The “L Word”

By Thomas J. Hall, J.D.


I understand that, in pop culture, the “L word” refers to “love”. I thought it meant "leverage". After all, aside from information, leverage is arguably the most important component of an IT negotiation.

Consider: A glitch in the payroll systems means that members of top management are not getting paid. Seeing an opportunity, you swing into action.

You have information, but not much. You know what is wrong, but not why - you know the symptom but not the cause.

You have leverage, particularly over the executives who must approve the project. But it is not unlimited leverage. Profligate spending may well be frowned upon - once the problem is solved and the execs are once again getting paid.

Regarding the vendors, your lack of information is a handicap.

As for leverage, it arises mainly from the many vendors competing for your money. Remember that: there are lots of vendors with lots of solutions, but your pot of money is unique; only you can hand it over. Now let’s examine some ways in which leverage can be exercised, or lost:

Your boss says, “Get vendor Larry on this ASAP. If the CEO doesn't get paid we can all update our resumes.”

You have just lost control of the situation. Your fate is in Larry's hands. Your boss has prevented you from making any meaningful effort to find the best vendor, or the best price.

In addition, your boss has essentially said that this project has an unlimited budget. Whether the CEO will appreciate that approach to project management, once he starts getting paid again, is an open question.

“We need your best resources here yesterday. We'll pay you 50% now and 50% in two weeks.”

Look closely at that language. Is there anything that guarantees that you will actually see the vendor's best resources?

After the first two weeks, vendor will have been paid in full. What leverage do you have to keep the project staff on task, and turning out quality work?

“I don't care what it takes; just fix it.”

Again, an unlimited budget might buy an appropriate solution, but it might not.
Just what does “fix it” mean? A quick patch that will work so long as the system is only run at one quarter capacity, and is never updated? Or is it a careful root-cause analysis to find the flaw and a systematic effort to correct it? It is too late to negotiate these points after the work has begun, and the meter has started running.

“We will pay you X to perform a system analysis and recommend a solution. Then we'll put the problem out to bid.”

You have leverage with a capital “L”. You have defined the scope of the initial project, you have set the price for that initial project, and you've left the door open to other competitors for the major part of the work.

“We will pay you X to start, Y when you successfully complete each milepost and Z when the product passes acceptance testing.”

It is sometimes said that all leverage is lost when the contract is awarded. That is not necessarily so. If you insist that the contract be signed before the vendor begins work, it remains possible for you to shift to someone else. Conserving leverage in this manner can avoid some of the less attractive behaviors vendors can display when they believe they have no competition.

Note also that, with this language, you would retain a significant amount of leverage throughout the term of the project: to be paid, vendor must complete assigned tasks, and complete them successfully. Simply putting in X hours, or waiting for Y date will not trigger a payment. In fairness to the vendor, though, the definition of “successful completion” must be as clear and as objective as possible. Few vendors will enter into this sort of an agreement if the definition is so vague that customer can escape paying by coming up with one pretext or another.

Award the contract prematurely and you lose leverage - and money. Without the spur of competition, vendor has no incentive to give you his best solution, or his best price. Note the potential double whammy - five star prices for less than five star services.

If you make full payment before the project is finished - before the problem is solved to your satisfaction - you also lose leverage. Once the vendor has been paid, he may quickly lose interest in the project. After all, there is always another project to be bid and more money to be made. The converse also holds risks. Make it too hard for the vendor to receive his money and he may give the project minimal attention, or abandon it altogether. You will have incurred minimal expense, but your execs are still not being paid.

Consider this method of exercising leverage from the very beginning of every project:

● Include your standard contract with every RFP
● Advise bidders that use of that standard is part of the acceptance process
● Weed out those bidders who proposed changes you deem unduly burdensome or unreasonable.

Remember, it's your money and you get to decide where it gets spent.

Welcome to one of the most fascinating balancing acts in business - get it right and your company rolls along without a hitch, and management sees you as a cost center of (possibly debatable) value. Get it wrong and the company stops and you get the blame.

Just remember the negotiator's mantra:

If you give a man a fish, you feed him for a day.
If you teach him to fish, you lose your leverage.

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