THE NEGOTIATION PROCESS

The negotiation process should include the following steps:

• Establish the negotiating team

• Educate team members

• Review requirements

• Define strategy

• Schedule and conduct negotiations

• Critique negotiation efforts Establish the Negotiating Team

After deciding which areas of the company will be represented on the negotiating team, some consideration should be given to selecting a qualified person from each area. Team members should be familiar with DP and interested in getting involved in potentially detailed and lengthy meetings with the vendor. The DCOM can assume the leadership of the team at this stage because of his knowledge of the negotiating process. He should ask potential team members for their help and send formal letters to the appropri-ate department managers, requesting their assistance.

Educate Team Members

Once the team members are selected, the next task is to educate them.

Each team member should become familiar with the goals and objectives of

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the negotiating process and with DP tenninology. Among the sources for this education are:

• Review of the existing contract-The old contract can be used as a model for clauses that should be retained or avoided in the new con-tract.

• Review of the computer Request for Proposal (RFP)-The RFP defines the requirements of the new system for prospective vendors, who then make proposals offering equipment to meet those requirements.

• Publications on the subject of negotiating computer contracts, such as CNReport, published by International Computer Negotiations Inc.

• Seminars and courses on negotiating.

• Meetings with others who have recently conducted negotiations, espe-cially with the same vendor.

• Review of other contracts to find ideas and clauses that may aid in negotiations.

Review Requirements

At this stage, the DCOM has gone through the RFP process, a vendor has been selected, and formal negotiation is the final activity remaining in the acquisition process. One of the most effective ways to review requirements is to develop a negotiations workbook (see Figure 9-1). The DCOM can de-velop this workbook and distribute a copy to each team member, ensuring that all team members know the "game plan" and objectives of the negotiations.

Define Strategy

Defining strategy is vel)' important to the overall success of the negotiating effort. The team should discuss the areas listed in the next paragraphs, reach an agreement among themselves, and document the strategy in the workbook.

Objectives. The team members should establish a clear definition, in writing, of exactly what they plan to accomplish through the negotiations, ranking each objective to establish clear priorities. Examples of objectives are:

• Reduce the current lease amount by at least $1,000 per month.

• Establish dollar penalties to be instituted if computer availability falls below 95 percent in any single month.

• Define specific acceptance-test criteria for each piece of new equip-ment and for the total system.

Prenegotiation Planning. Prior to each negotiating session with the ven-dor, the team should meet to discuss a plan for that session. Will the team push for a specific concession from the vendor? Who will present which points? Will one team member lead the discussion? At what point should a caucus be called or negotiations suspended? A precise plan is critical to effective bargaining.

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General Equipment Information and Overall Objectives A. Summary of existing DP equipment and other resources

(including basic contractual terms)

B. Summary of proposed DP equipment and other resources (including any suggested trade-in or similar alternatives) C. Summary of overall equipment and resource objectives

(including replacements, upgrades, time frames, and alternatives)

Vendor Information

A. Name of current vendor; names, titles, addresses, and phone numbers of local and regional vendor personnel

B. Summary of relationships with current vendor Financial Considerations

A. Summary of proposed acquisition and financing methods B. Assessment of internal rate of return

C. Existing contract lease credits analysis D. Summary of proposed equipment costs Timing Goals and Considerations

A. Summary of major milestones B. Alternative positions

Progress on Goals and Objectives A. Prioritized goals and objectives

B. Summary of vendor's inducements and offers

C. Current estimate of degree to which vendor's inducements and offers meet desired goals and objectives

Negotiating Considerations

A. Assessment of negotiatin9 posture

B. Expected role of negotiating team, other staff, and experts in the negotiations

C. Current assessment of possible vendor and equipment alternatives

Signature Blocks A. Negotiation team

B. Senior management personnel Contracts

Figure 9-1. Negotiations Workbook Table of Contents

Vendor Representatives. The team's success in negotiating depends in part on how well they have assessed the strengths and weaknesses of the vendor. What excites the vendor representatives? How do they work under pressure? Will concessions made at the negotiating table be reversed by the vendor's supervisors?

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Post-Negotiation Session Critique. At the completion of each negotiat-ing session, the team should assess the progress they have made. What con-cessions were given or gained? Are there any items to be followed up before the next session? What are the plans for the next session?

Negotiation Time Frame. Because of the many variables that can affect negotiations, the time frame must be flexible. Ideally, the negotiating team should begin with the understanding that the negotiations will be over only when they sign a contract that is agreeable to them. Not every company, however, has the lUxury of prolonging negotiations. In any case, the time frame should not instill in the team a sense of urgency to sign a contract. Such urgency can leave the customer in a weak bargaining position, reducing the chances for vendor concessions.

Ploys and Tactics. Tactics can improve the customer's position. For example, the customer can threaten to call off negotiations and contact an-other vendor unless the vendor representatives make some concessions. Ef-fective ploys used by customers (and those used by vendors) can be found by reading periodicals and articles on the subject. Other departments of your company that are involved in negotiations are also a source of suggestions.

Contract Items. Specific contract items should be analyzed in order to define a strategy for achieving desired clauses. Although there are numerous contract areas to be addressed, the following pamgmphs discuss some of the basic items that the team should focus on.

Payment Terms. The team should define payment armngements for the equipment. For example, if the equipment is to be purchased, the team could arrange for 75 percent of the purchase price to be paid upon delivery, with the remaining 25 percent paid following a successful 30-day performance period.

For a lease armngement, terms could indicate that payment is to begin the first day of the month following a successful performance period.

Type of Acquisition. There are various ways to acquire a computer sys-tem, including purchase, lease/purchase, and lease. Which type is best for each company depends on company policy, cash position, trade-in options on currently owned equipment, confidence in the vendor, long-mnge plans, and so on. This is an area where the financial expertise of others in the company can be of assistance. Often, vendors offer incentives for one arrangement, according to their marketing strategy. The customer should evaluate the ven-dor's incentives cautiously.

Delivery Commitments. Often, the only way to make vendor representa-tives guamntee delivery dates is to include a penalty for late delivery in the contract. A common penalty stipulates that the vendor will pay the scheduled lease payments beginning on the day of promised delivery. Another method is to assess a penalty of two percent of the new lease price for each month that delivery is delayed. Although delivery penalties do not help the company to