How to negotiate a software proposal?

Question

My company (western Europe) needs to outsource a project, and I received an offer from a eastern Europe software company.

The proposal consists of a main part and an optional part. The work is detailed in term of effort/day, roles (software developer, architect etc) and phases (analysis, dev).

The hourly rate per role is given and the final budget is calculate accordingly.

What margin do I have to negotiate the offer and how do I do it?

• I checked around hourly rates for eastern Europe, they look in line, maybe slightly above than average

• The main dev effort is roughly split in 100 day dev, 30 days testing/QA and 10 days management/analyst. Spread over 4 months (80 days). Difficult for me to evaluate. From scratch? maybe realistic. Maybe they will use an off the shelf open source solution and will be few weeks work, I don't know, we don't have that kind of expertise in house.

I could invent some reason and write a polite email and get maybe 10% discount. Should I do that? Should I ask more detail about technical work and ask a re-estimation of effort? Will be unwise to just accept it like it is?

Should I instead focus on understanding deliverables and maybe "asking for more" at the same price?

If anybody can give me suggestions about evaluation criteria and negotiation strategy, thanks

Answer 1

You have no leverage and have already lost your position. Negotiation is about information: an independent estimate of cost and price (best and worst case), mutual objectives, a list of alternative choices and benefits and costs thereof, including other vendor proposals. If you had this and other necessary information, you would have a basis for approaching this vendor with questions, counter proposals, request for BAFO.

As of now you want to negotiate for appearance with no basis. Don't bother. Instead, collect the missing information and increase your knowledge and then you will be able to formulate your basis and position.

Answer 2

If it's the first time reviewing the proposal, there's usually room for negotiation. Having said that, if the price looks about right, you better resort on the following:

• As you mentioned: suggest more deliverables under the same price
• Ask for a reduction on the basis of this being the start of a "big" stream of work if certain conditions are met
• Is there something you could offer them in exchange for more work? For example, advertising that they developed this product for your company after X amount of time? consultancy based on your company's skills, knowledge share, etc.
• If you are able to productise it, it's often wise to go for a partnership for a much cheaper price (pointing it out, although it doesn't looks sensible in your situation)

Finally, I want to mention that it's always good to engage and invest in longer relationships were parties can be mutually benefited if things go right. It makes much easier to negotiate once you build a good relationship with them.