Sitting down at the negotiating table to hammer out final details of an outsourcing contract is important to fulfill the needs of both client and the vendor, experts say.
Having a healthy negotiation process before ink is put to paper is imperative, they add.
It cements the details of the parties involved, ends up saving both time and money, and provides a safety net.
Attendees at the IT360 Conference and Expo, hosted recently in Toronto by event mamagement firm Plum Communications Inc., got a rare, intimate glimpse inside the minds of both the buyer and seller as they sat at the bargaining table.
Tips and tricks on negotiating were shared by Mike Moszynski, senior manager, risk advisory at KPMG LLP, an international cooperative and Bill Edwards, strategic alliance director for Calgary-based Telus Corp.
“We are islands, and we don’t really understand other people or how they perceive things,” Moszynski says.
Putting yourself in the shoes of the person you’re negotiating is key to a successful bargaining session.
What’s more, he says, negotiating isn’t just reserved for forging new relationships between client and vendor, but can be a good tool for revamping older contracts.
A five-year deal could be re-negotiated several times because things change so rapidly in business, says Mark Schrutt, manager of strategic outsourcing for Toronto-based analyst firm IDC Canada.
“Sometimes it is not just the outsourcing client looking to rework the deal,” he says. “Sometimes vendors recognize it is better to address a contract before it expires.”
Last year about four out of every 10 contract signings in Canada were the result of re-negotiations, Schrutt adds.
Clients often like to rework the contracts because their needs for services evolve, and vendors enjoy the opportunity to sell when there’s no competition to outbid.
Whether reworking an existing contract or putting fresh ink to paper on a new one, planning is the first step, experts agree. The most time in the process should be invested in this.
Buyers need to know their limits, set objectives such as service level agreements and consider what the seller is looking to attain from the deal, Moszynski says.
His advice: Know where the bottom line is and be reasonable about setting targets for the vendor.
“Sometimes buyers set targets that are too aggressive and may compromise the success of the implementation. You need to understand where the ability to compromise is and where the other party’s priorities lie.”
Sellers, he said, need to know their client very well, and understand the latter’s needs and requirements, Telus’ Edwards says. Keep your bottom line at the front of mind and know who are involved in making the deal.
“If you want to present your plan to upper management, there’s a huge process to go through,” he says. “Whatever plan you have, you need to run it by all of the different groups involved.”
Preparation for renegotiation starts right after the contract is signed, Schrutt says. Certain clauses, such as price-benchmarking in a contract could give the client an opportunity to re-open the deal down the road.
“You can’t depend on the good faith of the vendors,” to come back to the negotiating table, the analyst says. But if no clause allows the contract to be re-opened, sellers can be lured back given the chance to sell more services.
“Why would they want to come back to the table if they have a guaranteed cash flow for a couple more years?” Schrutt asks. “But they will want to sign you up for more services and raise that cash flow.”
When it comes time to doing the negotiation, clients often send an outside consultant to the bargaining table, he adds. This is a good idea so the client is not out-classed by a vendor who is used to the negotiation process and more savvy about tactics.
Both parties need to take time to listen during a negotiation, the experts say.
Play the game by showing enthusiasm about the deal, but don’t feel rushed and take your time. Note-taking can be a good delay tactic, and saying “no” when you’re not comfortable is perfectly acceptable.
“Look into the person’s eyes, watch their body language, hear what they say and read between the lines,” Moszynski says. “There are techniques like good cop and bad cop, which you’re familiar with if you watch Law & Order.”
Buyers should be clear about their requirements and look to get the most their money can buy, he adds. But if you need the deal to be made quickly, be careful about sharing that.
Go after extras and discounts aggressively right up to the end of the negotiation, Mozynski says. “Once you have a handshake, the nibbling stops and that’s the deal.”
A seller should go into the final negotiation thinking about the long-term deal, Edwards says. If real value can be created for the client, you’ll stand to earn more profit in the long run.
“In the old days there used to a quota to meet for the year, but now it’s gone down to the quota per month,” the Telus director says. “You have to make sure you have a vision to hit that quota.”
If you’re heading into a renegotiation for a contract, then there are a different set of rules at play. Don’t try to rip apart the entire deal and look at each term and condition, but focus instead on the scope of service, pricing and the term of the contract, Schrutt says.
“Your expectations really need to be set properly, you can’t shoot for the moon,” he says. “It’s a much more simplified process and you’ll want a time limit so the negotiations don’t drag out.”
A renegotiation process should be completed in about four to six weeks, he says.