Addressing IT supplier costs – sharpening the pencil – Part 1

In the current environment many IT functions are taking a careful look at their cost base.
IT and telco suppliers are often a large part of the budget, and one of the faster areas to address.

In this piece we explore how to undertake the process in a fair and methodical manner, and we also address some common concerns.


“But we’ve already signed the deal”
We hear this a lot, and it’s a common misconception that signed deals cannot be touched. The truth is that with the right approach, deals can be re-negotiated, and quite successfully too. Turnstone regularly do this for clients, and have an 80% success rate on resolving the problems we find. More on these later.

“Which ones first?”
In the pre-Covid environment, there were many reasons why existing IT and telco contracts benefitted from an update.

To ask you some questions – are any of your contracts / IT suppliers:

  1. Unaddressed for 2 years or more (including auto-renewals)?
  2. For your original requirements / usage, which has changed since you signed?
  3. Still on the suppliers standard terms – including web based T&C’s?
  4. For an older solution, and the supplier has a newer one available?
  5. In the unmanaged ‘mid tier’ of suppliers? (CIO team managing the top tier)
  6. Ones where you’ve had service, performance or account / commercial issues?

The more of these that ring true, the more likely you are to be:-

  • paying more than you should
  • receiving a lesser service and
  • exposed to a range of real world operational risks that can and do bite.

On the flip side, the better news is that this increases the scope for improvement.

In the new Covid environment, we add cost firmly to the above list, to fully explore where the supplier can reduce cost. And this isn’t just headline cost, in most IT / Telco deals there are multiple elements which comprise the total. If these are not well defined, cost control and invoice checking is harder or impossible.

Last week Turnstone achieved an 18% reduction for a client with their long term incumbent software supplier, through a combination of negotiation factors, plus the supplier threw in some free services.

So it is eminently do-able.

What about my supplier relationships?

Many IT organisations are going through this very process, so it will be no surprise to your suppliers. Survival of your company is paramount, and it’s in the long term interest of the wider industry that you remain a paying customer.

Perhaps it’s counter-intuitive, but doing a re-negotiation tends to refresh and renew the relationship between supplier and customer. Items on the table may include matching actual usage to payment, new pricing models, rates, discounts, new solutions, contract term, SLA’s, service credits, security, DR, exit plans and costs, publicity and a whole host more. There is room for manoeuvre and negotiation across a range of such factors.

Pricing models vary between areas of technology spend – for instance managed service providers MSP’s, Saas providers and WAN suppliers all charge in different ways. We may examine these cost elements more in a further article if there is interest from you the reader, so do let us know.

And note this is not purely legal work – it’s SLA’s and operational ‘run book’ stuff, which impact how well the service runs, and gives you better control over the supplier.

If termination and exit needs to be considered, we look at termination provisions, consequences and costs as per the contract. Then we draw up the practical approaches, and engage with the supplier to negotiate the best economic outcome for you.

From reviewing countless technology contracts over the years, it’s the suppliers who’ve had the whip hand, with contracts always favouring them, rather than you the customer. Our professional negotiators (CIPS qualified) are skilled at finding the leverage points, and working with your supplier in a methodical and calm manner to resolve them.

Some clients prefer Turnstone to lead negotiations to preserve their working relationship with the supplier, others prefer us to work in the background. If you have a legal function, we commonly co-work with the legal team.

“What’s next and how?”

So now is an ideal time to address your key deals, not only to explore cost reduction but also to find and fix these ‘red flags’.

The process is straightforward – it’s usually easy for you to pick one or more suppliers– perhaps using the 6 questions above. Then you send us the contract(s), and we make a start. Suppliers spend over £100k pa are best, where there’s more likely to be cost saving potential.

The good news is that the red flags we mentioned earlier are all resolvable. This is a successful area of our business – undertaking renegotiations for clients. And it’s surprisingly low on fees – it’s not a huge amount of work, rather it’s iterative, being a handful of man days / man hours, stretched out over a period of a few weeks. It always nets significant improvement, both in terms of cost and strength of your position.

The process is also low effort from your perspective –you prioritise the action points from our contract review, and we engage with the supplier to renegotiate and redraft.

We have an 80% hit rate on resolving the red flags we find. Our experts work with your supplier, to upgrade wordings, clauses and schedules using our best practice library of what’s fair. This more pro-active / front-foot approach tends to speed up progress, by providing model wording, rather than waiting and hoping for the supplier to change it.

We hope you agree this is a prudent exercise to ensure the best contractual position and keenest cost position.

So do get in touch, we’re happy to discuss your supplier situation and the best way forwards.