How to re-negotiate an IT supply contract

IT services are business critical for most organisations. As we are all being asked to deliver “more for less," effective renegotiation of supplier contracts is now a key tool in the armoury of the successful IT director.

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In the current challenging economic circumstances all organisations are reviewing their operating costs and planning on lower levels of capital expenditure. The IT department is not immune from scrutiny.

Most Finance Directors and Chief Executives will insist that no stone remains unturned, because the very survival of the business may rest on the outcome. Smart IT directors know this is not the time to protect “pet projects” or manipulate budgets to avoid cuts.

Be clear about what your business needs

Effective IT directors will have a clear, up to date perspective from the CEO or MD about the priorities of the business for the near term. They know what decisions are being made regarding expenditure, resources, growth and financing and what impact they will have on the IT department and how it functions.

Equally, they know that some appropriately applied polite pressure on a supplier will generally prompt consideration. Although suppliers are under pressure too, they will also be keen to avoid the loss of a customer.
When considering contract changes, experienced IT executives look for a range of potential outcomes, including:

  • Price reductions
  • Additional products and/or services in the current price
  • More favourable terms, such as improved payment arrangements.

Understand your negotiating environment

Effective negotiators always make sure they understand the position of the other party and the relationship between both organisations. Successful IT directors will look at issues such as:

  • Linkage – would a change in this contract have a consequential and/or detrimental impact on another?
  • Criticality of supply – what else does this supplier do for me? Would a failure to agree a new position with this supplier have an adverse effect elsewhere?
  • The health of the supplier’s business – could proposed actions put their business in jeopardy? Do they have issues with other customers?
  • History – are there precedents with this supplier to negotiate contract changes?• History – are there precedents with this supplier to negotiate contract changes?

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