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Time for a contract MOT?

As organisations take stock of their commitments after 12 months of accelerated digital transformation, David Brook tells ManagedIT why it pays to employ the services of an IT sourcing specialist

With the UK vaccination programme in full swing and the lifting of all lockdown restrictions set for June 21, many organisations will already be reassessing their property, IT and infrastructure requirements after 12 months of digital transformation, emergency purchases and successful Work from Home initiatives.

In doing so, it is inevitable they will want to review and possibly renegotiate contracts either because they no longer need the IT involved or because they entered into certain agreements in haste without proper scrutiny. But will they have the expertise to do this satisfactorily?

Possibly not, says David Brook, co-founder of IT sourcing consultancy Turnstone, which provides IT contract MOTs, agile IT sourcing and RFP services to organisations with turnovers in the region of £50 million to £100 million.

“Companies of that size typically have enough industrial strength IT to warrant us coming in to assist. We do sometimes go smaller if it is a growing client. We have quite a lot of activity with private equities and their portfolio companies, because they are growing companies with less experienced management teams that are on a growth trajectory, often dragging old systems and poor processes behind them. But that £100 million mark is our sweetspot,” he says.

Brook claims that by running a well orchestrated market contest, Turnstone can normally deliver hard savings of 30-40%, as well as operational improvements that, in his experience, are often even more highly valued by the C-suite.

“Savings are lovely,” he says. “But the fact that we can actually manage a vendor and keep them on the hook during build and run counts for more with CIOs. If you have a Run Book contract, not one that is looked at by lawyers and then stuffed in a drawer, but one that has a monthly performance score-card element to it that helps you keep the vendor honest, it tends to count for a lot more than cost savings.”

Lightbulb moment
Despite Turnstone’s history of delivering cost savings and operational improvements, Brook says it can be hard to convince clients that they need help with sourcing.

“One of my frustrations is that once we have done some work for a client, they have this lightbulb moment and say ‘This is brilliant. This is the best deal we have ever got’ and give lots of repeat business. But it takes a lot of one-to-one conversations and education and convincing to get engaged.”

One reason for this, he suggests, is that people make the mistake of thinking that because they are intelligent and experienced and have haggled over the price of a house or a car, they are able to negotiate an IT contract.

“IT people are some of the smartest you will find in an organisation. But being commercially experienced and commercially astute are different skill sets, and people confuse the two. We have done hundreds of contract renewals over the years and never found one that has green lights across the board.

“It is quite a scandal really that vendors win every time. Over the years, their lawyers have developed contracts with terms that favour them, and they are very good at making it seem in poor taste to argue. One company recently gave a client of ours a discount, with the caveat that they had to sign within seven days or the deal was off – in other words, not giving them time to do a proper review with us and negotiate the red flags we know are in there. Red flags are things like auto renewals or automatic price increases or lack of clarity over what the service is. That might sound bizarre, but it’s amazing the number of contracts we see where it’s not clear what the service is, let alone what the connected SLAs are, or what the pricing is.”

Red flags
Brook points out that there are about 90 terms in an IT contract, half legal and half the other stuff – the service terms, the pricing in and the commercial terms – that often gets overlooked but which is incredibly important, especially with the shift to an ‘as a service’ procurement model.

“Services need to be clearly defined in plain English, and not just in terms of the technology stack being provided. There should be SLAs attached to them, there should be unit prices attached to them, so you can understand your invoice at month end.”

Another common oversight is having no exit plan, an explicit schedule of who does what, by when and for how much money, in the event that you do leave early.

“We regularly see clients that haven’t done that and when they want to leave the vendor has them over a barrel in terms of what it is going to cost, how long it is going to take etc.. It is good to be explicit about these thing in the pre-nup, for want of a better word,” Brook says.

“Then there’s a whole raft of wonderfully unfair terms, one of which we have coined ‘up quick, down slow’, where a vendor will scale up a service instantly but take six months to scale it down or take no action until renewal.

“They all try it, and I’m guessing just 5% or 10% of clients challenge it. Most just let it slide through because they are technical or, a real favourite of mine, they are busy and there is an implementation deadline looking. ‘I haven’t got time for this contractual admin nonsense and arguing with lawyers. Give us the toys and let us get on and build it.’ That’s very much the mindset and vendors are superb at exploiting it.”

RFPs and agile sourcing
Turnstone works with between 10 and 15 sourcing practitioners, typically CIPS, Chartered Institute of Purchasing and Supply-qualified, with at least 10 years’ experience in IT sourcing. It also provides a direct vendor recommendation service for clients that don’t want to spend time on a formal RFP or agile sourcing.

“We have a partner we can send in to do a simple workshop to listen to what the client wants and then recommend talking to vendor A, B or C. There is no charge for that service. If the client then chooses to engage with a vendor, the partner will put them in on a sales referral deal.”

If there is a need for a more formal sourcing process, then RFPs and agile sourcing are the way to go, which is where Turnstone’s expertise lies.

Brook says that clients are increasingly asking for agile sourcing rather than slower, more formal and bureaucratic RFPs, and that to meet this need Turnstone has spent a great deal of time and effort refining its capabilities in this area.

“We have put a lot of IP investment into creating what we call ‘one-page business scenarios’ that really get to the essence of what the client is after. We present these to the bidders and say ‘You have to present your wares to these scenarios live for us and the client scoring team, in two or three weeks’ time, at which point you will be live-scored and short-listed’. They love that because there is much less prep for them to do and the decision-making process is faster.

“That is our USP with agile sourcing. We’ve got something we think is more pragmatic, faster to market, a bit more flexible but still has a solid backing to make sure that good contracts are done.”

Turnstone’s involvement doesn’t necessarily end with the negotiation and signing of a contract. With bigger outsourcing or managed service arrangements, it will stay on for a transitional period. Or it might spend a day or half a day a month on contract management to keep the supplier’s feet to the flames.

One page business scenarios
One page business scenarios

Contract renegotiation
Another important area for Turnstone where Brook expects to see a great deal of activity over the coming months is in IT contract renegotiation. He says that this is advisable at any time, but is particularly relevant now that organisations are addressing the ramifications of Covid-19.

“Covid is a good trigger to look at contracts again. Some people are a little reticent about doing so and consider it un-English, which amazes me. If things have changed, why wouldn’t you have another look? Vendors expect it. Lots of vendors have been undergoing some form of cost reduction or renegotiation themselves and sometimes there are things in it for them, for example if they have more services to sell or a contract extension is on the table. Those are the kinds of levers we can play with.

“There is always a deal to be done. We have probably done five or six in the last year or so and saved an average of about 20%.”

Brook adds that contract renewals also provide an opportunity for Turnstone to go through Ts & Cs with a fine toothcomb to highlight anything the client might have missed first time around. As an example, he cites the discovery of a clause in the contract of a leading SaaS company that allows it to park customers’ data anywhere in the world.

“Because our client is a secure government service, they were quite alarmed that their data might be residing in Kazakhstan or somewhere else in the world. So, we find operationally meaningful stuff as well.”

As organisations take stock of their commitments after 12 months of accelerated digital transformation, they must ask themselves whether they have the expertise to get the best deal for the future or whether they would be better off employing the services of an IT sourcing specialist like Turnstone.

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