Negotiating The Final Settlement of a Software Audit

Welcome back. Thank you for continuing along this journey of our software audit video series. And I'm so glad you've made it here because this is probably one of the most important videos in the series, which is negotiating the final settlement with the auditor or the vendor. This is actually where the science, all the stuff that we've talked about up until this point has pretty much been science which is around counting and how we license and things like that turns into the art of the negotiation. And I think that is a key point that we want to make sure that you get in this video that it has now turned from science facts to art negotiation. If you follow along in all the videos up to this point, you'll see that there's been a ton of work that's been done. This work was not done in vain. It was done so that when you get to this point of actually negotiating the settlement, that you have all the information that you require in order to actually be in a position of power to negotiate the best settlement possible with the software vendor. One of the things that I like to point out to customers when they get to this point is that a lot of the settlement, the dollars that they say are owed may not be real. There's a lot of gray area that goes into a software audit. Now, if you've done your work up to this point, you've eliminated as much of that as possible, but you're left with usually something that looks like this. If I've got a 5 million dollar findings, usually what ends up happening is 2 to 3 million of that is actual true up. That's stuff that I owe, that's growth. And we know that. And so again, if you followed in our earlier video, you've pulled that out as that's not audit findings, that is actual, that is actual true up dollars. Now the reason for that, as we discussed in a previous video, is you don't want that to be counted in your 5% or, or whatever the overage clause is in that specific vendor's contract so that that doesn't go against you and in the findings to say that you're offside. What we want to have left are those gray areas, the areas where the auditor either couldn't make an assumption based on the license rules and you disagreed with the way that they were looking at them, or that there's incomplete data that assumptions have been made about or extrapolations have been done against that is incorrect and costing you money. That's where we want to spend our time negotiating with the vendor is on These gray areas and hopefully that's all that we have left. Don't forget, a lot of your contracts allow you to use software throughout the year and only report at the end of the year via true up. So if you've grown throughout the year and an auditor comes in, say eight months into your contract year, you, you're going to have licenses that are required for growth. Those aren't non compliance. That's true ups. And so we need to get those out of the findings so that they're not used in the calculation of non compliance. Now remember, if you follow along with our process that we've outlined here, you sent a letter to the vendor along with the estimated license position with the reasons that you don't agree with some of the numbers that are in there. So what you want to do at this point is have the vendor come to you with an offer to actually settle those points you disagree on. You want them to show you their hand. Now remember, this is a negotiation. So that offer that they gave you may not be the best offer right away. And so this is where you're going to turn into the negotiations. Remember, typically when negotiations happen, if they're sizable for you or the vendor, they, these are done in the boardroom. What do I mean by that? They're done face to face. Get your account team in the room with you and sit down and discuss the areas that you don't agree, what they have said they think is fair, what you think is fair, and get this into your typical negotiation. But let's do this last step face to face. Why do I say face to face? And you may actually want more than just your software rep in the room. You because there are multiple stakeholders at these software vendors that have different objectives and different measurements internally on how they get paid. So you'll want to understand what each of these people or how each of these people are motivated by. If you look at it from a software publisher's perspective, you might have an internal audit compliance team, you have a sales team, you might have solutions specialists selling you different technology stacks, you may have licensing specialists, you may have going to have sales managers and directors. All of those people have different compensation plans internally. And in successful negotiations, you negotiate to their comp plans. So the reason for getting all these people in the room, you know, at least on the phone, if you can't get them in the room, is so that you can understand who has the power. The person that has the power from your software vendor is going to be the person that everybody else seems to be deferring to. Again, why is this important? Because you want to understand that person's role and understand what truly motivates them. A sales rep maybe wants to retire quota. They're going to want to get the most dollars possible. A VP of sales, although they care about quota sometimes, maybe has a metrics around customer satisfaction. So they're going to want to make sure that coming out of this process, you're happy. A licensing person maybe has a role around ensuring compliance. So they're going to want to make sure that the compliance number is is within a certain threshold. So you can see how depending who has the power, you may need to change how you try to negotiate with them, depending on what that person's objectives are. My job, when I work with people in software audits at this point usually becomes the coach. What do I mean by that? So you've now understood who's in control of these negotiations. On the vendor side, you're hopefully starting to get an understanding of what their objectives and their needs are. Now it's all about closing this thing. When it comes to closing it, there's really a few things that you want to make sure. You want to make sure that you stay calm. You want to make sure that your communication is clear, that it's precise and that it's not ambiguous. It's just straight and to the point. A lot of the times I'll tell people at this point in time, you want to be talking 20% of the time and having them talk 80% of the time. If you're talking the majority of the time, you're typically losing in negotiation. You can do this with confidence because you've prepared yourself throughout the way. You've followed all the steps up to this point and everything that you're talking about is fact based. You've got the facts to back up the reasons that you're asking for things. Remember, most of the times when we're negotiating these gray areas with the vendors, they're negotiating based on assumptions. You're negotiating on facts. Facts have more power than assumptions. If you're seeing stalemates in the negotiation, do not be afraid to use levers and escalate. Typically, these software audits don't involve your most senior people. So at this point in time, if there's a stalemate, do not be afraid to bring in your cio, your cfo, whoever it's going to take in order to move this thing along. Remember, the software vendors quite honestly think that they should own the relationship with your cio. So if you've held the CIO out of the negotiation. Bringing them in at the last minute may get you that last little bit that makes a big difference in what you end up paying as a settlement. And don't forget, there's really four levers that you got with these software vendors. You have a lever where you can balance immediate revenue. So in other words, play the timing. So is it quarter end? Can you get the deal done? Because it's their quarter end now, don't let that pressure you. But immediate revenue may be something that they're interested in. Again, depending on the role, might not be immediate revenue, but it might be future revenue and the long ongoing relationship with you as a supplier. You can balance the timing of the payment. Again, quarter ends, year ends, but again, you may need to use those to your advantage. Don't let the vendors use those to run out the clock. So often we see it's fiscal year end, I have to get the deal done, it's going to be the best deal. That's not really the case. We typically don't see any difference in year end deals to any deal done at any other time of the year. Just the amount of time and aggravation it takes to get to the best deal. And finally, we talked about it just briefly, but again, use your relationship to balance it, right? So when it comes to it, play those four. The short term revenue versus future revenue, the timing of the payment, and your overall relationship with the software vendor. I think if you take all of these things into account when it comes to negotiation, you will be in the driver's seat of negotiating a settlement. But I honestly believe that it's not just a single step like the negotiation that's going to make you win. It's following this entire process in order to make sure that you win in the negotiation. Because you put yourself in the driver's seat by having all the information and data you need to accurately defend yourself through a software audit. And one last point. I'm assuming you've won your negotiations. Congratulations. You're going to want to get a closeout letter on or an indemnification from the software vendor so that everything that has happened in this audit and what you've done in the settlement is documented and becomes part of your contracts in the future. So there's no questions that can be asked if they come back two or three years from now. I know negotiations can be intense if you don't do this. If you're an IT person, for instance, that doesn't negotiate every day, it can be tough and it can be stressful. I hope you found this video helpful, though, and to make that process a lot smoother in the Future. Mike Austin, CEO of Metrix Data360 Congratulations for making it through our Software audit video series. Industry analysts say that 2/3 of you will be audited this year. Audits are aggravating and they are a time waster.