Do Not Move into the House without a Contract

Do Not Move into the House without a Contract

by Luke Montoya

My company, as I suspect is the same at many other CAUCUS members’ companies, is often interested in doing a proof of concept or pilot (for the purpose of simplicity, I will refer to both of these terms as “POC” during the remainder of this blog) prior to making a long-term purchase.  I agree with our strategy of often doing a POC because it allows us to try out software (or other product/service) before we make a large investment.  However, if POCs are not handled with well thought out negotiation strategy, I think they can hurt the business.  Here is why: Business/IT people are often eager to start a POC as soon as possible and are willing to agree to begin the POC with a form agreement from the vendor and minimal POC pricing and then figure out the post-POC pricing and terms later.

While I do think there are times when negotiating the post-POC pricing and terms prior to the POC contract being signed is not feasible, and while I do empathize with business/IT people wanting to start a POC fast, I believe the cases should be few and far between where at least the POC-pricing is not negotiated prior to signing the POC agreement.  I have found the following analogy to be helpful to explain why to the business/IT: Would you ever agree to pay a minimal amount to move into a brand new house, expend effort and money to move all your belongings into the house, live in the house for a month, tell the builder how much you love living in the house, and then ask the builder how much the house will cost?  If you did, do you think the builder would ask a higher price (or offer less of a discount off the asking price) as compared to if you had just seen the house once and were still doing showings of other houses?  I think the answers are obvious to these questions and help explain to business/IT people why it is typically not a good idea to start a POC without at least contracted post-POC pricing.  Ideally, it would be great to also negotiate the non-pricing post-POC contract terms (i.e., “legal” and other operational/business post-POC contract terms) prior to signing a POC contract, but that is a more difficult analysis because negotiating all the terms of a production contract can be very time consuming and involve significant outside counsel spend (depending on the situation), but negotiating post-POC pricing should not typically be a difficult or extremely time extensive negotiation process.  Additionally, if the business/IT is concerned that the post-POC pricing is too hard to determine prior to POC because the level of use post-POC is unknown, pricing tiers based on volume is often a great solution to that issue. 

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