Advanced Contracting Tip: Taking Advantage of Market Conditions
Let’s face it. There are some companies that intimidate us when it’s time to negotiate a new agreement. I’m not afraid to say it, and I’ve been doing this a long time. Technically, you might not be intimidated as much as you are feeling like you don’t have any negotiating power, which to me is a little intimidating. But that’s how these blue chip companies got so big in the first place. They make you feel like you have no other option or you might lose your job. What’s the old saying, “Nobody ever got fired for choosing IBM”?
But there are people out there who are experts at negotiating with these giants, and they find double digit savings 90% of the time. How is this possible? They have many tricks up their sleeves but the one we will discuss today is a very advanced contracting tip.
As you know, hospital executives are extremely busy with major projects like trying to implement their EMRs effectively, figuring out their population health management strategy, and so on. So when their Microsoft Enterprise Agreement comes up for renewal, the CIO doesn’t have time to stop and think about all of the options in front of them. Basically, their Microsoft rep tells them how many licenses they need for each type of software based on the number of employees accessing it and asks about if they are going to move into virtualization in the near future or not. Then they sign the agreement. Not a lot of negotiation. It’s more like choosing accessories when you buy a car.
This happens everyday across the country at every hospital. And it’s not just Microsoft. It goes for IBM, Oracle, CA Technologies, SAP and so on. Here’s a list of the worlds top 10 largest software companies. I bet that all of them are making bigger margins than your medical/surgical and physician preference vendors. But it’s not just software companies that we rollover for, it’s also the big telecom vendors like AT&T and Verizon. It’s your energy providers like Duke Energy, TXU and Reliant and so on...
Notice that these are all purchased services categories. This is where your massive savings are hiding. I know it’s challenging to negotiate with these companies, so I hope this tip will help you think a little bit more strategically when you are looking at these agreements.
Taking Advantage of Market Conditions
The easiest advanced tip I could think of (besides hiring experts) is to be aware of the current market situation for the targeted vendor and their industry. You might be surprised by how much the simple task of starting your negotiations during a certain time of year can impact your pricing and negotiation power.
Examples of Market Conditions
These are some of the techniques the expert consultants use to negotiate with the big dogs:
- When does the company’s Fiscal Year end?
- This is public information that can be found from a simple Google search
- Did you know that if you started negotiating with Microsoft right before July 1 you will have more leverage with them than any other time of the year?
- This is true with all companies because the sales reps are trying to hit their end of the year quotas to get the big bonuses.
- Financial Information
- Go to finance.yahoo.com and type in the company’s name, scroll to the bottom and click through all three financial reports listed on the left navigation bar. How’s their cash and debt situation?
- Check the stock price. How’s it doing?
- Scroll back up and read the headlines, quarterly reports and analyst opinions. Anything negative happening to them or their industry?
- When you sign energy contracts for electricity and natural gas, please pay attention to the time of year. This seems obvious but it happens all of the time.
- You need an expert to help you time the commodities market. I don’t like the idea of buying energy month-to-month like some “experts” do. I think they do this just to keep a job.
- I think the best thing to do is to hire an expert to time the market in order to lock in a fixed rate for two to four years. You will be able to realize immediate savings and budget accurately for the remainder of the agreement.
- Simple tip: negotiate your lawn care during the winter and your snow plowing contract (if applicable) during the summer.
- I know most companies in the north use both services, but some don’t and it’s a good way to keep your incumbents honest.
I’m sure that after you read through these you are thinking that they are not advanced tips, but be honest, when is the last time you timed a negotiation based on these market conditions? I can honestly tell you that I did not do these things for the first half of my career. But it feels good when you sit in a negotiation and have a few of the nuggets to bring up to change the power in the room.
Being creative is the name of the game, and as such, you should be prepared with as much knowledge as possible before you begin contract negotiations. Sales information can be found and tracked online, giving you many options to research the performance of the company you’re contracting with. With the right information in hand, you will be surprised at what these mega companies will end up doing.
But all of this does not free up your time, which is why I recommend bringing in experts. These experts negotiate with the same vendors dozens of times a year, while you and your staff might pick up your contract once every three to five years. Yes, you will most likely have to pay them a contingency fee based on their savings, but who cares? You were just going to renew or extend the existing agreement and realize zero savings. That’s like complaining about paying taxes when you win the lottery.
Topics: Purchased Services