Purchasing | Feature
13 Secrets of the Deal
CT shares insider secrets for negotiating with vendors and getting the deal you want.
- By Dian Schaffhauser
Whether you're on Wall Street, in Congress, or working in an IT shop on campus, negotiating a good deal is hard work. If you put in the hours up front and prepare, though, you can save your institution a bundle. As higher education enters its purchasing season, CT talks to deal makers who've been there and done that. Here are their tips for getting the most value from vendors the next time you buy hardware, software, or services for your institution.
1. Bring stakeholders together before you go shopping. "The biggest mistake, clearly head and shoulders above everything else, is not getting all three groups--IT people, users, and the purchasing department--involved early on," says Grant Crawford, CIO of the Midwestern Higher Education Compact (MHEC), one of four compacts in the country that help state organizations reduce their costs through consortia-based purchase agreements. Grant stresses that each constituency has a valuable role to play in defining requirements. "You don't want purchasing or IT saying to the other, 'Why did you agree to that?'" he explains. "And you don't want to say to the user, 'Yeah, I went out and bought you this stuff.'" They may not want it.
2. Do the analysis before buying. Strata Information Group, an IT consultancy for higher ed institutions, advises its clients to spend time on their business-process analysis before shopping. Strata works with institutions such as Portland State University (OR), St. Mary's University (TX), and the San Mateo Community College District (CA) on strategic planning, purchasing, and implementation of technology. "If you're not careful," says cofounder Henry Eimstad, "institutions will pick a system that looks like the one they have, because that's what they know." If the school can step back and think about what an ideal system would look like, it'll do a better job at picking a solution that more closely meets its real needs. This approach "gets people working as a team early," explains Eimstad. "It gets them vested in the whole process, which is helpful to the implementation. If the end users feel as if they had a role in determining requirements and making the selections, they'll be more committed to making the system work."
3. Participate in your state's purchasing consortium. If your institution belongs to a compact, volunteer on a technology committee. Its work can potentially involve hundreds of millions of dollars. In return for your contribution, you'll gain expertise in vendor negotiations. "If you're in a small state college, you're not going to deal with corporate vice presidents when you negotiate," says MHEC's Crawford. "Through committee work you will get that exposure. You'll get to talk about much bigger things, and you'll get to work with a group of people that has very broad expertise in the field."
4. Make just-in-time purchases. Frequently, when you purchase technology, you need some components earlier than others. The key: Only pay for what you require now. On the hardware side, for example, "don't buy the big production machine needed to support 20,000 machines when what you're doing is testing and training," advises Strata's Eimstad. "The price of hardware goes down and the performance goes up. We say: 'Buy what you need as you need it and grow into it.'" The same is true for software. You'll need certain systems, such as a database, at the beginning, but you won't require plenty of add-on modules for one, two, or even three years. "People typically don't implement degree audit until they've brought up the finance and student systems," explains Eimstad. "So add that later and at the same time avoid paying maintenance on it."
5. Solicit bids from at least two viable competitors. Companies tend to work harder in a competitive situation. But you'll lose that advantage if one of them figures out that it has your business in the bag. "A school falls in love with a vendor and they'll let that be known," sighs Eimstad. "You don't get much in the way of price reductions if a company knows it has the business." He advises everyone who attends a product demonstration to "put on their poker faces." That means no smiling if participants love something; no frowning if they hate it. "Just do the evaluation and don't indicate which way you're oriented," he says.
6. Vendors are people, too. A good working relationship with vendors can lead to price breaks, so treat them as you would like to be treated. Sometimes, the small details make all the difference--like recognizing that vendors take holidays off, too. When setting a due date for an RFP, for example, Dec. 20 is a lot more considerate than Jan. 2. During negotiations with a vendor, MHEC's Crawford makes it a policy to ask, "Where do you have trouble dealing with us?" He then promises to work on those areas pinpointed by the vendor. Too often, institutional purchasers also include stipulations in RFPs that have no real bearing on the ultimate decision, but nevertheless require a lot of work, such as supplying the last 10 years of financial statements. Crawford works hard to make sure that any requests made of vendors serve a purpose.
7. A demo is more effective than a lengthy RFP. In the old days, prospective customers would send out RFPs with hundreds of requirements. "The vendors would work for weeks and weeks responding to those things," recalls Strata's Eimstad. "And the evaluation team was then faced with binders full of information." Now Strata works with clients to nail down key requirements and then develops a script to guide the vendor through a demonstration. By having scripts, Eimstad says, "you force vendors to show you everything: Show us how to register a student. Show us how to enter a purchase requisition. Show us how to pay somebody. Show us the self-service functions."
8. Negotiations don't begin or end with pricing. A price reduction shouldn't be the only item on the table, says MHEC's Crawford: "Consider deals on little stuff that adds up: shipping, longer warranties, multiple addresses for shipping, training, faster delivery, right of refusal." And if you're involved in any kind of collective purchasing, don't forget about the right for existing customers to participate in the new deal. "Many software vendors will not entertain existing customers evolving into the contract when there's a maintenance payment involved, because that's bread and butter to the vendor," says Crawford. "We'll bargain hard to get existing customers included." To take advantage of the new terms, though, existing customers sometimes must buy something new.
9. Avoid signing a contract straight from the vendor. By their very nature, vendor contracts are going to protect the vendor more than they protect you. That's one reason to work within a buying consortium, such as MHEC, since these organizations have already negotiated vendor contracts that take customer interests into account. A school can still issue an RFP to select a winner, but use the consortium contract--with its pre-negotiated terms--as the actual purchase vehicle. Otherwise, consider hiring an independent consulting firm to help you understand the terms and to represent your interests. Even then, some aspects of a vendor contract may turn out to be non-negotiable. "Good luck on changing very much," acknowledges Eimstad, who says that the largest vendors are often the least flexible. His strategy is to work with the client's legal counsel to figure out what terms and conditions are most important.
10. Limit and control escalation factors. There's usually an escalation clause in a maintenance contract that specifieshow much fees will increase each year. "When you look at it, a 7 percent increase doesn't seem so bad for a couple of years," says Eimstad. "But if you project that out 10 years, it would have nearly doubled."
11. Determine how much training and consulting you really need. When you're buying new technology, the purchase frequently needs to cover additional vendor services. In many cases, says Eimstad, the vendor will either underbid or overbid for these services. Your job is to get the right level of service, and to understand what you're actually buying. This includes items such as travel costs and cancellation requirements. "You can't call a vendor on Friday and say, 'Hey, that consultant coming out on Monday--we don't want him. We're not ready,'" says Eimstad. "That's not fair to the vendor. So find out whether it's two weeks' notice, a month, or something else." Talking with other institutions that have implemented the same software, service, or hardware can be helpful in setting a realistic level of expectation.
12. Look at alternative service providers. Just because you're buying gear or software from one vendor, don't assume you also need to purchase services from that same company. "We hear, 'Oh, I need to get all the services from that vendor so I have one throat to choke,'" declares Eimstad. "But, at the end of the day, you're not buying to choke anybody. It's about having a good implementation." Going that route limits your options, too. "You have less leverage if they send out a consultant you don't like," he explains. "If you request someone else, they may respond, 'Well, you have to wait six months because nobody is free.'" By not committing to those services up front, you can tell them you're going to another vendor, which may encourage them to assign a different consultant. If not, you can find the alternative yourself.
13. Walk away if you don't find the right deal. Sometimes an RFP just doesn't work out, says MHEC's Crawford: Vendors don't respond; the offerings don't mesh with the needs; the terms aren't in the same ballpark as the budget. "Last year we did a web-conferencing RFP and didn't find anything suitable, so we declared it failed and closed up shop on that one," he recalls. In the technology business, change is a given--a year or 18 months may make a world of difference in finding the right product or service.