FRAMINGHAM (03/06/2000) - Vendors know that information technology professionals don't manage contracts very well. As a result, many of the form contracts that vendors use contain an "evergreen" clause. This clause provides for the automatic extension of the agreement if the vendor isn't notified by a certain date a few years down the road, when no one has seen the contract for a while or there are new people in charge of the project for which the deal was done. When challenged about the clause, the vendor usually responds by stating that it "just makes things easy."
It sure does - for the vendors. They almost always get an automatically extended stream of revenue, sometimes called "easy money."
Vendors describe an automatic renewal as a customer convenience. They argue that it prevents service lapses and eliminates an administrative burden for you. The unmentioned risk is that you might be paying for a service you no longer need. But the reality is that a lifetime of administrative effort required to renew contracts is more than paid for if just one unwanted automatic renewal is prevented.
What's more, conditions and requirements change rapidly today. Automatic renewals pre-empt making choices. You should have the right to renew - but not the unexpected obligation.
Hand-in-hand with automatic renewal is price-increase language. One of the biggest scams is in software maintenance and support. It's not at all uncommon to see annual increases of 15 percent to 20 percent year after year and automatic renewals of the contract terms. So require vendors to notify you when maintenance is about to lapse and tell them to ask if you want to renew - at a not-to-exceed price you both agree to at the start of the contract. This approach creates an opportunity to take stock of the situation, make a prudent decision and maybe even do some negotiating.
Always take the "never, ever evergreen" approach and you will be better for it.
Helping the Deal Initiators
It's great when your company's professional deal-makers know how to acquire IT products and services properly - when they have the right experience and tools and understand the negotiation process. But when they haven't enlightened the people who initiate the deals, they've lost much of the opportunity to get the best deal. Many "best practices" procurement organizations actually "sell" their services to the deal initiators, noting benefits they will provide when called upon for help early.
What normally happens is that at the levels where deals actually begin - with the technical analyst or project manager - there is little knowledge of the negotiations process, or of how to increase negotiating leverage. Actually, these people don't even have "do better deals" as part of their job descriptions. By the time the negotiations-savvy parties get involved, negotiating leverage is lost, along with the possibility of getting the best deal.
Leverage is lost when a vendor is selected, a user insists that an industry-unique feature in a vendor's product is absolutely essential for a successful deal, someone announces that one of the potential suppliers is now a "strategic supplier" or "standard" for the company, a user issues a letter of intent stating he is going to do business with a given supplier and so on.
Negotiations, including contract negotiations, should be completed prior to doing any of these things.
Given proper awareness, the deal initiators will know how to proceed appropriately, or at least know which resources to bring in to help, and when.
Everyone should be constantly reminded that negotiations should be completed before your bargaining position is given away. Better deals will result.
Today it's critical that everyone in IT learns how to deal with vendors and how to manage the negotiations process. This type of training should be part of the required IT course curriculum for all current and incoming professionals at all levels. Technology purchases are so large, the risks so high and the rewards so great that you ought to at least get as much training as those vendor people you're dealing with.