I recently came across a recent edition of Procurement Insight from CGI by Denise Dattomo and Chuks Amajor entitled Incumbent Negotiations: When and Why that reviewed 7 situations where incumbent negotiations may be more attractive than competitive procurement which was quite good. Although comprehensive competitive bidding approaches are typically the right way to go, direct negotiations with incumbents might be the the right choice under certain circumstances. CGI has found that, based on their experience, incumbent negotiations yield an average savings of 9%, and sometimes the savings can be (much) higher. Furthermore the effort, and cost, involved in incumbent negotiations is usually lower. The seven situations that are often appropriate for incumbent negotiations are:
- Urgent need for quick results
An incumbent negotiation can often be accomplished in as little as six weeks.
- Small spend, but high potential ROI
There are often “quick hit” opportunities in categories with lower spend, especially those that are straightforward goods and services.
- Strategic Vendor Relationship
For example, if the vendor is also a client.
- Strong end user preference
An influential end user with a strong preference for an incumbent vendor may refuse to consider switching to a new vendor.
- Significant Market Changes
If a new, alternative, product is introduced by a competitor, and such product is cheaper, the current vendor may be quite willing to offer concessions in negotiations.
- Prohibitive Switching Costs
If the savings generated from a new, more competitive, contract could be outweighed by the cost of switching, renegotiation may be the most attractive option.
- Limited Vendor Pool
If the vendor pool is limited, a competitive bidding event could turn out to be a fruitless endeavor. In such a situation, going directly to an incumbent negotiation might be the best thing to do.