13 Mar IT negotiations: Better deals can mean better results
Madison, Wis. – Erik Phelps knows the numbers, the all-too depressing numbers, on technology projects.
Whether you’re the buyer or the seller, the odds are against a smooth technology acquisition process. More often than not, it doesn’t go well at all, according to the groundbreaking Standish Group report, first issued in 1995.
Less than one in five projects come in on time and on budget. Various surveys indicate that more than 50 percent of large software implementations or big technology projects will be substantially late, way over budget, with less features than planned, or fail altogether, observes Phelps, a partner with the law firm of Michael Best & Friedrich.
Phelps addressed the issue during the recent Fusion 2008 symposium in Madison.
Making matters worse, vendor selection and vendor-customer negotiations often turn into an adversarial process that can drag on.
“They take too much time, and the project is late before it starts,” Phelps told the gathering of IT professionals. “There are often unrealistic expectations on both sides, with focus on issues not critical to project.
“There is much gnashing of teeth on both sides,” Phelps said. “Sometimes these deals die. Rarely is anyone particularly happy. That is our current process.”
And, just when you think you’ve got a deal hammered out, the lawyers take a look at the contract and the process screeches to a halt.
When lawyers get involved, it’s too late for a lot of things, Phelps cautions. You can’t make structural changes; the deal is mature and you are “mucking” with things that can create problems.
“Vendors could lose the deal,” he said. “And customers may be down to one vendor and face the prospect of starting all over with price negotiations.”
Why do negotiations fail?
Phelps brings a unique perspective to the technology-related transactional work that is the focus of his legal practice. Prior to obtaining a law degree, he worked as a computer programmer, as a consultant for the technology arm of the U.S. House of Representatives, and as the information technology director at a large Washington, D.C. law firm.
His legal experience includes nearly every type of commercial agreement related to the information technology field, including: software licensing agreements, ASP agreements, IT outsourcing, hardware acquisition, website hosting, content delivery, professional service agreements, development agreements, as well as technology transfer, sale, and assignment agreements.
Various issues tend to come up in IT negotiations, Phelps said. What is often heard is that the technology vendor didn’t know the company’s business, the vendor’s representative over-promised on what the technology could deliver, or that the software was full of bugs or lacked a key feature.
On the other side of the ledger, the vendor counters that he was given incomplete requirements.
Ultimately, Phelps notes, you can deliver better project results by putting together better deals.
“You have to think about the kind of deal you want from day one,” Phelps told the Fusion audience. “Think of it as your first project milestone.”
His advice is to use actual contractual milestones to ensure the project stays on track. Distribute RFPs with major project requirements already detailed. Include pilots, any phased payment requirements, specific integrations, milestones, ang maintenance and service-level agreements. Require that all inbound proposals include agreement terms and conditions.
Consider attorney involvement at the beginning of the process, not the end, he advises. And always allow the vendor the opportunity to propose things.
“Agreements can happen much faster, and on terms that you can expect,” Phelps said. “They are happier, and it’s much faster. In general, it is a much more orderly process to do it upfront.”
Rules for better deals
Buyers need to consider standardizing their technology acquisition process, he says. Standardize the documents that you use as part of the process, including requests for information, RFPs, a professional-services agreements and maintenance expectations.
Provide a fair form contract that addresses the issues you care about, Phelps advises. The contract should outline all relevant project requirements, even if it concerns time and materials, and adhere to change-order processes. These recommendations are targeted more to sellers than to buyers.
Phelps advises vendors to “pitch down the middle” and not oversell the technology. Don’t sugarcoat. Honest communication and realistic expectations will benefit both customers and vendors.
“Focus on project risks, because if the project fails, you will get blamed,” he cautions vendors. “And don’t get hung up on taking reasonable risks.”
Also important for both sides is to get agreement on project ownership, Phelps said. Consider whether you want staff supplementation, or whether you want to own the project.
“In the contract process, I always ask: `what are the three ways this might fail?’ These deals are not rocket science – you can [close] these things in four to six hours, but you have to get decision-makers in a room. It will go faster if you’ve done a lot of these things upfront.”
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