Avoiding Professional Services Contract Negotiation Pitfalls

By Rich Staas

Director of Client Services, NPI

January 31, 2014

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If you’re like most enterprises, you enter into several IT professional services contracts each year. Whether you’re purchasing project implementation services, bespoke solution development, upgrade services or staff augmentation, there are several pitfalls to be aware of before signing your next agreement. Here’s some advice:

Service rates are always negotiable. As with almost any IT purchase, there is great pricing disparity in the marketplace for professional services fees. Fees should be benchmarked to determine if you’re paying a fair price. It may also be more advantageous to negotiate a blended rate with the vendor when multiple resource levels are required.

“Hurry up” is a sales tactic – don’t fall for it! Vendor sales people are trained to pressure customers to sign a deal by warning them that "top level resources slated for this project are being held from other projects in order to work on yours." The fact is that any reputable organization realizes that it takes time to get purchases approved and a successful project is just as important to them as it is to you. You should always receive the level of qualified resources necessary regardless of whether you sign by their quarter or year-end. That being said – be cognizant of when you’re buying and/or renewing. You’ll be surprised at the pricing flexibility granted when sales quotas and other quarterly and year-end goals are on the line.

Your “custom” solution may not be as custom as you think. The vendor will tell you that your proposed solution and the hours designated per resource are custom to your needs. This may or may not be the case. Some of the larger professional services organizations 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. NPI recommends that you always challenge the need and deliverables for each resource type to ensure you are paying for what is required to get the job done.