Negotiating with procurement - David versus Goliath?
Over the last couple of weeks, I have been helping a few of my IT clients negotiate contractual terms and conditions with new large customers.
These clients are quite rightly hugely enthused by moving up the value chain and winning work from big corporates. But they quickly become frustrated at the lack of movement from seemingly intransigent procurement managers. “Is it always like this?” I am often asked and I am afraid that in my experience the answer is generally “yes”. This is my take on why [warning: gross generalisations follow.....].
Understand what motivates procurement
Before you can crack the procurement challenge, you need to understand what motivates and drives them. If you apply common sense, the procurement stage should be simple. After all you’ve been picked as a preferred IT supplier because your customer’s technical teams and/or commercial folks decided that there was a very good reason they needed your company’s services and products. In a perfect world, procurement would be completely ‘on-board’ with what their technical and commercial colleagues want to buy. However, that may often not be the case. The procurement department can seem to dance to a very different tune. In some instances, it seems that the internal technical or commercial team have seem to be in thrall to their procurement colleagues so that you have the surreal situation of the procurement tail wagging the commercial dog.
Procurement is often massively overworked
I often feel sorry for the guys in procurement departments. They seem to be almost universally over-worked with a tough remit. Their remit is normally two-fold; drive down costs for the company and mitigate any risks as a result of the purchase. They have to do this often 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. It is either technically complex, commercially very sensitive or the IP rights are very tricky. In these cases the devil is really in the detail. 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=in-house legal department filter
One of the reasons trotted out 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 up”. So it seems that procurement are 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 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.
Procurement’s typical internal agenda
In a nutshell all these reasons come together to form a powerful agenda for a procurement specialist which often goes like this:
- I want the supplier to accept our standard terms and conditions
- I want to mitigate any risks my company is taking on by getting the supplier to accept our standard terms and conditions
- I want to wrap up this procurement process as quickly and simply as possible so I can rapidly get onto the next piece of work on my desk
- If possible I want to avoid involving legal in the contract negotiations as this will probably slow up the process
- I really don’t have the time for a supplier’s lawyer to quibble about ‘details’ in a contract
Unfortunately when companies are buying IT products and services, the supplier’s ideal terms and conditions often don’t match up with the customer’s ideal terms and conditions. That is where I come in to find a workable and very often negotiated solution. This isn’t always easy, particularly with procurement’s agenda!
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 in another 3-4 weeks into 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 and on our terms and conditions”
As well as this position, procurement often don’t want to find an innovative solution which works for both party. As I mentioned early 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 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 the ‘once over’, and then I have identified clauses, which they will want to adapt. The easy solution would be to capitulate to procurement’s demands. 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 and/or is riddled with potential liability which won’t look at all good when the next round of funding or exit due diligence is carried out. When you agree the initial contract with a client this is the time to get the terms and conditions, which make commercial sense to both you and the customer. As a supplier, this is often the only time you do 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”.
Therefore, my advice to my clients is typically stand your ground and call their bluff. If you have the 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 terms with their preferred supplier.
Dealing with procurement is often a necessary evil when supplying IT services to products to large customers. Having an understanding of the procurement agenda should enable you to hold your ground on clauses which you cannot afford to keep in (or out) of your contract with them.