Tips For Negotiating With A Sole Source

PurchTips - Edition # 218 November 30, 2010

By Charles Dominick, SPSM

Do You Dread Negotiating With A Sole Source?

Buyers often dread sole source situations because they think they don't have leverage in the negotiation. But that doesn't have to be the case. Here are some strategies for negotiating more effectively in sole source scenarios:

1. Find out what motivates the vendor and make it win-win. Every vendor has underlying motivations for closing a deal. For example, it may be their end of quarter; they may have a stated goal to grow recurring revenue from license agreements or maintenance; the sales person may need the deal to achieve their quota. If you can find out what makes it attractive for a sales rep to close the deal - and the timing of those motivators - you can leverage that and trade for concessions.
2. Look for small "value adds" to enhance the deal. Once vendors know they are getting a deal in a sole source scenario, they are less likely to negotiate on pure price. But they often will add small things to the deal, which can be of real, tangible value to you. Your requests might include complimentary training hours, extended warranty periods, and extra services. You'll be surprised how often vendors will add these to the deal at no cost.
3. Create tiered risk/rewards scenarios for Service Level Agreements. Vendors often will agree to service and performance levels - and put some skin in the game on the risk side - if they stand to be rewarded with more revenue for exceeding performance expectations. You can create a motivation for the vendor to perform well, and this is a "win" for you.
4. Agree on an objective price adjustment method for the future. Sole source situations can lead to repeated, futile negotiations and unreasonable inflation year after year. Strive to agree in writing that any future price changes will be based on the changes in independent indices or pricing data published by industry organizations or associations. This prevents you from being "beaten up" by the vendor every year.

Sole source negotiations can be challenging, no doubt. But these tips can help you achieve a better deal.

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