Effective Negotiations When You Don’t Have Any Competition

Effective Negotiations When You Don’t Have Any Competition

Tony:

Hello, today is Wednesday, June 25th, 2025.  I’m Tony Mangino from TC2 and this is Staying Connected. 

We spend a lot of time on Staying Connected talking about running RFPs and best practices for competing your business.  But inevitably many negotiations that we support for our clients are not part of a competitive process and are simply a negotiation with a single vendor.  And more often than not that vendor is fully aware that it’s not facing any true competition for the services and products under negotiation.

So, on today’s podcast I’m joined by Ben Fox, one of TC2’s Managing Directors, to discuss tactics and approaches for sole source negotiations, which, Ben, are of course a very different proposition from negotiations with vendors that know they are competing for your business.

Ben:

Hi Tony and yes – it is a very different negotiation.  And actually sole-source negotiations are considerably more common than having multiple vendors all bidding for your business.  For instance, negotiating with an existing supplier for changes to a contract or to renew or extend an existing contract when a competitive procurement doesn’t make sense or there simply isn’t an appetite for an RFP.  Or negotiating with a vendor that provides products and services that it’s not practical or financially viable to change.  There are lots of good examples of that.  Wireless services – typically companies shy away from making their users switch from one cellular provider to another.  Cloud services – switching workloads between CSPs to get a couple of extra discount points is a very challenging proposition for IT departments.  And maintenance and support for embedded technologies is a challenging area to introduce competition – we’ve been talking about Cisco a lot recently – if your network is chock full of Cisco hardware and software, you can’t just replace that overnight – so you’re inevitably negotiating with Cisco.  And Microsoft 365 of course is another good example – moving to a new set of productivity tools is not something that many companies are prepared to contemplate. 

Tony:

Sole source negotiations with software providers for which there is no easy alternative seem to be particularly challenging.

Ben:

Definitely – there is a long list of software vendors that have difficult and even notorious reputations in terms of presenting price hikes in renewal negotiations and being incredibly difficult to deal with.  And there is no silver bullet to deal with that, or indeed any other vendor that is taking advantage of having a captive customer.

But there are absolutely some best practices to follow for such negotiations.  And the first one is simply preparing correctly for the negotiation.  For instance, making sure you understand all the details of the services that you’re negotiating for.  It’s very easy in a sole source negotiation to simply ask for a renewal proposal without really understanding details of the services and products that you are negotiating for.  And that’s a mistake – mastering the details is really the first step in getting the upper hand in the negotiation. 

Another really important preparatory activity is to make sure you comprehensively understand your current contract position.  Do you have specific commitments for the services you’re negotiating for? Have you satisfied those commitments?  Do you have built in contract renewal rights?  What happens when your contract expires?  Does it automatically renew?  Do you have a transition assistance period.  All of these items are really important inputs to developing a strategy for the negotiation.

Tony:

I think the other crucial input for a sole source negotiation is comprehensively understanding the total relationship with the vendor.

Ben:

Great point.  Relationships with large IT vendors are very often complex and multifaceted, spanning multiple contracts, stakeholders and even budgets.  So, making sure that you are armed with a full picture of the spend and relationship your company has with a vendor is crucial.  Especially if the focus of your negotiation is only one of many products and services that the vendor provides.  Knowing the whole picture will give you lots of other spend to leverage in your negotiation, especially if some of those other products don’t have the same lock-in that you’re faced with.

To be honest Tony, a lot of this is simply getting the basics right.  But, unlike in a competitive procurement where the process is by its very nature extremely formal and structured, I think in a sole source negotiation it’s very easy to fall into the trap of jumping right in and not preparing properly, almost not treating it like a formal negotiation.  And that’s a big mistake really.

Tony:

I agree with that.  I think one of the areas it’s easy to fall short on in a sole-source negotiation is simply maintaining a good written record of all discussions and communications.

Ben:

Completely agree, and I think we’ve all made that mistake.  With a competitive procurement rigorous written documentation of everything is pretty much the default.  But too often with sole source negotiations that don’t feel as formal, it can be easy to fall back on verbal discussions.  But of course, it’s incredibly important to maintain written records of the negotiations, especially supplier offers and clarifications of supplier offers.  In a sole-source negotiation it’s even harder to correct any misunderstandings later in the process than it is in a competitive procurement, so using written communications to eliminate misunderstandings and eliminate gaps is arguably even more important in a sole source negotiation.  And I often find that the mere act of and discipline required to document the agreed concepts and clarifications in writing, actually forces you to make sure everything is extremely clear, and often exposes disagreements or misunderstandings that would not be revealed in a verbal discussion.

Tony:

That’s a great point Ben.  I would also say that the discipline of written communications should be taken from the very start of the negotiation.

Ben:

Absolutely – start like you mean to go on right!  And I do think that many sole source negotiations start off on the wrong foot when the customer just asks in an ad hoc meeting or weekly catch-up for the vendor to provide a renewal proposal, or provide a proposal for a very vaguely defined new service. 

The far better approach is to be much more precise and thoughtful in your request to the vendor.  For instance, documenting the basis on which you’re prepared to do business (rather than letting the vendor open the negotiations with its terms).  For example, tell the vendor how long a renewal you’re seeking.  Identify any pain points with the existing products and services that you expect the proposal to address.  If relevant, tell them what spend commitment you expect the proposal to be based on.  Tell the vendor when you expect them to provide the proposal by.  And capture all of that in writing and send it to the vendor to formally solicit the proposal.  That provides a very solid platform for the negotiations to follow, and the formal request is also very helpful for the vendor to circulate internally.

Tony:

In my experience that formal approach to initiating the negotiation really helps to put the customer, not the vendor, in the driving seat for the negotiation.

Ben:

That’s right.  And the other benefit is that again, the act of having to put down in writing the terms on which you’re prepared to deal, really forces you to think carefully about your strategy for the negotiation and how you are going to position it with the vendor.

Tony:

And when you’re sole sourcing, a negotiation strategy is more important than ever.

Ben:

Exactly.  Carefully considering what wider relationship you have with the vendor, over and above the products and services that are included in your negotiation.  Working to present the negotiation as a platform for future revenue growth, which is one of the attributes that vendors are looking for.  Are there some services in the mix that are less “sticky”, that it is more realistic to use as leverage over the services where you’re essentially stuck with the vendor.  Developing a narrative for the implications of an unsatisfactory proposal for the vendor – damage to the vendor’s relationship with your company; less likelihood for the vendor to benefit from future growth; motivation to competitively source the services in the future. 

Tony:

Great advice Ben.  The other area that I think it’s important to think through as part of the negotiation strategy is the likely tactics that the vendor may use.

Ben:

Very much so.  And of course, having some thoughts on how to counter the tactics.  We’ve already talked about the general issue of a vendor’s starting point for the negotiation being a price increase, but vendors will also often seek to sign you up to ever longer contract terms, higher and new commitments and lock-in and other commercial constraints.  They may also introduce “standard new contract terms” and other onerous conditions very late in the discussions.  And we also see vendors conditioning offers on removing commercial terms that the supplier dislikes.

You can’t necessarily defend against all of those things, but the strategy that we talked about of starting the negotiation with a written statement of the basis on which you’re prepared to do business, so including preserving the existing contract terms, the renewal duration, the commitment you’re prepared to provide etc., absolutely helps to avoid such problems, and gives you control in the negotiation, not the supplier.

Tony:

Another big problem of course is delay…delay…delay.

Ben:

Ugh…  Yes.  it’s really quite extraordinary how different vendor’s responsiveness levels are in competitive sourcing processes vs sole sourcing.  It regularly takes vendors longer to provide a contract extension proposal, than it would take them to respond to a full RFP, which is of course ridiculous.  And delay tactics are some of the most difficult to counter because the vendor just runs the clock down and it can be so easy to be backed into having no choice but to accept a sub-par proposal. 

I think the best tactic to deal with this is to simply be relentless in keeping the pressure on the vendor.  Make sure you have a very regular cadence of update calls with the vendor.  Seek incremental updates rather than waiting ages for every little detail.  Make sure commitments to timelines are documented in writing.  And escalate when needed.  Vendors not meeting timelines is one of the easiest issues to escalate – you don’t need to brief executive management on any complicated deal negotiation points, you just need to document the absurd time it is taking for the vendor to provide a proposal.  And it’s very easy for your management to call the vendor out on it.

Tony:

You said earlier that there really is no silver bullet for a successful sole source negotiation, but is there a particular strategy or tactic that you find to be particularly effective?

Ben:

Well, I think everything we’ve talked about in terms of tackling the sole source negotiation as a formal process, not simply ad hoc discussions, documenting everything in writing and simply following a rigorous process, all makes a huge difference. 

But another approach that can be very effective is simply to make it very clear to the vendor that you are not happy.  Sales people are trained to want happy customers, and so get truly uncomfortable and twitchy if you make it very clear that their woeful proposal is making you, and your stakeholders and your management, unhappy.  It sounds rather trite and even a bit pathetic, but sales people know that happy customers buy more, and unhappy customers buy less. 

Tony:

Thanks Ben – this has been a good discussion.  To our listeners, if you would like to learn more about strategies for sole source negotiations, or if you’d like to discuss other technology strategy, sourcing and cost reduction needs with Ben or me, or any of our LB3 and TC2 colleagues, please give us a call or shoot us an email. You can also stay current by subscribing to Staying Connected, checking out our websites, and following us on LinkedIn.