IT Trenches

Jun 25 2009   3:37PM GMT

Tips for negotiating a managed services contract – the vendor selection process



Posted by: Troy Tate
Tags:
contract negotiation
cost reduction
evaluation
managed services
management
negotiation
project management
project work breakdown schedule
proposal
request for proposal
rfp
Service Level Agreement
sla
strategy
support
technical requirements
technical vendor management
vendor evaluation
vendor management
vendor selection
wbs

You have now received back the proposals from the vendors based on the RFP that you built according to the RFP anatomy described previously.

Maybe you forgot the steps before the RFP. You can go back and review:

The first post in this series covered two questions: Where are you? and Where do you want to go?

The second article in the series described the calendar of events or how many shopping days do we have?

This third article in the series covered the actual RFP (request for proposal) anatomy and contents.

This final posting will discuss the vendor selection process – planning for the wedding (or engagement).

Let’s get talking about vendor selection and awarding the contract!

Some important tips to remember when negotiating with a vendor during the proposal process.

  • Get it in writing!
    • Anything the vendor verbalizes during the proposal process should be in writing in the contract. Ask for example copies of contracts in the RFP.
    • Vendors have short memories after the contract is signed unless you can show it in writing and both parties have agreed to the terms.
  • Ask the vendors to use your response template format.
    • You can compare proposals much easier.
  • Watch the minimum revenue commitment requirement(s)
    • Is it based across all services or per service?
    • Is it annualized or other period?
    • Ensure business downturn clause is included – think about the worst case
  • Negotiate rate stabilization across commitment term
    • Technology upgrades should be cost neutral
  • Make service contracts co-terminus (if multiple services and/or service terms are needed)
    • How often do you want to write new contracts

A lot has been written about Service Level Agreements (SLA’s). I am going to weigh in on some considerations that should be addressed during the vendor selection process.

  • What items should be covered under SLA’s
    • Installation
      • North America vs ROW (rest of world)
    • Performance
      • Latency
      • Packet loss
    • Availability
      • Is it the vendor’s network or does it include CPE (customer premise equipment)? This one can get you if you don’t understand where the SLA endpoints are and what impacts performance and availability statistics)
    • Support
      • Are the support lines only available 8-5 Pacific time or do they have coverage for the timezones where you need it?
      • What is the recovery time objective (RTO)?
      • What is the recovery performance objective (RPO)?
      • What is customer’s responsibility vs vendor’s responsibility?
    • Billing
      • Do you spend a lot of time managing the billing end of things? Are one-time charges appearing much later after work is completed? Are disconnected services still being charged?

Some additional contract terms or clauses to consider to protect your organization:

  • Innovation – new technologies/solutions at cheaper prices
  • Key personnel – supplier and customer
  • Transition & implementation planning
  • Term of agreement
  • Fixed or variable pricing
  • Project schedule & deliverables
  • Subcontractor approval
  • Out of scope work
  • Benchmarking – cost negotiation during agreement lifetime
  • Audit
  • Termination & migration
  • Change of control of the vendor
  • If customer company is acquired, can vendor assign contract to new owner

When evaluating the proposals from the suppliers courting your business, rate the results on a quantitative scale. Build this criteria checklist when building the RFP. Be sure your team is familiar and agrees with the criteria. An example evaluation document is shown below.

Evaluation criteria

Summarize the results for each vendor. Can discard bottom candidates unless there is a reason to keep them.
Begin firm and final negotiations with top 1 or 2 candidates. Hopefully incumbent provider (if there is one) will be one of the top candidates, or will they?

Vendor evaluation

Vendor evaluation

We are now at the end of this series and you have finished selecting a vendor and the real work (honeymoon) begins. So what happens once you have made your selection? What things are left to work on?

  • Communicate, communicate, communicate! – How else will you know when problems arise or things are going well?
  • EGAP: Everything goes according to plan – RIGHT??
  • Watch out for Blamestorming
    • The contract is right
    • The proposal was a dream
    • What is reality?

Thanks for reading these posts. Leave some feedback with other tips/tricks and ideas you have for others looking for managed services or negotiating a contract.

Have a great day and let’s continue to be good network citizens!

2  Comments on this Post

 
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  • JennyMack
    Troy, I'm really digging this series -- very informative and in-depth. Keep up the great work! Jenny
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  • SAPjava74
    Thanks for following this series! This process has definitely worked "in the trenches" and is repeatable. So hopefully readers will get good use from the techniques listed.
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