Tighter Budgets Are Changing IT Contract Negotiating Process

In the face of tighter budgets, some IT managers are finding a new set of eyes watching over them: the corporate procurement department. CIOs "got a much shorter leash," says James Watson Jr., CEO of technology advisory firm Doculabs.

Insurer USAA in San Antonio instituted a process last year to put all IT contracts through new procurement-led groups. David Garrison, senior VP of corporate services, emphasizes that the CIO can veto any deal the procurement unit strikes. "IT is our customer," Garrison says. "IT has a budget, and they want the right price for a product."

USAA has two groups that negotiate IT contracts: A high-risk group, including procurement and legal specialists, that handles purchases exceeding $500,000, and a second group, including former IT managers with a knack for negotiation, that handles smaller purchases and licensing agreements. Garrison says the strategy has saved the company nearly $100 million this year. "We're putting the right expertise in the right spot," he says.

USAA created a third IT procurement team of accountants and financial analysts who evaluate whether a vendor has the financial strength for the long haul. Why? To spot companies such as MarchFirst, which USAA was working with when the Internet consulting firm declared bankruptcy earlier this year. "We've had some suppliers that have failed us," Garrison says. "We don't want to get into that situation again."