Three Pitfalls to Avoid When Negotiating IT Professional Services
Categories: Guest Post, Services and Indirect Spend, Total Cost Management | Tags: L2, NPI, Sourcing and Categories
Spend Matters welcomes another guest post from Rich Staas of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom, and shipping.
Technology purchasing is rarely a transparent process, especially when it comes to IT professional services. Despite the seemingly tidy packaging of hourly rates (as compared to, for example, complex licensing programs for software purchases), the risk of overspending is high. While much of this unplanned spending can be attributed to delayed project timelines and unforeseen circumstances, a large portion of it is caused by mistakes on the front end of the contract negotiation process.
Here are several pitfalls to be aware of before signing your next agreement:
Service rates are negotiable….always! The key is knowing what constitutes fair market value for a vendor’s proposed services. Like most IT purchases, there is great pricing disparity in the marketplace for professional services, and fees should be benchmarked to determine whether you’re paying a fair price. Additionally, it pays to know your options. For example, negotiating a blended rate with the vendor when multiple resource levels are required can reduce costs over the term of the project.
Ignore the “hurry up” hustle. Vendors are well trained to get a contract inked as quickly as possible. Tactics like “time is of the essence – we’re holding our best resources for your project” are common, but don’t fall for it. A successful project is just as important to them as it is to you, and you should always receive the level of qualified resources necessary regardless of when you sign the contract. That being said – be aware of when you’re buying and/or renewing. Vendor pricing flexibility often increases when quarterly and year-end goals are on the line.
Challenge the customization of the proposed solution. When entering professional services agreements, many companies think they are paying for a resource allocation that is specific to their unique project needs. This may or may not be the case, which is why it’s imperative for companies to challenge the need and deliverables of each resource type to ensure they’re paying for the most effective resource mix. It’s not uncommon for some professional services organizations to use templates that divide the total proposed hours in pre-defined percentages to the various resource levels they think will be needed – whether you actually need those resources or not.
IT spend management is a process, not a single event – especially when it comes to the numerous professional services required to complete today’s complex enterprise IT projects. Avoiding missteps early on in the vendor contracting process, in addition to tight management of milestones along the way, can yield cost savings from project inception to completion.
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