Turnstone Services talks negotiation when sourcing IT – from a customer’s perspective
All good negotiations involve a balance of knowledge and a fair market price against the needs of the business. This is no different in IT.
While the current economic uncertainty might seem like a good time to set about slashing rates, you have to remember that it always makes more business sense to build and nurture supplier relationships based on trust and longevity.
There is nowhere that this applies more than in IT sourcing contracts, which may run for 10 years or more. If the buyer has concentrated on making a big saving at the start, without a thought for the later years, the business is likely to see huge price increases over time as the supplier recoups early losses. Total cost of ownership must be calculated for the life of the contract to keep costs fair.
Where contracts, such as sourcing deals, do run for many years, there should be break clauses linked to benchmarking. Technology development is so rapid now that pricing is quickly out of date, particularly for hardware, so a benchmarking process should be undertaken every two to three years to ensure that pricing remains appropriate. This process is typically undertaken by an external benchmarking company, and the full process with pre-agreed benchmarking company should be written into the contract.
IT often has to be extremely light on its feet to support rapid technology changes, which means that IT contracts need to be able to work with this flexibility. When negotiating IT contracts costs should be fully broken down and flexible to allow for change.
When the IT team is pushing hard to start work with a supplier, it’s tempting not to ask too many questions about the total fixed cost that the supplier has presented. But this can hide a myriad of sins, causing costs to spiral as changes occur on the project.
The total fee for all services provided should be broken down to show pricing for each activity, mapped against service levels and associated service credits. Service levels should be reported on so that you can manage the supplier’s performance over time. The contract should allow for fluctuation in volume over time, for example in increasing/decreasing licence numbers, helpdesk calls, or racks to be managed. There should be pre-agreed day rates set out for ad-hoc work, even if IT denies that there will ever be any other work.
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