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Articles on IT Acquisition and Doing Better Deals

Tips & Tactics

Vendor Ploys

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Table of contents by Joe Auer

This ploy is built on the vendor first creating and later manipulating personal relationships between its marketingpeople and the customer’s staff. The focus is to justify leaving important vendor commitments out of the written vendor/customer agreement. MORE


You may be surprised to learn that one of the more subtle yet highly effective negotiating tactics is the development and use of a formal agenda for the negotiating sessions. Even if you presently use agendas, you may find a few things you can use, either in this letter or in the follow-up piece on agendas next week. MORE


Last week I emailed you a negotiating tip that many people overlook. That tip is preparing an Agenda to use when you are negotiating with a supplier. I would like to give you some follow up pointers that will add to the effectiveness of the Agenda. MORE


Push on ‘Precedent’ by Joe Auer

Ask a vendor for a significant contract concession, and chances are you’ll hear: “We can’t do that because it would set a precedent.” As an explanation, the vendor rep will tell a customer that if he granted the customer’s concession, he would be forced to grant similar requests to other customers. The vendor justifies this requirement by referencing either a vague “doctrine of fair dealings” or obscure legal issues. The beauty of this ploy—from a vendor’s standpoint—is that it’s both powerful and ambiguous, making it a particularly hard one for customers to overcome. That’s because customers don’t have one of the following two things:

  • A clue about what vendors can or can’t really do.
  • Access to the information necessary to challenge the vendor’s claims that are at the heart of this ploy.

More specifically, a customer doesn’t normally have the following information:

  • Whether the vendor really would have a policy or legal problem if the concession was granted in the negotiations.
  • Whether the vendor has or hasn’t granted the same or a similar concession to another customer.

Because the customer doesn’t have those facts, the vendor has the upper hand in negotiations. The customer must either accept the vendor’s comments as true or tap into strategies to counter this highly effective ploy.

If you find yourself in this situation, you might first respond by showing interest in the vendor’s “problem.” Ask the vendor representative: “You mean you actually would have a precedent problem if you granted us this concession? Does your firm really take these special cases seriously? Once you’ve set a precedent, do you really have to allow other customers the same concession? Do you keep track of this sort of thing?”

The vendor rep, thinking you’re buying into his story, will usually pick up the lead and go to great lengths to explain his position, perhaps with a few references to previous precedent problems his company has experienced.

Respond by saying, “Well, if what you say is true, then we probably want many of your prior concessions, because it sounds like we’re entitled to them.” If the vendor rep responds negatively, counter with something like this: “Look, you said you keep track of this kind of thing and your company has a policy of granting prior concessions to other customers. Before we can negotiate further, we’re going to need a list of all your previous concessions so we can see which ones we want.”

At this point, the vendor may bear an expression of silent disbelief. You have now successfully countered this ploy and gained control of the negotiations. So press your advantage!

Another tactic is to indicate your intention to find out about the precedents from other sources. Simply break off the negotiations to do some digging and obtain information from other parties about the vendor’s previous concessions. The most likely sources of information about them are other customers, customer associations (such as CAUCUS), specialized publications and professional negotiators and advisers.

The mere threat to break off negotiations for this purpose often becomes an effective strategy, even if you don’t try to collect useful information. Threats of broken-down negotiations should get a vendor’s attention.

If a vendor rep insists that his company has never granted particular concessions, call his bluff and ask for a “most-favored customer” provision in the agreement. Such a provision states that if the vendor has granted any customer a better price or contractual concession during a specific period (generally beginning before the execution date of the one you’re negotiating and continuing for some stated period thereafter), then the vendor is obligated to give you the same concession. This provision can be written to apply to your entire agreement or to be tightly restricted to designated sections of the agreement.

Most major vendors have preapproved contract changes that are available if they’re needed to get a deal done. But, as always, a customer must have a strong negotiating posture. As part of that, always ask for concessions.


JOE AUER is president of International Computer Negotiations Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates users on high-tech procurement. ICN sponsors CAUCUS: The Association of High Tech Acquisition Professionals. Contact him at joea@nulldobetterdeals.com.

Copyright by Computerworld, Inc., 500 Old Connecticut Path, Framingham, MA 01701. Reprinted by permission of Computerworld.

Year-end Closeouts by Joe Auer

Since the end of the year is only weeks away, it’s a great time to secure some price or contractual concessions from vendors whose books close Dec. 31. For inspiration, take the following software deal that was completed just before the end of a vendor’s fiscal year. The customer had a vendor software license that was several years old. The customer acquired a new division, which had its own license with the same vendor that was about a year old. Because of the acquisition, the customer needed an additional $500,000 worth of the software. As we’ve discussed many times before, to do a good deal, you need great leverage. As negotiations for this deal began, it appeared to be nirvana for the vendor, since it thought it had all the leverage. There would be incremental additional revenue from a dependent customer with little or no sales or negotiation effort.

But another basic negotiating tenet is to know your opponent. The customer’s procurement professionals prepared for negotiations by first researching the vendor. Thanks to the Internet, this once time-consuming process has become a snap. They checked out the vendor’s Web page, its press releases and the security interest filings of financiers on company assets. The customer team also found the vendor’s financials, along with a warning of a projected drop in fourth-quarter profits. This set off a bell that the vendor might do more than what was normally expected to land the business.

One key piece of information the negotiators learned was that the vendor’s fiscal year ended June 30. They knew most vendors get really negotiable at year’s end. The date when the parties planned to negotiate was June 25 – what a break!

With that knowledge, the customer team turned its attention to the more appealing of the two license agreements the company had with the vendor. It provided much more flexibility in using the software throughout the corporation, better remedies and a cap on maintenance price increases. The customer would also need fewer additional copies of the software if it could preserve the agreement’s terms permitting license transfers within the enterprise.

When negotiations started, the customer insisted on getting better pricing and using the more favorable license agreement to govern the new transaction. The vendor responded with multiple ploys. Its representatives said the following things:

  • This price is good only until the end of our fiscal year (five days away).
  • We can’t give you a better deal than we give the federal government, because of a contract requirement guaranteeing the feds the best price.
  • There’s a price increase coming in July.
  • We don’t use that old license agreement anymore. We have a new and improved one.

The customer’s negotiators responded perfectly. They said, “We don’t have to do this deal now. We can do this deal later. As a matter of fact, we don’t have to do this deal at all. We can’t sell your deal to our management as it’s currently structured. If you want this deal this fiscal year, do it our way – or hit the highway. It’s your choice.”

The vendor complained, whined, pouted and threatened to walk away. The customer’s representatives just listened and repeated their position.

After a few days and some phone calls made behind the negotiating team’s back, the vendor’s representatives realized that all the key customer players were aligned as a team and solidly behind the negotiators.

The vendor caved. On June 29, the customer signed a deal that more than doubled the software discount from 20% to 41% on a comparable number of licenses and extended the more favorable license to cover the merged organization. This was a better deal than the customer thought it could get at first, but year-end pressures undoubtedly gave the vendor incentives to give special concessions. So, information is power!

This case study should also remind you that you must be aggressive to extract meaningful concessions from vendors.


JOE AUER is president of International Computer Negotiations Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates users on high-tech procurement. ICN sponsors CAUCUS: The Association of High Tech Acquisition Professionals. Contact him at joea@nulldobetterdeals.com.

Copyright by Computerworld, Inc., 500 Old Connecticut Path, Framingham, MA 01701. Reprinted by permission of Computerworld.

 

A Ploy that Didn’t Fly by Joe Auer

Here’s a new twist on the old “sense of urgency” ploy that a vendor used in a recently completed deal. The procurement manager of a global consumer goods company was talking to a potential vendor about a deal for some technology services. He had a short list of prospective vendors, but because of unique requirements imposed by his company’s biggest customer, he was talking with the only prospective vendor that could provide the services. But it appeared that the vendor didn’t know that it was the sole contender in this deal, so the company maintained a strong negotiating stance. As the two sides discussed plans for negotiating sessions, the vendor announced that the customer must sign the vendor’s letter of intent to enter a contract before the two sides could negotiate. The vendor’s representative claimed that he couldn’t reserve the corporate jet for his negotiating team to come to the customer’s location if there was no letter of intent. Clever. But wait—it gets worse. The letter of intent had some ugly “gotchas,” such as:

  • The customer had to complete its legal review of the contract by a certain date.
  • Both parties were to meet on that date to sign the contract.

The date specified in the letter of intent was the same date that negotiations were scheduled to start, so the vendor was effectively preempting any meaningful negotiations. Basically, the vendor’s negotiating stance was that it couldn’t reserve the corporate jet to visit if there was no letter of intent, so it wouldn’t negotiate until the customer gave away its negotiating power. Let’s look at the customer’s side. There are good reasons for never signing a letter of intent. First, the intent can be construed as part of a contract, especially if there’s evidence of other contract components between the parties. Ask your lawyer about offer and acceptance, reliance and consideration. If activities have taken place in the relationship that could constitute the occurrence of these legal theories of contract law, and they are combined with intent (another legal theory of what constitutes a contract) in the letter, you could, in effect, have a contract.

Given this set of circumstances, the customer could be guilty of breach of contract if it backed out of a letter of intent. Even without all the components of a contract at hand, most customers feel that reneging on a letter of intent would be less than good-faith dealings or convey a lack of integrity.

Of course, a letter of intent also immediately removes your leverage with the vendor because it eliminates competition. It locks you in before you negotiate, and that’s called begging, not negotiating.

But in this deal, is the big issue the letter of intent? Or is it the lack of vendor transportation? Neither. It was about the vendor producing a sense of urgency and eliminating customer options to gain control of the terms and conditions of the relationship.

Luckily, the corporate-jet ploy didn’t fly with this customer.

Having faith in his negotiation process and knowing that competition—real or imagined—was a very effective bargaining tool, the customer issued a simple response to the vendor. “We don’t do letters of intent, so don’t bother to come. We will be happy to negotiate via conference call. However, your competition will be here in person.”

Remember that the vendor’s representative probably didn’t know for sure if he was the sole source in the deal. He may have suspected he was and used the corporate-jet ploy as a way to test his suspicion. The customer’s terse response probably created uncertainty in the vendor’s mind and could have eliminated any overconfidence. Shortly thereafter, the vendor’s representative announced that he was able to get the corporate jet after all and would be available to negotiate on the date the customer specified.

This vendor ploy was designed to stampede the customer into signing a contract that was highly favorable to the vendor. The customer’s firm response was a very effective tactic. Best of all, the customer was able to gain the high ground during negotiations, saving money and gaining significant contractual protection.


JOE AUER is president of International Computer Negotiations Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates users on high-tech procurement. ICN sponsors CAUCUS: The Association of High Tech Acquisition Professionals. Contact him at joea@nulldobetterdeals.com.

Copyright by Computerworld, Inc., 500 Old Connecticut Path, Framingham, MA 01701. Reprinted by permission of Computerworld.

Winning with Leases by Joe Auer

Leasing IT assets offers many advantages. It transfers the risk of technology obsolescence from you to the lessor, conserves cash and can provide you with lots of flexibility regarding how and when you deploy or retire the assets. A successful leasing program can help you accomplish several good things, but an ill-conceived one can hit you with unnecessary cost, risk and a lack of flexibility. Many lessors will gladly provide flexibility on the front end of the lease by allowing you to add assets over time, but they may require you to pay rent for the balance of the month or quarter in which you receive the asset. This is extra rental income for the lessor and extra cost to you, since it’s accrued prior to commencing the fixed term you negotiated, which the lease says begins the next full month or quarter. This clever “gotcha” is done through some tricky, misleading contract language and is called interim rent. Look for it—and negotiate it out of your deal!

The back end of the lease also requires some focus. Most lessors’ form agreements allow you to continue on only a month-to-month basis after the initial term ends, and at the original lease rate. This option does provide flexibility, but at a high cost. The original lease rate is considerably above market value because the underlying asset has depreciated and the lessor already has gotten most of its money back. In short, you’re getting hosed by your lessor. To end leases on more favorable conditions, consider the following four scenarios:

The first scenario calls for return of the assets. The lease is up, and you no longer need the assets. The equipment is returned without further obligation, except for any lessee-caused damage. Remember to negotiate a maximum return-freight transportation charge (such as for no more than 300 miles), otherwise, you could wind up paying coast-to-coast shipping charges. Also, make sure to get a return grace period of about 20 days after the lease ends. Sometimes, as with laptops spread across a dispersed sales organization, it can take more than a few days to round them all up.

The second scenario involves asset purchase. When purchasing from a lessor after the lease period is up, make sure you secure the right to a fair-market-value purchase. This means that you and the lessor negotiate the price. For help in settling on a price, use an industry guide or a third-party appraisal.

The third scenario involves renegotiating the lease for an additional term, say 12 or 18 months. The renewal lease rate should be substantially lower than the original rate. The asset is worth as much as 80% less at the end of a three-year lease term, so the new lease rate should be based on the value of the equipment at the time the new rate takes effect. Anything above that is pure “lessor gravy.”

The fourth scenario gives you the right to continue the lease on a per diem basis for short-term renewals when you can’t pin down the date by which you would return the equipment but you also know that you won’t need it for the long term. The per diem renewal should contain two important elements. First, the per diem rate should be lower than the rate from the original lease, divided by 30. Second, you should be required to give only 30 days’ notice that you’re returning the equipment.

All in all, the main issue of these suggestions is that flexibility doesn’t need to cost you money in leasing. Indeed, by paying attention to prelease and postlease term options, you can impact two significant factors—your money and your flexibility—in a very favorable way.


JOE AUER is president of International Computer Negotiations Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates users on high-tech procurement. ICN sponsors CAUCUS: The Association of High Tech Acquisition Professionals. Contact him at joea@nulldobetterdeals.com.

Copyright by Computerworld, Inc., 500 Old Connecticut Path, Framingham, MA 01701. Reprinted by permission of Computerworld.

Clear Ordering Procedures by Joe Auer

When you review a proposed vendor contract, you’ll probably discover that only the most basic information is documented about a key component of the relationship: ongoing ordering procedures. If this doesn’t seem like a big deal, think again, because you could be left open to problems down the road at a very inconvenient time. Suddenly, an order of something you need desperately could be in jeopardy, and so could your project. In one particular case I ran across recently, the contract’s language stated that the customer could submit orders using the vendor’s standard order form. Electronic transmission was acceptable. The vendor could substitute an item of equal or greater value if the originally ordered item wasn’t available. Sounds simple, right? The problem lies in what’s missing from the ordering procedures.

Ongoing vendor supply contracts should clearly spell out how the ordering process works, including both parties’ responsibilities. The following are six key specifics to include in your agreement:

  • Authorize certain customer personnel (usually designated by the title of a position rather than an individual’s name) who can place a binding order.
  • Specify the order form to be used, such as the vendor’s standard form or a mutually agreed upon format. Specify the minimum information the order should include.
  • Clearly spell out the vendor’s order acceptance criteria. This is very important. Don’t assume that a submitted order will automatically be accepted. The vendor should be required to notify you promptly that your order has been accepted and should provide a delivery date.
  • Require the vendor to notify you promptly if your order isn’t accepted and to specify the reason. An order may be rejected simply because it’s incomplete. It’s important to understand why your order was rejected and how to get it accepted.
  • If your contract allows for order substitutions, the vendor should also indicate any items that will be substituted, with specific details. Don’t overlook substitutions. Some may not work in your environment, so it’s better to find out before your order is shipped.
  • Ensure that the contract provides order-cancellation procedures that indicate how and under what conditions an order may be cancelled as well as an agreed-to timing notification and applicable costs.
  • Clearly define the manner in which returns are to be handled, and define any fees a vendor would charge.

Including these specifics in your agreements allows for a smooth, effective ordering process that increases the likelihood that a product will be provided in a timely manner. Leaving out necessary details may save time when negotiating, but it’s almost sure to add time and effort when you can least afford it—when you actually need an order from your vendor. So again, be comprehensive and clear in your contracting.

Mail Bag

Charles McCain, an independent business management consultant in Georgia, sent me this sound advice: “Your Aug. 27 column dealt with the possibility of billing disputes. It brought to mind that you might consider recommending a binding arbitration clause in all high-tech procurement contracts.”

McCain pointed out that the American Arbitration Association (AAA) has panels for both commercial and technology disputes.

He continued: “In all the years I was with Xerox and buying hardware, software and services, I always inserted the standard AAA binding arbitration clause. Fortunately, it was never exercised. But I always felt more secure knowing the dispute would be resolved by arbitrators who understood the language and issues rather than by 12 people who were picked because they didn’t know anything. Also, my boss was pleased to know that the resolution would be private and that it would not make headlines in the local newspaper or The Wall Street Journal.”

You’re absolutely right. My only caveat is that you might want to specify that only certain things in your contract should be arbitrated, like billing disputes. Your lawyers may feel that other issues are better off being decided in court.


JOE AUER is president of International Computer Negotiations Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates users on high-tech procurement. ICN sponsors CAUCUS: The Association of High Tech Acquisition Professionals. Contact him at joea@nulldobetterdeals.com.

Copyright by Computerworld, Inc., 500 Old Connecticut Path, Framingham, MA 01701. Reprinted by permission of Computerworld.

Manage the Contract by Joe Auer

Let’s look at another of the truths of technology deal-making that can help you wind up with the best possible terms. The goal is not only to negotiate a great deal, but also to ensure that what you negotiated is what you get when the ink is dry. Contract management is essential, even critical, in pulling this off. You’re wasting your time negotiating with a vendor if you don’t plan on assertively managing the contract and the relationship. If you don’t focus on the ongoing vendor-management process, you’ll have rights that go unrealized and get waived, because, as lawyers tell us, “rights that aren’t assertively enforced can end up being waived by the courts.” You’ll have people in your organization who aren’t even aware of the specific results the vendor is obligated to produce, so you won’t get what you’re paying for, and you’ll have endlessly unpleasant surprises.

Some say, “I’ll be so glad when we’ve finished negotiating this contract. I never want to see it again.” And in many cases, that contract is never seen again. In fact, sometimes the contract can’t even be found when it’s needed.

Experience has taught us that contract management begins during contract development and negotiations. That’s when you build in the metrics and the hooks and handles for effective relationship management. That’s when you need to decide how you’re going to manage the vendor.

You should think beyond just closing the deal; you have to anticipate the whole relationship and how to manage it.

There are three high-level objectives when you manage a contract: vendor compliance, customer compliance and evidence of the status of each. Let’s look at a few things that go a long way to ensuring that what’s supposed to happen really happens.

For instance, some suggest, “How about a deal summary for the end users once the contract is completed?” That’s a great idea, but you need more than a written summary. Not everyone learns well through reading. And not everyone will even take the time to read the summary. So hold briefing sessions. Present the end users their rights and obligations and say, “You’re on the front line, the first tier of relationship management. Here are the service levels and how we monitor compliance.” Let them know how to determine specific performance deficiencies and log their occurrences, how and when to report them and which manager to report them to. Educating and interacting with people on what the contract says and on their roles are necessary parts of a contract management process.

At a recent seminar, the asset manager of a major insurance company stated that his contract management group regularly saves his organization more than $300,000 a month. A manager with one of the country’s leading telecommunications suppliers asserted that her department’s contract management team is responsible for monthly savings of more than $1 million. Both attributed their success to the fact that they assertively manage the contracts and vendor payments within their authority. They both find most of the savings by carefully monitoring vendor invoices against contract terms and conditions (like caps on price increases).

Overall vendor relationship management is a topic for another day. But some major organizations are beginning to include “relationship” specifications, along with a host of initiatives that encourage and monitor contract compliance, in their requests for proposals, terms and conditions, and statements of work.

Incidentally, do you know why we’re not good at contract management? Because the IT industry grew up on vendor form contracts, so we never got experience managing contracts. There’s nothing for a customer to manage in a vendor form contract because it doesn’t say the vendor is obligated to do anything.

But when you negotiate contracts full of specific vendor obligations, it’s more than necessary to be ready to manage the vendor’s compliance in completing the tasks in a contract.


JOE AUER is president of International Computer Negotiations Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates users on high-tech procurement. ICN sponsors CAUCUS: The Association of High Tech Acquisition Professionals. Contact him at joea@nulldobetterdeals.com.

Copyright by Computerworld, Inc., 500 Old Connecticut Path, Framingham, MA 01701. Reprinted by permission of Computerworld.

Insist on Language to Cover Billing by Joe Auer

If you’ve never had a billing dispute with a vendor, you probably will. It’s inevitable that at some point, you’ll disagree with a vendor over an invoice. When it happens, the following questions will arise: If the invoice is incorrect, should you pay it?

Should you pay only for the charges you believe to be correct?

What’s the process for challenging an incorrect invoice?

Most vendor form contracts require you to pay the full invoice—period. Other form contracts give you the right to question the invoice but still require you to pay in full. Either way, you’re at a disadvantage: The vendor gets your money. It’s up to you to get some, or all, of it back. Is that fair? When you are negotiating with a new vendor or renegotiating with an incumbent one, add an invoice dispute provision to your list of objectives. Having it in the contract is handy when you believe your vendor may have made a billing mistake. Questioning an invoice should be your right. It’s risky to assume that your vendor will work with you to resolve a billing dispute. After all, it will have your money. Vendors may listen to your concerns, but having the right to withhold your payment guarantees their attention.

In negotiations, secure the right to withhold payment for any item on any invoice you believe to be incorrect. Reassure your vendor that you’ll pay all undisputed amounts.

Most vendors’ first response will be: “Our billing systems work fine. Trust us and pay. If there’s a problem, we’ll work with you.” Your answer could be, “Well, if you have such faith in your billing system, why is this an issue? It’s an unlikely event. Right?” Be persistent; holding firm should produce a favorable vendor response.

Some vendors may offer counterproposals, limiting the total amount you can withhold—usually a fixed amount or a percentage of the total invoice.

There’s no reason to accept limits. Pressing your point will usually eliminate any limits on withheld amounts. If you have to concede this, make sure the withholding limit is large enough to still draw the vendor’s attention.

What’s more, invoice disputes shouldn’t be allowed to go on forever. It’s in neither party’s best interest.

In the end, lack of timeliness can cloud the issue and has the potential to harm the relationship. So place a time limit, like 60 days, on any dispute resolution process that’s written into the contract.

Also, remember that the vendor’s sales representative probably isn’t the same person who will handle invoice problems. Get clear protection in the contract.

Here’s some contract language that helps:

If customer disputes, in good faith, any amount on a supplier invoice, customer and supplier will use all reasonable efforts to resolve and settle such dispute within 60 days after customer provides written notice of the dispute to the supplier.

Each party will provide full supporting documentation concerning any disputed amount within 30 days after receipt of written request for such documentation.

Customer will have no obligation to make any payment of disputed charges on the invoice during the time it is subject to good-faith dispute.

Once the invoice dispute is resolved and settled, Customer will pay any amount due within 30 days following resolution of dispute. If the invoice dispute is not resolved and settled within the 60-day period, the dispute resolution provision will apply.

It’s important to link the invoice dispute resolution to a broader dispute resolution process, creating a complete process that assures that both you and your vendor behave appropriately in handling all disputes.

If you don’t have a general dispute resolution process in the contract, you should consider one. No one wants a fight, but given one, you should at least establish some rules—and a time limit for each round.


JOE AUER is president of International Computer Negotiations Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates users on high-tech procurement. ICN sponsors CAUCUS: The Association of High Tech Acquisition Professionals. Contact him at joea@nulldobetterdeals.com.

Copyright by Computerworld, Inc., 500 Old Connecticut Path, Framingham, MA 01701. Reprinted by permission of Computerworld.

Avoid Surprises in Subleasing Deals by Joe Auer

A sharp contract negotiator told me recently how much fun he has looking over leasing companies’ proposed master agreements. He says they’re so one-sided that he tries to see how many ridiculous provisions he can find in a single agreement. His record so far: 87. An agreement he ran across recently was no better or worse than most. It contained a common little “gotcha” in the area of lessor administrative fees. It should remind us how a provision that appears reasonable can still have a bite to it.

Let’s look at a way this can happen. If you’re a firm with good credit, most lessors will grant you the right to sublease the equipment they leased to you – if you negotiate for it. If your lessor doesn’t, you should talk to him about subleasing because it can eliminate or significantly reduce the cost of leasing equipment that you no longer need.

The lessor usually grants the subleasing right, subject to some conditions. These often include the following:

  • You agree to remain ultimately liable until all lease obligations are fulfilled; that is, you remain the primary obligor.
  • The sublessee must be creditworthy. (Of course, you should insist on this for your protection anyway.)
  • The sublessee must agree to the terms and conditions of the original lease.
  • The lessor has the right to approve the sublessee.

Insist on having the right to sublease without the lessor’s approval.

Granting the lessor veto power essentially surrenders your right to sublease. Besides, if you remain on the hook as the primary obligor regardless of who the sublessee is, the lessor won’t be hurt. So why the need for the lessor to approve sublessees? Good question, and one you should ask if your lessor digs in over this point.

Lurking deep within many lessors’ right-to-sublease provisions is the annoying and downright sneaky administrative-fee gotcha. Here’s a typical phrasing: “Lessee has the right to sublease the equipment, provided that all additional costs resulting from the sublease, including lessor-imposed administrative fees, shall be promptly paid by lessee.” Now, what do you suppose this will cost if you exercise your right to sublease? No way to tell, is there? It’s virtually a blank check. Would this “administrative fee” be a lessor’s out-of-pocket expenses? Its administrative overhead? Something else? Normally, this “administrative fee” is either a percentage of the lease value or a flat amount. In the case our contract negotiator colleague recently encountered, it was a one-time payment of $2,000. This administrative fee is nothing more than an additional revenue source.

Lessors will argue that they have certain back-office costs in setting up a new lessee. In reality, the only transaction required is completion of a sublease agreement. Most lessors don’t do much on the sublease because you’re still ultimately responsible and the deal continues to be based on your creditworthiness – not the sublessee’s.

So what’s the advice? Be especially aware of percentage-based sublease administrative fees, since they can result in unpleasant surprises. For instance, just 1% of a million-dollar deal is $10,000 – that’s a lot of money for processing some paperwork. If you can’t negotiate the fee away, make sure that it’s a known, relatively small, fixed amount.

Sublease deals are often done because you need additional horsepower and are leasing bigger and better equipment from the same lessor, and subleasing the original equipment will allow you to fulfill the terms of the lease agreement. In this case, the best negotiation tactic is to leverage the lessor’s new revenue from the lease against the administrative fee. The new incremental revenue volume of the newer lease goes a long way toward convincing the lessor to eliminate the administrative fee for subleasing the equipment that’s being replaced. But the best approach by far is to eliminate the possibility of a sublease fee altogether when negotiating the master agreement in the first place.


JOE AUER is president of International Computer Negotiations Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates users on high-tech procurement. ICN sponsors CAUCUS: The Association of High Tech Acquisition Professionals. Contact him at joea@nulldobetterdeals.com.

Copyright by Computerworld, Inc., 500 Old Connecticut Path, Framingham, MA 01701. Reprinted by permission of Computerworld.

Gain an Edge From Vendor Presentation by Joe Auer

Negotiating a better deal is an ongoing process, not an isolated event. One of the steps you can use to turn the process to your advantage is to get a vendor presentation. Savvy IT managers usually require vendors to make presentations of their proposed solutions. A vendor presentation can be an excellent opportunity to gain concessions well before the formal face-to-face bargaining starts. Here’s how: Make it very clear to the potential suppliers that to remain in competition for your business, they must formally present substantive recommendations that prove that they understand your requirements. Also, they must show that they have confidence in their ability to perform and deliver a solution that meets or exceeds your stated requirements. At this point, you are in a position of strength, because a given vendor has yet to win the deal, and vendors will tend to maximize their representations of benefits to you.

To your advantage, vendors will usually make assertions during their presentations to convince you of their capabilities and ability to deliver. Take good notes on who says what.

For example, a vendor once told me during his presentation that “satisfaction is guaranteed.” Later, during face-to-face negotiations, we pressed for a “satisfaction guarantee or our money back” warranty, citing the promise made (and by whom) during the vendor’s presentation. The vendor was in the unenviable position of having to make good on that promise or lose face and credibility by reneging.

Vendors that are still in their sales mode during presentations tend to embellish their qualifications while sometimes forgetting that negotiations are proceeding. This gives you a great opportunity to position yourself for valuable concessions.

But at this critical juncture, it’s also easy to lose your negotiating leverage. If your team gets noticeably excited about a vendor’s offering, the vendor will think it has the deal in the bag and become less inclined to offer more assurances or indulgences to win your business.

Remember that vendor representatives are trained in every aspect of account control. They’ll pick up on signs of an excited customer and change their stance accordingly by reinforcing a customer’s hot buttons while deflecting attention from any areas where their company’s offering is weak.

The key to successfully using a vendor presentation for leverage is to become a sponge and soak up information, ask probing questions, verify the answers provided in the vendor’s proposal and never show a lot of enthusiasm for a deal.

Vendor presentations may seem mundane (and in IT deals, very technical), but they create equal opportunities to either improve or erode your position. Remember that the vendor is still basically selling while you’re actually negotiating, and that creates a great opportunity to turn some sales promises into contract realities.

Avoid Attractive Lease Packaging

Translating a package of prices into “one low monthly payment” is a favorite ploy of many technology equipment vendors. Car dealers have used it for decades on eager, naive customers.

In either setting, if the salesperson can get a customer to focus on an all-inclusive low monthly price (magically within the customer’s budget), there’s a good chance he can land the deal quickly without much analysis by the customer.

For lessees, the first step is to separate the equipment price from the financing. Focusing on the all-inclusive lease quote—instead of optimizing each part by negotiating a purchase and separately negotiating financial arrangements—can be costly. Under the package price, you don’t know what the true cost of the equipment is. Second, you don’t know the true financing cost. Third, you can’t make a fact-based decision about whether purchasing or leasing gets you the better deal.

Attractive lease packaging can be very expensive. Break the deal apart, negotiate each part and line item, and then assemble the negotiated parts. You’ll find that the sum of the parts will total a lot less than the original lease package price.


JOE AUER is president of International Computer Negotiations Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates users on high-tech procurement. ICN sponsors CAUCUS: The Association of High Tech Acquisition Professionals. Contact him at joea@nulldobetterdeals.com.

Copyright by Computerworld, Inc., 500 Old Connecticut Path, Framingham, MA 01701. Reprinted by permission of Computerworld.