“You must never try to make all the money that’s in a deal. Let the other fellow make some money too, because if you have a reputation for always making all the money, you won’t have many deals.”
J. Paul Getty
We’re not going to get too deep into negotiation strategies because your procurement team will be far more adept at this, but the following might provide some ammunition to use during their negotiations.
The vendors will tend to be very flexible on the installation price and up-front pricing because they know that once implemented, they have the customer “captured” for the life of the product, which will probably be in excess of 10 years. For every extension and expansion, it becomes very difficult to go to alternate vendors without pulling out the OSS and starting again. Knowing this, the vendors could potentially go with a loss-leader strategy, knowing that they’ll be able to claw back with a premium on ongoing costs.
So a few ideas that could be used to reduce ongoing costs are:
- If you have negotiated well and your vendors have agreed to supply your OSS products at say 50% off RRP (Recommended Retail Price), then also negotiate a percentage off all future products/services to be incorporated into the initial contract. Otherwise your vendors have the potential to charge you full RRP for future modules when your negotiating power is not so strong (ie they are in the position of power by being the incumbent supplier). Also be aware that some vendors will charge annual maintenance as a percentage of RRP rather than a percentage of contract price
- A similar situation would arise when considering the number of user licences. Include clauses to cover the case if you significantly increase the number of OSS users in future. You could insist that licence scalability costs could also be capped in the initial contract
- You could also seek to put a cap on support costs or the supply of expert resources to ensure it does not exceed reasonable amounts. I’m sure your procurement team will have some fantastic strategies / benchmarks to keep this under control
- Licensing is often restricted to a small number of database instances (PROD, TEST, etc). You may not envisage that you will need more than this, but just to be sure you might want to negotiate unlimited instances. You probably don’t gain much on this bargaining chip so don’t give anything away to get it
- The other big area where costs can blow out is with in-flight change management. There are many dependencies on you to deliver documentation, expertise, fast document approvals, etc that could lead to customer-caused delays. There are usually a number of grey areas in scope, so the vendor can find a number of in-flight changes to seek penalty or scope creep payments. I’m sure your procurement team will lock down these risks.
- Be careful to identify an exit strategy. Some vendors are adept at building in hooks that make it nearly impossible to remove their products from a CSP‘s environment once implemented. Some are also “brilliant” at devising products that if one module is upgraded then all other adjacent products also need upgrading, introducing cascading life-cycle costs. Reference checks at existing customers are one means of identifying whether the prospective vendor conducts these types of practices