Just as with golf, experience counts when it comes to negotiating an IT contract.

If you’re like most purchasers of application software or hardware, you probably don't negotiate contracts on a daily basis. Contrast this with most IT vendors, who have extensive training and experience crafting agreements that favor their company.

What’s wrong with this picture?

You can level the playing field by enlisting the help of a seasoned contract negotiator, such as an attorney or consultant. However, you should also learn as much as you can about contract negotiations yourself--since you will be dealing with the vendors throughout the selection process. What you say and do each step of the way will have an impact on the final deal that is signed.

Here are some tips to help you get a fair shake:

Don’t narrow the field to just one vendor

Ideally, your selection process should result in identifying two equally acceptable vendors in terms of functionality, support and other criteria. Tell both vendors you have narrowed the field to two, and it is only a matter of price and terms. Then negotiate with both of them for maximum leverage.

If one vendor truly stands ahead of the pack, do not let this first choice vendor know they are the only company you’re considering. They will have far less incentive to lower prices or increase services to you.

Also, be careful not to lose any bargaining chips by informing a vendor of your intent to purchase before you have completed contract negotiations with them. After an arduous selection process, you may be so excited to have made a choice that you want to share the good news with your selected vendor, whether verbally or in writing--but you should curb your impulse to do so.

Likewise, never let a vendor know they are the only company that can solve your problems or that you plan to standardize on their solution with future applications... unless you want them to dictate all the terms of the contract.

Don’t be undersold

Like a shoe salesman trying to squeeze a large footed customer into a smaller shoe, some vendors try to be more cost competitive by shoehorning prospects into a system that will not meet their needs--and then selling them costly upgrades later. 

To make sure the cost quote is realistic, you can show your second choice vendor the cost proposal from your preferred vendor, with prices whited out. The second vendor can help you determine if your finalist has proposed a large enough system or left out important cost items, such as custom programming or travel expenses.

Use payments as leverage

Payments should be scheduled when certain milestones are reached and performed to your satisfaction (in writing) rather than arbitrary dates--provided you do all the advance work that is required on your end. Payment for performance helps ensure that you and the vendor are on the same team when it comes to implementing your system on schedule and that the system will do what the vendor said it will do.

Be sure that your final payment is not due until at least two months after you "go live" with the new system, so the vendor is motivated to correct any problems.

Buy some time

When it comes to support fees, you may be able to negotiate your own payment terms on invoices. For example, the vendor may agree to payment 30 days after receipt of the invoice rather than 30 days after the invoice date--which could buy you a couple of extra weeks to research the charges. Be sure to include in the contract that any disputed charges will be exempt from interest payments until the dispute is resolved.

Look into your crystal ball

Although you can’t predict the future, you can be certain that your organization’s needs will change over time. License fees for future additional seats should be included in whatever volume discount you negotiated as part of your initial agreement.

Similarly, ask for at least 12 months' notice (or other reasonable time period) when hardware or software support will be discontinued. You should request to be informed what the vendor's transition plans are and what you’ll need to do to prepare.

Be sure that the software source code is placed in escrow and that you have the right to recruit the vendor’s technical staff to support the product in the event the company goes bankrupt or is acquired by another company,

Get concessions in the right places

Most vendors have a tendency to be more rigid about some areas of pricing than others. Talk with colleagues at other companies and learn what these sticking points are. If your finalist vendor is known to be inflexible about its service pricing, for instance, try to get more concessions in other areas, such as license fees.

Get remedies in writing

Make sure you’ll be compensated when things go awry, such as excessive system downtime or failure to keep up with government regulations in new releases. Specify what circumstances warrant remedies, and be reasonable in the amount of compensation you request.

Beware of "evergreen" clauses

Evergreen clauses are automatic renewal clauses that take advantage of the fact that contracts are frequently tucked away in a file drawer after they are signed. Some vendors take advantage of slack contract management by including clauses that automatically extend service agreements if the vendor isn't notified by a certain date

While some vendors defend this policy as a "customer convenience" to prevent gaps in service, it could also mean you’ll pay for service you no longer need.

In addition, these renewal clauses often have built in price increases which are stacked highly in favor of the vendor. You should negotiate these increases up front with a "not-to-exceed" price agreed to by both sides before the contract is signed.

Use an RFP

To ensure that promised functionality is provided at no extra cost, experienced IT purchasers insert a clause in their contract stating that responses to the RFP will be included as an exhibit in the contract. Companies have saved thousands of dollars during implementation by producing the vendor’s signed responses to their RFP when the vendor tries to charge for supposed "modifications."

Without an RFP, or Request for Proposal, your new system’s functionality cannot be adequately documented. This puts the advantage squarely on the side of the vendor, since verbal promises are difficult to prove during implementation. (You can save time and effort by using an automated software tool like the ON-LINE CONSULTANT to help you develop your RFP.)

Your RFP should cover such areas as training and support so you can compare each system’s true costs. For example, a company whose technical staff is based in another part of the country can rack up significant airfares compared to a company with a support office within driving distance. In addition, your RFP can reveal other surprises, such as a vendor’s policy to charge for travel time to your site for training and technical staff. Such charges can be eliminated or reduced, but only if you learn about them before you sign the contract.

Start negotiations early

Don’t wait until the 11th hour to negotiate all the terms of your contract. Many IT purchasers recommend you include key clauses in your RFP that you want to include in your contract. Vendors are more likely to agree to your terms early in the sales cycle rather than during final negotiations--when they feel more assured of getting your business.

In a similar vein, start getting price concessions early on when the vendor is more worried about being cut from your shortlist.

Timing is everything

Take advantage of a company’s desire to "make the numbers" by negotiating during strategic times of the year. Vendors are more concerned with improving the bottom line just before the end of each quarter and fiscal year end--when they have to report their earnings to shareholders. If you are stuck on price, wait until just a few weeks before one of these periods to see if you can gain additional price concessions.

See what you’re signing

This may seem trivial, but make sure the contract you review is in readable type and contains no small print. The vendor should provide you with a word processing document in at least 10- or 12-point type so you don’t overlook any important clauses.

Be aware that any clause in the contract is subject to discussion and negotiation Just because something is in print does not make it sacred. Most vendors’ boilerplate contracts are skewed in their favor, and they expect you to negotiate with them.

Some IT purchasers mitigate the vendor’s advantage by using their own contract as a starting point for negotiations. They include their contract as part of the RFP and require vendors to reply to each clause, indicating whether they accept the provision, reject it or accept it with specified modifications.

Final thoughts

There’s an old joke told by lawyers that an oral contract is worth the paper it's printed on. When negotiating contracts with IT vendors, it’s important for you to make sure that everything is spelled out and documented in writing. Responses to your RFP signed off by your finalist vendor can spare you many headaches down the road if they are included as part of your contract.

Also, be sure to treat the contract negotiation process as seriously as your selection decision. Your alertness, vigilance and patience will help ensure that your organization receives good value and maximum protection from risk.