Piers Clayden
Director,
ClaydenLaw
Winning business from existing or new customers should always be a source of celebration. However, this initial enthusiasm can swiftly be replaced by frustration and resignation when that business is dependent on negotiating the contract with seemingly inflexible procurement managers. In this month’s tip, experienced IT lawyer Piers Clayden (ClaydenLaw) provides some insight into perhaps why the process can be so painful, and how CompTIA members can approach these negotiations.
- The procurement agenda
In these cost conscious times, procurement departments wield significant power, which sometimes appears to override the commercial and technical colleagues who have decided your technology is the right one to buy. But the procurement manager assigned to negotiating your contract will often be massively overworked with the 2-fold remit of driving down costs for the company and mitigating any risks as a result of the purchase. They often have to do this without an in-depth understanding of what it is that their company is buying. Most of my clients don’t sell a simple service or product. Getting to grips with this detail is not something that many procurement managers want to do. As you can imagine, that often makes them the ‘bad’ guy or bottleneck in the purchasing process.
- Procurement, AKA, an in-house legal department filter
One of the reasons given by procurement for not accepting any material deviations from standard terms is that “I can’t agree to this without running it past my legal department - that is going to slow the whole process down." So it seems that procurement is tasked with shielding the legal department which itself is another generally busy and over-worked part of any organisation. It seems that for the procurement manager, having to bring in the lawyers appears to be a sign of weakness. This leads to managers playing a quasi-legal role often without the training that the actual lawyers have. So they are less able to “take a view” or be pragmatic on deviations from standard positions.
- When you have size on your side
As you can imagine when you have size on your side, as big customers normally do, it becomes very appealing for procurement to take a position similar to this:
“These are our standard terms and conditions, if you don’t like it, we will have to involve our legal team. This will then add another 3-4 weeks to the procurement process as our legal team is incredibly busy and this is not a priority for them. In this time we may go out to the market again and find an alternative supplier who will be begging to work with us on our terms and conditions.”
As well as this position, procurement often won’t want to find an innovative solution that works for both parties. As I mentioned earlier, they don’t have the time or bandwidth to be creative. This is why they will often initially stick to the line:
“If you want to have us as a customer, this is the cost of doing business with us. Like it or lump it.”
- How to manage these David v Goliath tactics
So, what do I advise my clients to do in this situation? After all, they have normally asked me to give the contract a ‘once over’, and then I have identified clauses, which they will want to adapt. The easy option would be to surrender to procurement’s demands. However, the easy option is never normally the right option in this situation. As I counsel my clients, there is only one thing worse than losing out on a contract. That is, winning a contract, which either isn’t profitable for them in the short-, medium- or long-term, or is riddled with potential liability that won’t look good when the next round of funding or exit due diligence is carried out. When you agree on the initial contract with a client, there will be no better time to negotiate the terms and conditions that make commercial sense to both you and the customer. As a supplier, this is often the only time you have the power or opportunity to negotiate your preferred contractual terms and conditions. You really don’t want to “agree in haste, repent at leisure." Don’t be seduced by the line “don’t worry, this agreement will only be used for the first order – you’ll have the opportunity to renegotiate when the next work order comes around." You can bet your bottom dollar that when the next work order comes around and you want to have another crack at negotiating the terms, you’ll be met with the line “well, it was good enough for you last time so it should be good enough this time, and anyway we don’t have the time to re-open those negotiations…”
Therefore, my advice to my clients typically is to stand your ground and call their bluff. If you have confidence in your product or service, then this is normally the right option. Most procurement managers will not want to go to the hassle of re-tendering for suppliers or explaining to their technical and commercial colleagues why they can’t agree to terms with their preferred supplier.
