Look that Gift Horse in the Mouth

Things are moving fast in these challenging times as both individuals and companies struggle to keep up with changing demands and plan for an uncertain financial future.

In response, we are already starting to see many clients (a) put most major technology spending projects on hold and (b) look closely at supplier contracts (almost none of which contemplate a reality such as the one we are facing today).

As a result of a confluence of these and other factors, we are seeing an unprecedented level of activity in renegotiating technology supplier contracts, including but not limited to:

  • The force majeure clause in most agreements
  • Government regulations and supportive local laws
  • Corporate mandates on dealing with this global pandemic

Many clients are looking to delay payments, suspend performance, or even rescind obligations due to unforeseen circumstances, clearly beyond their control.

As annual revenue projections fall for most organizations, responsible executives are looking to cut costs and renegotiate all major technology agreements.  Unfortunately, as we are witnessing first-hand, many suppliers are taking advantage of the chaos.  Some suppliers are giving the impression of lending short-term assistance, while making disproportionate gains over the long-term.

In most cases, suppliers have agreed to extend payment terms (sometimes with a small finance fee).  In some cases, suppliers have agreed to suspend the performance of some contracts (generally with some catch-up-and-more provisions).  In cases where clients are looking to rescind obligations, suppliers have generally been uncooperative, but in rare cases, have made some “heads I win, tails you lose” proffers, and this is where clients need to be extremely careful.

In one case, a client quickly agreed to a 10% reduction in committed fees with a supplier, but a third of the units were contractually committed to return within 12 months' time, and the unit cost to re-acquire the capacity was three-fold; meaning that the supplier would get the same amount regardless, but if the client ultimately returned to the former capacity levels, they would do so at a 20% net premium cost for the same solution set.  In addition, any future capacity increase was also done so at a much higher unit price than what was previously agreed.

In another case, a supplier agreed to allow a cancellation of a previous contract, but it was contingent upon a new deal for a different solution that was an even larger financial obligation, albeit with delayed payment terms for four months.  In this case, the supplier gets a net increase, and the client gets a net decrease in the calendar year, but gets out of only four months of existing payments and makes a significantly larger expenditure overall.  Not exactly the kind of partnership clients are looking for in these troubled times.

Sometimes, our clients are eager to get things done, and in the process, are trying to find a seemingly good deal so they can move on and focus on other things, but that’s exactly the problem.  The suppliers know this and use this pressure to their advantage.  Unfortunately, even small mistakes like the ones above that are made now, could have far reaching and deep financial consequences for many organizations.

There are a myriad of ways suppliers will lock you in to sub-optimized deals with seemingly innocuous terms and conditions that will come back to haunt you. As we have seen time and time again, these suppliers are some of the world’s most profitable companies on the planet.  They didn’t become that way by being nice or giving away their wares for free.  They became exorbitantly wealthy by:

  • Hiring and training shrewd commercial salespeople
  • Writing obfuscated legal terms and conditions that always work to their advantage
  • Enabling auto-install and other features even for things you don’t own or plan to use
  • Auditing your use of their technology and finding you wildly out of compliance
  • Strong arming you into new deals for stuff you don’t need to avoid audit penalties

Yet these are the same companies that are now going to ‘partner’ with you to ensure your financial stability in both the short and long-term?  All these resources are meant to overwhelm and push companies in a certain direction, and as their profits are measured in the billions, it obviously works.

There are fair deals to be struck and good people working for suppliers that are willing and eager to make them.  But if you are not armed with the right market intelligence and the information you need to tell the difference between a short-term gain and a long-term pain, you could end up being a victim; and your gift horse could end up being a trojan horse.

As you scrutinize your technology supply chain deals – consider the help we can provide to help you blunt these imminent risks to your financial future.

SPECIAL OFFER:  For select clients, we are offering completely complimentary reviews of all your dealings during this time that we are all impacted by COVID-19.  No strings attached.  We will review any supplier proposals and agreements and provide you with a quick assessment with actionable recommendations.  In the event you want to formally engage us, post gratis assessment, to help you achieve the potential savings and benefits, you will receive our highest service priority at your normal contracted rates.

About NET(net)

Founded in 2002, NET(net) is the world’s leading IT Investment Optimization firm, helping clients find, get and keep more economic and strategic value. With over 2,500 clients around the world in nearly all industries and geographies, and with the experience of over 25,000 field engagements with over 250 technology suppliers in XaaS, Cloud, Hardware, Software, Services, Healthcare, Outsourcing, Infrastructure, Telecommunications, and other areas of IT spend, resulting in incremental client captured value in excess of $250 billion since 2002. NET(net) has the expertise you need, the experience you want, and the performance you demand. Contact us today at info@netnetweb.com, visit us online at www.netnetweb.com, or call us at +1-866-2-NET-net to see if we can help you capture more value in your IT investments, agreements, and relationships.

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