Important Steps You Can Take to Avoid Destructive Vendor Relationships
We recently had a client who was suffering through a colossal dispute with an important vendor. This wasn’t a minor issue. This was a problem with $300,000 on the table. Because of a blown project, the client and the vendor were barreling toward a lawsuit. A project that was started with such promise had ignited into a lot of finger pointing. It was ugly and bad for both sides. We stepped in and helped remediate the situation. This is something we will do if necessary for our clients, but it is not something we like to do. When we are asked to step in to situations like this, it is clear to us that no one is going to win. Certainly not our clients. Major projects like this are expensive and time-consuming. When they fall apart because of a broken relationship with a vendor, it’s extremely disheartening not to mention painful to the bottom line of the business.
Vendor relationships, especially those that involve major technology implementation, are some of the most important relationships that an organization, any organization, will enter into. We like to think of it as a “marriage.” These relationships often last five to ten years or even longer and are inevitably tied to the success of the business. Therefore, choosing the right vendor is critical. While we’ve helped our clients negotiate with vendors concerning major projects, we’ve established a repeatable process for these negotiations. Of course every project is different, so too is every organization and vendor. Yet we’ve found there is an important roadmap all organizations can follow to protect themselves during these vendor negotiations.
We recently begun offering our Vendor Relationship and Contracting Process to organizations. This process outlines, in detail, best practices for vendor negotiations and contracting while providing terms and clauses and legal language useful in any negotiation. It also includes a step-by-step checklist to follow throughout the negotiation that will ensure you are fully identifying and documenting your needs, weighing all of your vendor options, examining potential pain points in the relationship, and exhausting all necessary ways to defend yourself from harm.
Here are five of the steps included in our process, that you can take today to improve any negotiation with a vendor:
Fully define your needs: Choosing a vendor begins with understanding and documenting exactly what you expect from a vendor and your goals for the outcome of the relationship. It can be helpful to prioritize all detailed needs in three distinct ways: “Must Have,” “Nice to Have” and “Can Wait.” You must enumerate, in detail and structure, all of the needs that the supplier/vendor and/or their software must satisfy. This includes business needs as well as functional and technology needs.
Get everything documented: It’s not uncommon for a vendor to over-promise and under-deliver. Much of the time their ultimate goal is to win the sale and then move on to the next sale. This means it is critical for you to do everything you can, under the law, to ensure that a vendor lives up to every single promise they make during negotiations. Document EVERYTHING, and make sure your final vendor choices know you are doing so. This list should include all specific deliverables, penalties for not meeting deadlines or requirements, training that the vendor will provide to your team members, testing process and change control, disaster recovery and business continuity processes, cybersecurity and uptime expectations plus much more. Put everything down on paper before the contract is signed. Make the vendor accountable for every promise they make doing the courting stage.
Thoroughly vet references: As early as you can, get the names and contact information of existing customers from each remaining supplier/vendor. Reach out to these referrals and schedule meetings with them absent the presence of the supplier/vendor. This is to ensure that discussions are as frank and open as possible. We have developed a list of questions that are helpful when interviewing vendor referrals.
Get contracts early: Make sure you are given final contracts from your top several choices before making the final decision on a vendor. Don’t wait until after you have made the final vendor decision to get the fine print. From a negotiation standpoint, this hamstrings you. Once the vendor knows they are your final choice, they are much less likely to make concessions. Getting contracts from your top choices will give you another aspect to base your final decision on.
Apply Good Cop/Bad Cop principles: You’ve seen it on uber-dramatic police dramas. The act isn’t much different in vendor negotiations. It’s good to have someone in your organization who can build a relationship with the vendor. This normally should be the business side application evangelist who is going to be working with the vendor on an ongoing basis. Yet you also need someone who is constantly fighting on your behalf. You need someone who is not afraid to challenge the vendor at every turn. This could be a purchasing person, a technology side leader (CIO), or a CFO who oversees spending. Also, have your legal team, if you have one, involved in the negotiations.
It helps also to have a third party whom you’ve asked to help facilitate negotiations with the vendor to act as a “bad cop.” This third party should have experience negotiating with vendors. This experience will benefit you during the negotiations. This third party should understand many of the “tricks” vendors try and pull during negotiations. A lot of these vendors have extensive familiarity with how to get the most out of their negotiations. They’re not looking out for your interests, but their own. It’s good to have someone in your corner who can spot these tricks. Even the most talented boxer needs a seasoned coach with the ability to spot a strong left hook.
Vendors often have the upper hand because they possess the experience in these negotiations. This is especially true with larger vendors who have negotiated with multi-national corporations and government agencies. For them, these types of negotiations are very familiar territory. They ultimately want you to be locked into their wares because of the difficulty you will have in ripping and replacing it. This gives them the leverage with future pricing and performance. Meanwhile, many organizations looking to use a vendor’s products or services, in these situations, are in unfamiliar territory. This is why we created the Vendor Relationship & Contracting Process. It is our mission to help navigate organizations through this difficult and critical time.