With so many software vendors now setting their sights on midsize businesses (MSBs), understanding what makes a "good deal" is essential. There are many aspects to negotiating the best price and contractual guarantees.

Following is a comprehensive checklist to help you improve your initial price and long-term contract protections with software vendors:

√ Form a cross-functional team
The cross-functional team should include members from business units, the IT procurement organization, the legal department, and the applications and technical staff, depending on the type of software being considered.

√ Include professional negotiators on the team from the start
Professional negotiators can provide input on the contract terms and conditions essential to reducing risk of unexpected future costs, and should be the central point of contact with the software vendors. They should also be designated as the interface with all other team members to ensure that all requirements are included in the final contract.

√ Create an RFP
Creating an RFP will provide many benefits: identifying the scope of the project; defining standards for essential software functionality; developing a disciplined evaluation process; identifying and qualifying credible vendors; building and justifying consensus throughout the enterprise; and building contract terms and conditions into the requirements in advance.

√ Document the measurement criteria for Requests for Proposal (RFP) evaluation
Discuss the measurement criteria to ensure that the software will meet business and technical requirements, and prioritize what functionality is mandatory, valued and "nice to have". This will help to develop consensus throughout the enterprise, as well as in the final vendor selection.

√ Ensure credible competition
Competition is essential to getting a good deal, and MSBs should evaluate competitive products and keep more than one vendor in the final stages of negotiation until the deal is signed.

√ Start contract negotiations early in the process
Don't lose leverage by beginning contract negotiation after the vendor has been chosen. Contract negotiation should start during the RFP process.

√ Request and contact the vendors' references
References should include similar type enterprises, preferably in the same industry, that have licensed the same software modules and versions that are being considered. Then, ask open-ended questions of the references such as, "How long did the implementation take?" and "What would you do differently if you could do the project again?".

√ Negotiate additional discounts for new software
It's often possible to obtain extra discounts for being an early adopter of newly developed software because you're taking a risk, and more than likely the software vendor will want to establish reference accounts giving you further leverage. In general, discounts vary depending on a wide variety of issues including the size of the deal, credible vendor competition, early adoption of software products, and the vendor's need to recognize revenue within a designated time period.

√ Only license the software you will use during a six-to-twelve month timeframe
Often vendors will offer large discounts for buying "complete solution" packages, but in many cases this ends up being "shelfware". If you license such a package, ensure that you are not paying maintenance and support on the components that you have not installed.

√ Avoid compromising a good deal for the "deal of the century"
Unless the contract terms and conditions are in place to protect the long-term financial interests of the enterprise, walk away from the deal that seems too good to be true. Focusing solely on the license cost can be expensive in the long run, as more of the total cost of ownership for the license is based on the flexibility of the contract. Some important terms and conditions that are often missing include perpetual licenses, escrow clauses, audit protections, mergers/acquisitions/divestitures, the right to change location/platform/operating system/database, service-level agreements, maintenance entitlements, and broad usage rights for parent/affiliates/subsidiaries.

√ Prepare for deployment prior to buying software licenses
You will be responsible for software support and maintenance costs starting the day the contract is signed – money wasted during the time the software is not installed or in operation. Complete as much of the implementation work as can be done before the license agreement is signed.

√ Negotiate future price protections and the maintenance agreement as part of the package
Many enterprises determine that they want additional licenses or user seats after the software is installed, so negotiating price protection as part of the contract terms and conditions for a minimum of two years is essential. Further, maintenance and support costs and entitlements will be in effect long after the initial license fees have been paid. Ensure that these agreements are guaranteed as part of the overall contract negotiation.

There are many aspects to getting a good deal on software, and the initial acquisition price is only one of them. Midsize businesses should focus on reducing the initial cost, as well as the long-term cost of ownership.

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References
Research Note
SMBs' Software Deals Require More Than a Good Price
Publication Date: May 9, 2003
Author: J. Disbrow