Why Do IT Outsourcing Contract Negotiations Take Longer Than Expected?

AUTHORED BY GUY WOLF, TRANSFORMATION EXECUTIVE @ GUIDEIT

Guy Wolf, Transformation Executive @ GuideIT

Guy Wolf, Transformation Executive @ GuideIT

“We made the decision six weeks ago to go with the preferred vendor.  Why is it taking so long to finalize the contract with them?” a CIO asked us recently. 

Why, indeed?  We had performed the due diligence one would expect on a deal of this size, including the data center visit, the customer site visits and reference calls, and much more, yet after 7 weeks of late night meetings, we were still apart on the final contract and losing valuable time and leadership focus – not to mention the good will between the parties.  And yet we still could not nail down an agreement. 

Want to make this process go smoother for you when you are at that point? Here are some areas that will help you avoid the gap between decision and execution:

1.       Match the contract to the proposal.  A couple ways to go here: either start the Vendor’s paper or the Customer’s.  If using the vendors “boilerplate” it may be a time saver, or a time sink.  If the boilerplate contract is much different from the proposal that is being delivered, then there is needless wasted time in trying to “shoe-horn” something that doesn’t fit.   If the Customer has a standard sourcing contract (less common, but not unusual these days), it may save significant time finalizing the legal and security details.

2.       Minimize (hard to eliminate) late-breaking requirements.  In spite of your best efforts to research all the requirements and include them in the RFP, and validate them during due diligence, there is often a new requirement that comes up during negotiations that had not been provided to the vendor before.  Will there be a requirement to integrate IT Service Management tools?  A new set of security requirements that did not get entered into the RFP?  A higher limit of liability or consequential damages clause?  It’s possible to overcome some of this by getting people to commit to their requirements earlier in the process, but doubtful that will be 100% successful, as people get more focused on those things that they believe are imminent and likely. 

3.       Focus on the big gaps.  Not all issues are created equal, and if there’s going to be an agreement, there are going to be some issues that are harder and more important to agree to than small ones.  Avoid the trap of claiming to make progress by knocking out the small issues versus resolving the ones that are true show stoppers. 

4.       Know your objectives and positions and engage as partners, rather than adversaries.  You’re going to spend a lot of time together and require an open, trusting relationship.  It’s a good idea to start that way, and share with one another what the showstoppers truly are.  This will help you avoid negotiating as if it’s a competitive sport, and both partners will wind up with a deal they can benefit from.

Not an exhaustive list, but organizations (vendors and customers) who employ these techniques reach win-win agreements – or decide not to engage – sooner, and in a more positive relationship. We would like to hear what has worked (or not worked) for you.