3. Controlling the Agreement Negotiation Process

a. Typical Process

Often software vendors drive the negotiation process beginning with the often successful vendor insistence on using its standard agreement and exhibits to control the agenda and scheduling of negotiation sessions. Vendors will be pleased to put critical issues on which the parties differ in the "parking lot" and continue to negotiate the less controversial terms. The more time and effort spent by the customer on the less controversial issues, the more committed the customer becomes to that vendor's solution and, as time passes, the vendor knows that the customer has few realistic options. Not surprisingly, at the end of the line, when the tough "parking lot" issues are addressed - the customer will observe much less vendor flexibility toward the resolution of these issues. Further, because the customer starts with the vendor agreements, every change to the agreement during negotiations appears to be a vendor "concession." In reality, these "concessions" are simple incremental movements toward fairness. Further, due to the magnitude of change to a vendor standard agreement needed to achieve fairness, the customer is inclined to be overly selective of the issues to negotiate to avoid prolonging negotiations. Finally, because negotiation sessions are not structured - much time can be wasted and cause key individuals from the customer team to be less likely to remain committed to participation in the process.

b. Process Improvement Recommendations

Our experience with software licensing projects demonstrates that requiring directed and concentrated effort from all project participants, from project kick-off to conclusion, will result in the customer achieving its business objectives in the most cost-efficient and expedient manner. Assuming a customer drafted agreement was included in the RFP as recommended in our discussion of the procurement process, your internal negotiation team discussions should focus on the identification and internal resolution of key business issues and your desired contract requirements as to those issues. We often refer to this grouping of issues, which usually number around a dozen, as the customer's "Tier 1" issues. The Tier 1 issues, which may include issues such as scope of license, payment methodology, and vendor accountability, should be the focus of the initial negotiations. We use the Tier 1 issues to drive the initial negotiation agendas. These issues should be brought to resolution (approved contract language should be signed off on by both parties), before proceeding with the other, and far more numerous, transaction issues. This approach presents the customer with viable business options in the event the vendors seek to leverage their "preferred vendor" position too aggressively. By raising these issues, and requiring resolution at the outset, the vendors know the customer is not yet irreversibly committed to the transaction and that should create additional leverage to move the vendors closer to the customer's preferred positions.

We highly recommend that the customer set a formalized agenda for each negotiation session. We have found that such agendas serve to focus the negotiation efforts and underscore to the vendor that the customer is in control of the process. Of course the degree of control over the process will vary with the type of transaction and the culture of the customer organization. Below is an example of negotiation directions to a vendor that reflect a desire by the customer to have a high degree of control and a very structured process in negotiations relating to a mission critical system. While this example may be a bit "over the top" for the typical transaction, we feel the concepts are instructive and can be easily modified and adapted to suit your needs.

Negotiation Structure Directive

To accomplish the timing and business objectives of Customer in connection with this licensing transaction, Customer requires a structured negotiation process. To that end, it is required that Vendor has decision makers and their proposed lead project executive in attendance at all negotiation sessions. Customer intends to pursue negotiations on a daily basis, excluding, to the extent possible, weekends from [insert dates].

An agenda for each session will be circulated by Customer no later than the Thursday before the upcoming week of negotiations. The agenda will identify the issues to be addressed during the sessions and provide specific references to the Customer agreement or RFP sections that state Customer's position on the issues. No later than 12:00 p.m. P.S.T. on the Sunday before the negotiation sessions, Vendor will provide a written description of any issues it has with the concepts advanced by Customer on the specific issues for that week's agenda. It is critical that Vendor' comments remain focused on the identification of, and reasons underlying, any conceptual issues (e.g., "This provision is unfair to Vendor because..."; or "This is acceptable provided it is adjusted to address our concern that [state specifics]..."). Specific language changes should only be provided in addition to, and not as a substitute for, identifying the conceptual issue and articulating the reasons underlying the issue. To the extent the parties agree to change any conceptual issue, language modifications will be made by the Customer negotiating team and submitted to Vendor for validation.

Negotiation sessions will be structured to focus on discussion and resolution of the conceptual issues identified by Vendor. Areas of disagreement will be tracked, and after a pre-determined time, the parties will move to the next agenda item. There will be separate negotiating team caucuses as appropriate to finalize resolution of open agenda issues. The deliverable from each team arising from such caucuses will be to bring forward its proposed resolution on the open issues being discussed. Negotiating teams will again try to reach resolution on these issues and, if unsuccessful, escalation plans will be developed.

An ongoing issues list will be maintained by Customer, and owners of each resolution task will be identified. The owners will be responsible for reporting on progress per the resolution plan. It is the intent of Customer not to move on to new issues until all issues on an existing agenda are closed or deemed to be on a meaningful resolution path, and not simply being deferred.

While there is no single process that must be used to structure your negotiations, our preferred approach is to (1) start with Tier 1 issues, (2) obtain detailed vendor comments to the customer proposed Agreement, and (3) work issues to resolution to minimize commitment slippage and issue reopening. Take control of the negotiation process. It leads to a more efficient and effective negotiation and leave no doubt with the vendor that you are a sophisticated, informed, and prepared buyer.