How Much Are You Paying Your Technology Vendors Upfront?

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Too much? Some of you are thinking, “I don’t pay vendors a dime upfront!”.  Some of you stopped and thought, “Well, I did that before, but I’d never do it again.”  And, some of you said, “Yeah, what’s the problem with it?”

The problem with paying vendors too much upfront is that you lose leverage when the rubber meets the road. When the vendor tells you that the software you paid millions of dollars for upfront is “working as designed” when you know it’s a defect, what leverage do you have? Unfortunately, if you’ve paid too much upfront for the software, you don’t have many legs to stand on.

Now, don’t get me wrong, scenarios where 20% of the contract value is paid upfront isn’t an issue. Tiered payments throughout the contract as the vendor meets their milestones is a great idea and also isn’t an issue.

I’m talking about all or nothing payments up front or large lump sums paid for services not yet rendered or software not yet delivered.  I’ve heard of Tier 1 technology vendors commanding over $1,000,000 up front before performing technology services on a $3,000,000 contract. Really? A cool million? For what? First class seats? You better hope you’ve got the GSA rates in your contract or you really will be paying for first class seats!

If you have a vendor telling you that they have to have all fees paid upfront or a very large sum paid upfront for services or software, ask the five why’s to get to the center of that tootsie roll pop. I guarantee you’ll find something fishy!

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