Upping the Stakes

With the stakes in the game of corporate software licence negotiations rising all the time, sales reps with the gift of the gab are not the only worry for CIOs determined to squeeze rather than be squeezed. The language and content of software contracts can put their companies in just as much peril. Major software vendors have always been ruthless in shaping terms and conditions in their favour. Now, under new threats to their revenue, they've upped the stakes even further, instituting licensing changes designed to increase costs and force upgrades on users in order to rack up revenue at the expense of customers.

With software deals running in the multiple millions and the performance of CIOs being scrutinised like never before, CIOs cannot afford to get done over by ruthless vendors. Yet experts say all too few spend sufficient time and energy scrutinising contracts and trying to strip away ambiguity, unnecessary charges and mind-boggling licence conversions from software licensing contracts. Likewise, far too few CIOs think far enough ahead to build protections into the contracts against unexpected hiccups further down the track. As a result, they end up paying in ways they had never imagined long after the deal is signed.

In September we reported in CIO the best practices of CIOs who know how to leverage their strengths and stay ahead in the software licensing stakes (see "Bulletproofing IT Contracts"). This month lawyers and analysts get their turn at advising how to beat the vendors at their own game.

Like our CIOs, the lawyers all agree organisations should never accept a contract as is, or bargain on the vendor's terms. Rather, CIOs should carefully and realistically scrutinise their organisation's present and future wants and needs and use that information as their negotiation's starting point. And CIOs should never let vendors manipulate situations to the point where they can only win if you lose.

Make sure there is a match-up between the contract, the commercial objectives and the technical specification. Too many organisations fail because an over-concentration on the contract meant they discovered too late that the technical specification could not deliver what they commercially wanted to achieve, the lawyers say.

When crunch time comes, if put your "average technical person" up against an "average well-trained sales rep" you might as well give up the game before you start. The technical person will rarely have any skills as a negotiator, while the sales rep will be fully versed in all the tactics and tricks that go into hard ball negotiation, and typically have a team of people with similar skills behind them. Better by far to take a leaf out of the big IT companies' books and have a centralised procurement office peopled by trained negotiators to handle all licence negotiations.

"Our experience says that just by having central procurement, you'll get something like a 15 per cent reduction in cost, as an average across the board," McIsaac says. "Now, if you're talking about a serious IT budget of multiple millions of dollars, and you could be saving hundreds of thousands, maybe millions of dollars a year on good negotiations, you'd be foolish not to."

The world is not as the software vendor's sales person will tell you, says Minter Ellison partner Clark Butler. There are a lot of things that you can get from software vendors by giving them the commitment of your entire corporate relationship - another reason for buying centrally. "Generally, don't just accept the word of the sales person but push for better pricing, better maintenance obligations, patches and releases for free," Butler says. "If you're a large company, you can be on the alpha or beta list so you can get access to new software and the software vendor's R&D if you approach it the right way."