty contract, ensure that experts have reviewed and approved the language before finalizing the negotiation

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