CIOs and vendors: How close is too close?

Test the market

The consensus on what constitutes acceptable breathing space in a supplier-client relationship is maintaining an ability to test the market.

Australian Project & Consulting Services service director Craig Dennis says that it's important to set ground rules, particularly when appointing a preferred vendor or supplier.

"You've got to make sure the vendor knows that, any point in time, you can test the market," Dennis says.

"I've seen quite a few examples of suppliers 'buying' their business. They'll drop prices to ridiculous levels to get in the door and then over the next year or two, the customer almost doesn't realise they're paying a premium on the sort of prices they could get in the street.

"You can avoid that by saying upfront, 'We like you guys, we want to work with you for the long haul but you've got to understand because of our procurement policy or probity advice we will be testing the market - maybe not every time but certainly with reasonable regularity, and you need to be commercially savvy about that'.

"[Tell them:], 'We're not necessarily going to take the cheapest price, we're going to take the best value."

While he acknowledges that a preferred vendor is always going to have "some advantage over somebody walking in off the street, if they're not absolutely exclusive - even if there might be some appearance of exclusivity - the risks start to go away."

Kelly agrees: "Essential breathing space for mine is where you do have an opportunity to go to market [and] it's a new piece of work or not related to [work already contracted], you make sure you go to market rather than just go back to that vendor."

Kelly says the key to putting distance in a too-cosy relationship is to "really understand what it is imperative" for the supplier to do - and what can be brought back in-house.

"In most cases if you do that objectively, probably 30 or 40 percent of the stuff they're doing that's taken for granted could either be put to market or done in-house if you bought your IP back."

He warns that this might be difficult if the supplier relationship has been allowed to get too cosy.

"In the major, the initial reaction of the IT professionals in the company is, 'We can't do this, they'll walk'," Kelly says.

"All these things are intertwined. If [the supplier's] got a presence on the floor, they build that mindset - 'We can't afford to [make cuts or move work back in-house], let's not damage these guys' margins too much because they'll walk, and then where are we?'

"It all just grows over time. [But] when you're sitting on a $200 million account and it's a chance to be stripped back to $150 million, [the supplier isn't] going anywhere."

Clear communication

Konijn says that setting boundaries in a relationship is really about communication.

He says there is "nothing wrong with telling a vendor you don't need a call every week" or with any other attempt to set the "intensity [of relationship] you appreciate and value."

A supplier's excitement, he says, could otherwise be "perceived or misinterpreted as being aggressive".

"If that's not appreciated, then just say so," Konijn says.

"Our generic communications advice to clients is don't say what you don't want, just be specific about what you do want."

Dennis notes that if the relationship does get too cosy, an "open and frank discussion with your vendor" could begin a process to recast ties and commit the boundaries to paper.