Software contract negotiations: It's users vs. vendors

When it comes to negotiating software contracts, vendors want only two things from users: revenue and more revenue.

"Everything suppliers do is designed around revenue," Patrick Campbell, a consultant to Winter Park, Fla.-based International Computer Negotiations Inc. (ICN), said Tuesday at a Boston technology procurement conference sponsored by ICN. "Users need to use that to their advantage."

Campbell said there are basic tactics users can take to make sure they get the best possible deals from suppliers.

For one thing, Campbell said, in order to make the best deals, users should start talks at least eight months in advance, because a late start puts the vendor in the driver's seat. A vendor knows when a customer is under the gun and knows how to exploit any urgency, he said.

Users should also think about their companies' future needs before deciding what type of license agreement to purchase, said Campbell. For example, if a company plans to make acquisitions, any deal negotiated with a vendor should include a clause allowing for the rights under the license to be transferred to the new company without additional payment.

Campbell said it's important to have some of the company's important decision-makers -- people with the knowledge and authority to make decisions -- involved with the negotiating team early on. And telling a vendor that you're looking at competitors is also likely to get its attention, and get you a better deal, he added.

Remember, he said, the customer has what the vendor wants: money.

"But you have to make a credible threat. If you say you're going to take their product out or buy new products from a different vendor in the future, you have to mean it," Campbell said.

One user at the conference suggested scheduling appointments with competitors one right after the other.

"Do a walk-by," he said. "Schedule an appointment with one vendor at 10 a.m. and one at 11."

Campbell also urged users to make sure they ask suppliers to define their "vendorspeak," words they use to entice customers into a deal that might not be in their best interests.

"Ask them to define these fuzzy words," he said. "If they say they will make a 'reasonable effort' to fix a problem, ask them what reasonable effort means."