IT Vendor Negotiation Checklist: Ace Your Vendor Selection Process

IT projects often have strict start dates that can put pressure on your contract negotiation timeline.  One of the most common delays in the negotiation process is initial Request for Proposal (RFP) responses from your vendors during your IT vendor selection process that are returned incomplete or based on an incorrect set of assumptions and scope.

Having to re-clarify your positions and ask vendors to re-propose wastes time and may leave your client representative with a bad taste in their mouth.  For these reasons, it is imperative to get your IT negotiation and program off to a good start. Here, I will cover ways to create a complete and accurate proposal that covers all your company’s needs to ensure you receive proper RFP responses in your IT vendor evaluation process.

A General Checklist for Customers to Ensure a Quality Proposal in the IT Vendor Selection Process

There are many factors that contribute to receiving a quality proposal from a vendor during your IT vendor selection process. Some of these factors exist outside of your control, but one of the most important factors is to ensure your RFP defines your program as completely as possible and requests all appropriate information and “Thought Leadership” from your vendor.

Some critical RFP details are unique to certain types of IT negotiation.  For example, if you have an existing ERP workload you want to move to the cloud, it would be important to include infrastructure sizing information like the storage and compute requirements of your system.  These details, however, would be unnecessary to give to the System Integrators you solicit to install your ERP in the new environment.

Putting aside the unique requirements of more specific negotiation processes, you can work off a general checklist to help you gather relevant data about your company, environment, and needs, regardless of which type of negotiation you wish to undertake.  Gathering this information will have the added benefit of helping you ‘visualize’ your IT plan while also allowing you to spot any gaps between your IT plan and your actual business needs.

1. A Summary of Your Company and Current Program

Your communication with your prospective vendors during the IT vendor selection process should include a summary of your company background and a summary of the current IT program or project.  It is important that you define the reason you are undertaking this project and your desired end state.  This will help your vendor better understand your situation and may even prompt them to propose pre-built architectures or proprietary accelerators that suit your specific business case or industry.

2. Define Your Scope

Next, you should define what your scope will be for the vendors to propose against.  Again, this definition will shift depending on the type of IT negotiation you are undertaking, some questions to ask yourself to define your program’s scope can include:

• What IT software modules will be in use? (Source to Pay, Supply Chain Management, Order to Cash, etc.)
• What geographies are you currently operating in, and where do you anticipate growth?
• Which or how many business units, entities, or affiliates will be involved?
• What assumptions are present in your initial business case or model?
• Can you provide an overview of the existing internal program team that has been positioned to support the program?
• What is your program Governance model & hierarchy?

3. Outline Your Current State Environment & Management Model

Unless you are conducting a proposal process for a planned future environment that does not currently exist, your prospective vendors will need to know how your current environment is supported/managed today.  Does your business complete the effort with internal or co-sourced/staff augmented resources, or do you already have an existing agreement with a different vendor?

Keep in mind that this information may not be applicable to all IT negotiation types.  For example, if you are looking to move your ERP platform from a privately owned data center onto the cloud, your cloud provider should be given all the infrastructure sizing data about your environment.  However, your new SI won’t need to know who previously installed the software for you because it is not relevant to your move to the cloud. Some questions to ask yourself:

• Who is managing my environment today?
• What other programs/projects will be operating in parallel that may impact, integrate, or have influence over the project for which you are releasing this RFP?
• Are you allowing the vendor to assess risk and provide you a POV on how to get from start to finish?

4. Estimate of the Program Funds and Hours

While budget procedure will not always allow for you to be exact, you should understand what your base costs are today. This will ensure that you are asking the right things in the appropriate manner to position the scope properly or to allow you to conduct a ‘sniff test’ to identify misaligned scope & understand potential impacts to your cost over time.

Your RFP should be structured in a way that the vendors can articulate the value you will be receiving, and the cost of delivering that value and Risk Profile. When conducting a System Implementation program, you may also want to perform a ‘Phase 0’ to fully scope your program with input from the program stakeholders. Providing the vendors with this level of detail will help them to understand the level of effort required of them and result in more accurate proposals and a smoother IT vendor selection process.

Providing your vendor with a ROM budgetary estimate for the program will allow your account representative to ‘go to bat’ for your program internally within their organization and secure concessions and investments in line with the revenue they expect to receive.

It is important to note that we recommend erring on the side of caution and presenting a total you are positive your business plans to spend.  Overestimating your budget can cause some unpleasant situations down the road where the vendor withdraws their initially promised concessions or investments into your business as you remove planned scope from the project.  This is a delicate balance – while it is important not to overestimate, underestimations of your planned spend will result in less competitive offers from your vendors.

Additionally, take this time to mention that your business has a “standard operating procedure” for financial models with IT vendors.  For example, if your business is only using fixed fee agreements, this is an important requirement to communicate with your vendors upfront.

5. Finish your RFP, But Don’t Worry About Completing It

RFPs are a constantly changing, growing, evolving set of documents, and they rarely come out of the oven fully cooked with every internal stakeholder satisfied right away. That’s why the more information you can provide to your vendors, the more accurate the vendor’s initial proposal can be.

Given this information, you may assume that the most detailed and lengthy RFP is best, but as with most things moderation is key. While we do encourage our clients to submit as much relevant scoping information as possible to their vendors, timing remains the most important aspect at the beginning of these negotiations. An RFP that is 80% right submitted today will get you to the finish line faster than an RFP 100% perfect submitted a week or two late.

Even if you manage to submit an RFP that you consider perfect, the vendors will always have a litany of clarification and scoping questions. In our experience, it is best to plan for these questions, and utilize a high communication process between the vendor and your primary internal point of contact to identify any gaps.

Though this may seem obvious, you should identify a small number (1-3) of key internal contact(s) for the vendor to ensure that all necessary communications are passed through the appropriate channels and important documents get into the hands of all who need to see them.

It is important to select an individual your business feels comfortable empowering to make small or medium level decisions about the program without needing to seek higher level approval. Managing program issues through a high communication process will enable both expediency and out-of-the-box thinking from your vendor team.

If a vendor gets the impression that the individual(s) they are regularly engaging with do not actually have decision making power, they will look to bypass them and reach higher within your organization or to a department the vendor thinks they can sell to. Later, the vendor can force your hand on commercial or financial concessions. Identifying a few direct contacts for the vendor early in the process can negate much of the time-wasting politics vendors love to engage in.

Critical Factors for Your Negotiation Team to Align On Ahead of Your Vendor Selection Process

In addition to the above checklist, make it a point to align your team on the following items before approaching the IT vendor selection process:

• Negotiation Strategy: Align on what type of negotiation you will be conducting. Will it be a true RFP process with multiple vendors competing or a sole source negotiation with a single vendor?  There is some value and time savings in dealing only with the “devil you know,” but competitive environments will often result in the most leverage for you.
• IT Vendor Selection Strategy: Does your business historically lean Sole Source negotiations or do you RFP most work? Do you have an incumbent provider in this area? By this point in your process, you should know the general timeline of your proposed IT project, including a “Go-Live” date, if applicable. The amount of time from today to the start of your program should directly inform which of the negotiation types are best or possible for your organization. If your timeline leaves very little time for negotiation, you may have no choice but to pursue a sole source negotiation with a single vendor.
• Necessary Program Scope: You should conduct an internal process to determine which portions of your IT program’s scope are truly necessary and which portions would just be a bonus. For example, you may have an on-premise ERP workload stored in a privately owned datacenter and an employee team which conducts the managed services and support functions required to keep the software operational.  It is important to start early to give yourself ample time to conduct internal reviews and prevent the vendors from ‘putting you on the clock’ during an already stressful negotiation. Your intention might be to move both functions to cloud storage and managed services providers, respectively, but if you do not receive a competitive offer, you will need to understand whether or not your business has the option to continue performing that service internally with employees.
• Internal vs. External Bias within Your Scope: Understanding your enterprise’s “Internal vs External Bias” when it comes to keeping certain functions in-house enables you to draw hard lines with your prospective vendors. It gives you the ability to walk away if their offers would not benefit your business in the long term.  This same concept can be applied to more granular levels of IT scope as well.  You may be looking to modernize several areas of your business with various software modules, but only need a few of these modules.  Bucketing the scoped modules early will make it easier to identify the areas of scope that can be sacrificed if the budget exceeds your initial estimations. In this example, if you informed the software vendor upfront of your module prioritization, they will be quick to weaponize it against you in the negotiation and refuse to provide pricing concessions for modules they know that you need.  Keep this information close to your chest until late in the negotiation when the vendor has already proposed their pricing structures.
• Preferred Vendors: In a similar vein, many businesses have an “off-limits” vendor list. A common example is a retail business refusing to deal with AWS due to their competitive nature.  Another less frequent example is vendor conflicts of interest.  If Accenture is currently conducting an audit of one portion of your business, they cannot also be your SI for a simultaneous project.

The Bottom Line

Assembling a negotiation team, identifying the proper program scope and budget, and determining your requirements can be a hectic and frenzied process with too much room for important details to slip through the cracks.  Hopefully, this checklist helps you identify some common details you’ll want to hunt down before you contact your IT vendor and get your program started.

UpperEdge helps clients stay on-track and even ahead of their RFPs, program planning, and IT vendor negotiations. Explore our IT Cost Optimization advisory services and Cloud advisory services to learn more about how we can help.