David Canton (London, ON., Lawyer)
When negotiating an agreement for the purchase of goods or services, some buyers try to get the vendor down to the lowest possible price. That may not be the best approach, however, because it can affect the quality of services you receive and may end up costing more.
Sometimes the saying “you get what you pay for” is true. Often getting a reasonable price is better than getting the lowest price.
This is especially true for anything requiring ongoing work. It applies to virtually any service, from office cleaning to equipment repair. Let’s use a major software installation as an example.
You enter into an agreement with a vendor to purchase a new system that might include various pieces of software, hardware, training, installation and implementation, project management and ongoing maintenance.
If you grind the price down so far that it leaves little or no margin for the vendor, the vendor will be inclined to spend as little time as possible performing the services.
To make a profit, the vendor naturally will try to limit his costs by cutting corners. He may not be attentive to project details or buyer needs. He also will be more likely to provide the bare minimum services required by the deal and strictly construe its obligations in the agreement. The vendor will be less inclined to do extra work that comes up throughout the project without insisting on a further fee.
For example, training may be cut short, not enough attention might be paid to managing the project, and response times for service might be slow. You may end up doing things the vendor perhaps should have done. The implementation may take longer and have more frustrations than it should. In the end, all these things could cost you more time, frustration — and money.
It essentially becomes difficult to motivate the vendor, which will want to do only the minimum necessary. While having a clear, well-drafted agreement setting out the vendor’s obligations is important, no agreement will help if the vendor is not motivated to perform.
It is often said that an effective negotiation is one in which neither party is 100-per-cent satisfied with the result. That may sound odd, but it is far better for each party to feel it’s getting some value out of the arrangement, including the vendor feeling it will make a fair profit.
On the flip side, if you as a vendor negotiating a sale feel you’re getting badly beaten up over price and don’t like where the deal may be headed, it is sometimes better to end the negotiation than to get into a position where there is no profit in the deal. The natural inclination to do the bare minimum possible, and the lack of motivation may lead to substandard work and damage your reputation.