Angela Chaggar, senior IT procurement manager at law firm Clifford Chance, has shared her top tips for successful tech buying.
Speaking at eWorld Procurement and Supply, Chaggar described how to choose between software agreements, what to consider when negotiating contract terms, and pitfalls to avoid.
1. Choosing the type of IT contract
Chaggar said the most popular software licence agreements were “perpetual licence – the traditional model – where you're buying your licence up front and then paying a percentage for software support, normally around 20% of the licence costs, and the Software-as-a-service [SaaS] model”.
Chaggar added: “Firstly, you need to understand what the trends are in the marketplace and your software strategy.”
2. Negotiating costs
It’s important to consider the costs involved in different contract agreements, benchmark prices against other software providers, and seek third-party advice if needed.
Chaggar said: “Typically, licence costs for perpetual licences are three to five times more than SaaS costs, but with perpetual licence you only pay for a one-time licence cost and the annual maintenance...and pay for your own infrastructure costs, hardware upgrades, and security.
“However, with SaaS, the supplier would host all of the infrastructure and annual maintenance at no additional cost because that'll be baked into your software agreement.
“For SaaS contracts, updates are managed by the supplier. Consider this when negotiating so that you can have some control over the frequency of them because that can cause disruption to your users.”
She recommended negotiating a fixed price on a long-term basis, as suppliers tend to add on around a 3-5% increase year-on-year.
3. Ensure flexible terms
Chaggar recommended including flexible terms in the contract, especially around company size, devices included, and payments.
“If the licencing is based on employee count, make sure that you have the opportunity to flex up or down and have a face count within your agreement, in case you acquire another company.”
Also think about when you want to start paying for services (ie when a project goes live), and getting a grace period from the supplier with regard to late fees.
4. Due diligence and data security
Have you completed all your due diligence on suppliers? Chaggar pinpointed areas to cover, including the financial stability of the software provider, any concerns, and where they’re rated in the marketplace.
She warned that you need to question the security of the software. "If you're looking to procure SaaS licences using the supplier's infrastructure, consider where their data centres are, how secure they are, who'll have access, and what provisions are in place to provide assurances.”
Be aware of any clauses giving suppliers the right to audit you, and ensure there’s advance notice, she added.
5. Have an exit strategy
Chaggar said you should include an exit strategy in the contract to reduce risks further down the line.
“If you are new to the supplier and after a year or two you decide you want to part ways, you should have some kind of clause in your contract that suggests that the supplier would need to help you transition to the new supplier.”
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