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A multinational financial institution was faced with the dilemma of supplier pressure to act on an early renewal of an existing multi-year agreement with a replacement agreement that the supplier claimed was best in class for that specific quarter only. The organization needed to assess and analyze the following in a very short time frame:
Was this a leading edge proposal they were receiving from this supplier?
Was the financial proposal aggressive enough to justify an early renewal at this time?
Were the terms and conditions best in class and if not, how could they be improved upon?
Were the prior terms and conditions from acquired vendors more or less advantageous than those offered in the current proposal?
Working with Cicala the client was able to quickly determine that:
The proposal and licensing structure received was leading edge for this supplier at that point in time. However, the contract was not clear as to how the new liensing model would operate specifically and thus required major refinements to be truly best-in-class
Although the financial proposal was aggressive, several million dollars below the current proposal was probably the point at which an early renewal was justified.
Terms and conditions in current agreements were more favorable than those presented in the proposed contract and thus major revisions to the currently proposed terms and conditions would be required.
Inventory discrepancies highlighted by Cicala & Associates processes during the engagement needed to be reconciled in order to assess the full financial and contractual ramifications of the proposed renewal.
Future changes in licensing policies by competing suppliers in the space dictated that the client needed to consider carefully the specific timing of the agreement.
Conclusion: Because the client felt that there was inadequate time available to make the changes that would justify the renewal, the client decided not to renew at this time.
As a result of new processing requirements, a financial organization had a requirement to renew a multiyear agreement prior to its expiration. The department wanted to use additional products from the supplier as a standard in their environment going forward. Costs for the additional products were prohibiting the facilitation of the standard. Therefore, the department was considering using an alternative supplier's product. Both the supplier and the department were extremely interested in completing an agreement to renew the current products and procure the new products by a specific date.
The client needed to determine if:
The current proposal and contract were the best price and terms and conditions available;
The financials on the current and new products delivered maximum value; and
The new contract reflected the best in class terms and conditions and provided protection for the client in the event of changes in the supplier's pricing activities over the next 3-5 years.
With Cicala & Associates assistance the client:
Thoroughly reconciled inventory name discrepancies which were preventing an accurate assessment of the financial proposals from the supplier (including those that existed from companies acquired by the supplier);
Reviewed the viability of the current financial proposal for existing and new products against a best-in-class status in the marketplace;
Reviewed and prioritized terms and conditions reflecting current and future client needs as well as future marketplace changes; and,
Managed both internal client expectations and the supplier as the procurement/renewal process progressed .
Conclusion: The client's agreement with the supplier was finalized by the September 30 deadline. The client reduced its original exposure by over $1 million dollars as a result of the inventory reconciliation and associated financial analysis. The supplier provided for all the department's critical contract terms and conditions. Additional products were acquired from the supplier and established as standards. Both the supplier and the department assessed this as a "win/win" relationship going forward.
A division of a large financial organization had a requirement for software to Internet enabled internal applications for its customers. This division had only worked with the supplier through third parties in the past. The supplier was working with the IT staff and pushing them hard to close business by the end of its quarter through a third party. The CIO brought in the procurement department who felt that the supplier's proposal contained very restrictive terms and forced them to buy all the licenses upfront. They also questioned the level of the proposed discount. The CIO wanted independent verification that :
The discount level offered was consistent with that obtained by other customers for this size deal;
The contract reflected best in class terms and conditions and provided adequate flexibility if the requirements changed in future;
The deal provided price protection for additional purchases.
After the engagement the client:
Confirmed its suspicion that the supplier's deal was based on the client's budget figure, rather than its license requirements;
Decided the purchase should be delayed until the next quarter to allow for a thorough analysis of the deal;
Concluded the deal at the end of the following quarter to maximize its leverage - the resulting deal was 33 1/3% less that that originally proposed;
Purchased directly from the supplier and obtained more favorable terms and conditions, including transferability of licenses if requirements changed;
Obtained price/discount protection on licenses and maintenance for multiple years.
Conclusion: The client obtained a more favorable deal by controlling the timing of the negotiations and using the information provided by Cicala on best practices for dealing with this supplier. It reduced its original exposure by over $1 million dollars and got more favorable terms. The client felt that it had obtained a deal that could allow it to move forward with the level of flexibility required in a potentially changing environment.
A for-profit federal government agency called on Cicala & Associates to complete a large budget and forecasting exercise in a very short period of time. The client not only required that the projection be done based on current software spending, but also that the projections be tied to the current contractual agreements. In addition, the agency wanted a detailed assessment, broken out by product, of where they might have spikes in their spending based on coupling their high-end computers and processing for their customers..
Cicala was also asked to price the projections based on a range of capacity growth projections and specific CPU models and growth patterns. This engagement was highly intensified and customized. Cicala set to work spending an average of 14 to 16 hours per day for an abbreviated period of time in order to have the projections ready for the management deadline.
Hundreds of agreements were reviewed and contract briefs were written. Projections were done on a product-by-product basis and split by cost per unit (in this case MIP) and total projected per product, per year. Sysplex and outsourcing spikes in spending were detailed on a product-by-product basis. Cicala presented the projection scenario based on the growth and CPU plan supplied originally to Cicala by the buyer.
Conclusion: With the new concept of user defined capacity and business metric software agreements on the horizon in the high-end server environment, this exercise was invaluable in preparing this buyer to think of each and every software activity from a capacity planning perspective. It also has built a tremendous awareness on the part of the former hardware capacity planners of their contribution to the future of software capacity planning and the related licensing fees.
A large telecommunications company had been given indication from a major software supplier that the licensing model for that supplier was undergoing a major change. In anticipation of a renewal agreement with the supplier, the telco wanted an industry opinion of the viability of the supplier's licensing direction as stated and an assessment of how it would effect a current proposal for renewal received from that supplier. The telco also wanted a financial assessment of the current proposal and several contract terms that were in dispute.
After engaging Cicala & Associates assistance, the telecommunications company:
Did not renew the current agreement for the December 31st quarter end date.
Reduced the value assessment of the proposal by approximately $7 million dollars.
As a direct result of insight into potential market conditions over the next 12-18 months, the buyer reappraised its strategy of entering multi year renewals with the suppliers versus a year to year approach..
Conclusion: The buyer is satisfied as a result of the effort that they now have several alternative approaches to going forward with this supplier relationship that can be adjusted based on any significant changes in the marketplace or the supplier's licensing policies and prices. In addition, contract liability strategy was developed and potential financial exposure in excess of $7 million dollars was avoided.
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