Tag Archives: AIVendors

How to Negotiate with Vendors in an Age of AI and Automation: The 10 Commandments of Contract Negotiation

Welcome to my first quarterly newsletter as CEO of CustomerIntelligence.net. As a strategy and implementation consultant, a frequent client need is assistance evaluating, selecting, and hiring key service providers, such as marketing agencies, software developers, systems integrators, independent contractors, analytics vendors, or general consultants such as Accenture, E+Y and others.

A typical scenario goes like this:

The CEO calls all C Level execs to a meeting – “We need to ‘transform’ our business and we need a major upgrade to our digital nervous system – capabilities have advanced again and it’s time for Digital and Analytics 5.0! The CEO turns to you, the Chief Analytics Officer, and says “You sit at the intersection of our Business, new Technology, and Change Management so I expect you to be the main Catalyst for this initiative. The ultimate decision on vendor resources is yours, but I expect a collaborative yet Agile RFP selection process. You will be the steward of the budget for this push but let me know if you need my help or any C-level help cutting through the bureaucracy to get this initiative launched.”

With those marching orders, in a short while, the lean, cross-functional, multi-level team completes the blue print for this transformation initiative, agreeing on business gaps, and proceeds to vendor selection and contract negotiations. In this phase, our advice is as follows – BARN:

  1. Benchmark

Consider doing some pre-RFP benchmarking and competitive intelligence using resources such as CustomerIntelligence.net combined with Forrester or Gartner (more on why this is Important in future posts.) The output will give you an overview of which vendors, software providers, and consultants are good at solving the various pain points identified in your gap analysis. Don’t forget to ask for client references upfront in the process. (TIP: Forrester has a process where they can set up member exchanges as part of joining their leadership boards.)

  1. Agile RFP

Conduct an Agile RFP process where you give the vendors a short but reasonable time frame to respond to your needs and then invite them for a 90-minute presentation to your firm (more on this in future newsletters/blog posts.)

  1. Negotiate

After selecting a main vendor for each of your focus areas – Marketing Automation, CRM, or a new Analytics and Customer Database – you now begin the contract process, aided by your legal and compliance teams. As a leader, you need to have a point of view on the contract and how to bring the best deal together for your firm. It is your job to be the steward of any contract negotiations and to know how to challenge vendors to produce a contract that is acceptable to your organization. On several recent projects, I saw the results of different approaches to negotiations – some firms left money on the table, to their detriment. Others do, in fact, know how to ask for what they want from a vendor or provider and while they will compromise, they stick to their guns to get most of what they want.

Many expert negotiators have said; the best deals are ones where both sides walk away not completely happy, but they achieved a middle ground. While I generally subscribe to that theory of compromise, it’s important for businesses to know what they wish to ask for. During my career, I’ve learned that lesson (and many others) bringing home large deals and contracts. So, from my “What to Do When” Archives, here’s the CI.net negotiations checklist. Please keep in mind that this is a business view and we are assuming your legal and compliance teams are involved every step of the way although we have included them again for emphasis below. Taking our “ten commandments” metaphor out to a step by step playbook for contracts here is what we recommend.

  1. Thou Shall Know what it Should or Could Cost

Before entering into the details of the contract know generally what other people have paid for the target service in front of you (AI, CRM and Marketing Clouds etc.) and know therefore what you would be willing to pay. Go as low as you think you need to knowing that you will not land there. Run the ideal scenario with your finance people and yes don’t forget to account for the benefit of capital expenditures. This is one some firms forget to consider! Certain costs can be amortized over time, thus protecting the firm from having a large exodus of cash in year one. Check!

  1. Thou Shall Master the Details

Get very granular in terms of understanding the pricing of the products/services you are proposing to buy. Make sure in any RFP ‘bake-off’ you prepare a spreadsheet that shows comparable pricing across components. Understand the levers you can pull in any contract. For example, does your CRM give tiered discounts as you buy more seat licenses. What elements of the contract are fixed such as development expenses versus variable costs? This is not an area to be bashful and we would be happy to assist you in this aspect of the negotiation – arm twisting over price is something we’ve done a lot of over the years. Very often vendors will have a discount schedule, but don’t be reluctant to ask for a deeper discount, especially if you are buying several major components of their ecosystem. In addition, understand the cost to maintain the software/solution going forward don’t just accept the classic 10% of development cost as the answer. Probe what is in the maintenance, what teams are being deployed and how many, what upgrades you will receive during the term of the contract. Also, will change requests be included or a separate charge? Push for the base price to include ‘x’ number of change requests. Understand what aspects of the solution or software are scheduled or planned to change and why. I am not anti-change request, but this is where what looks like one amount at the initial stage can quickly turn into 50% more than the price originally sought. Total Cost of Ownership(TCO) means just that TCO!!

  1. Thou Shall Have a Contract Renewal Strategy:

Some contracts contain automatic renewal clauses. Require at least a 3-month prior notification of any renewal provision and any associated rate increases. I recommend you push for non-auto renewal, but some large sales organizations will insist they can’t change the terms quickly, so they need some form of auto-renewal (I don’t doubt that some of this maybe true but just understand what you are getting into). Also, it is always prudent to put the solution out for bid, if for no other reason than to secure pricing concessions on the part of the incumbent (large firms pay have this in their procurement process as well).

  1. Thou Shall Indemnify thyself!

Indemnification clauses are a critical contract competent mandatory for your protection, especially around data security issues and breaches. The reputational risk of a breech along can be significantly damaging, not to mention the loss of revenue or business disruption from a failure on the Vendor’s part. It is recommended to engage legal, data security, and other senior executives both to define an appropriate level of protection (a separate insurance policy may be required) and to provide yourself with aircover in the event of a major failure; i.e., you’ve secured buy-in from senior Execs as to the risks of what you are undertaking and the protections being put into place. Also, it is important to consider the potential errors and ethics of AI and what the potential impacts could be in the event of error(s) in algorithms, software, robotic part failure and more.

  1. Thou Shall Have Performance Guarantees and Service Leve (SLAs)

SLAs and Non-Performance. Make sure that these terms are acceptable to you especially in terms of the way data is stored and backed up and what types of events trigger this part of the contract and how long of a downtime is acceptable. (Contact us for more on this one). Some other elements to think through include provisions around product/service delivery time frames, Up-time, customer service support, issue resolution, data accuracy, latency, escalation procedures, business disruption, etc.

  1. Thou Shall Have Exit Clauses

Convenience/Change of Control out Clauses: Make sure that you do have a clause that lets you out for change of control in the case that the vendor is being acquired.

  1. Thou Shaln Thyself

Don’t neglect training and other educational products your providers/vendor may offer. Very often they may offer boot camps or certification which will help everyone involved learn the product and the process you are trying to make more digital, AI focused, analytic or customer centric. For example, your execs may need a primer on AI and Machine learning fundamentals. I had an executive once make me explain what Massively Parallel processing Error was in the context of a migration to NoSQL platforms such as Hadoop/cloudera etc. I recommend that these be baked into the contract in some way or your account for these costs upfront and to ask for discounts. In addition, very often if you are working with a systems integration partner they will ask for training dollars in their contracts so make sure that the types of training are truly unique and not duplicative. For example, your software vendor requires administrative training and your Systems integrator of that software requires training on the API’s or processes they build. These are two separate issues and hence are fine. In addition, you should understand the ongoing costs of adding people to a process or system – how much does it cost to keep adding personnel and sending more people for training? I suggest negotiating this upfront or capping out training in bundles (number of seats, types etc.) Also keep in mind that API’s need to be configured requiring additional consulting dollars for systems integrators. Someone on the team will need to be trained in API configuration and workflows. Many automation tools have their own language like Salesforce Visualforce.

  1. Thy Shall Control PR, Digital Media and Use of your Brand
    PR, joint articles and presentations at Conferences where you talk about your successes together should be seen in the light of a negotiating point. Some companies, as a matter of policy, will not do any form of public endorsement of vendor partnerships. But if you are able, then you can use this as a potential bargaining chip to reduce costs or have the Vendor throw in other products or services in exchange for your endorsement.
  2. Thy Shall Have Control Over How Vendors Staff my Project
    Audit the personnel your vendors put on your projects., make sure you understand the types of resources being assigned to your project and Why. How do you know they are the “A” team and not the “C” team? Ask for resumes and job descriptions for assigned staff. Talk to other clients; We want to build good relationships with our vendors, but we need to trust and verify and create transparency in a variety of ways including some team outings and dinners etc. these do help build a successful team and create social cohesion and relationship building on projects. Also, one final point on this if your vendor, provider or consulting firm is given some on-site hosted areas where their personnel will sit, go over to that area periodically and understand how many people are on your account, what they are working on and the hours they are spending onsite. Make sure you are comfortable with the space and their staffing plans. Very often executives are criticized when they hire consulting firms or service providers (ours included) when there is a higher level of staffing then the internal teams have working on similar tasks. Make sure you understand and are comfortable with these staffing level and location(s) and the optics they create and ask for changes in arrangements as needed. Ensure staffing levels match workloads and project demands etc.
  1. Thy Shall Get the Blessing of Legal and Compliance
    Finally, your legal teams can advise you on the contract basics of what constitutes a valid contract such as offer, acceptance and consideration as well as having non-disclosure and confidentiality agreements in place. This newsletter/blog post does not claim to provide legal advice but merely tips on the business side of the negotiation and elements for you to consider as a C level executive, or other business manager.

I hope you found this article helpful as it comes from direct experience I have had from several major engagements. I hope you can apply these learnings in your business and if you need help we are here to serve and augment your efforts in preparing RFP’s and helping with vendor evaluations and negotiations. Customerintelligence.net has a detailed AI and automation playbook which we offer our clients.

In Summary, don’t be afraid to ask for what you need from your providers; push hard! see what they say, you may be pleasantly surprised.



Tony Branda, MBA Ph.D.
CEO CustomerIntelligence.net.