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Chapter 26 - Negotiating IT Contracts

26.1 Contract negotiation steps

26.1.1 Preparation

Key areas of preparation include understanding the business needs, understanding the market and contacting customer references. These steps may have been performed earlier in the procurement phase, but revisiting them at this stage will help in developing a clear and complete negotiation strategy.

  • Understand the business needs. Consider who will be using the solution and why they need it. Determine if the need is critical or desired and how soon it is needed. Discuss contingency plans for what to do if the desired solution cannot be obtained within the timeframe needed. Determine how many users will need the solution, how they will use it and what type of usage is anticipated. Test or witness demonstrations of the proposed solution(s). What a supplier states in their proposal and what the proposed solution actually delivers may be very different.
  • Understand the marketplace. The suppliers’ proposals may be a great source of current market data that directly relates to the IT project. Research the market and determine what others are paying for the same IT goods or services. Look at different pricing models and determine which model would provide the best value for the product or service being procured.  Generally, the solution you want has been implemented before. This means that comparable pricing information should be available in the marketplace or from other users. Conduct a market survey, if one has not been done already. There are various sources of information (Gartner, Forrester, internet sources, etc.) to help you better understand the marketplace.
  • Contact customer references. Those provided by the supplier will likely provide positive reviews. Checking with other references can prove insightful. Determine where the supplier has done similar work for other customers and call those customers.

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