Lab directors and managers facing contract renewals or shopping for new equipment or services naturally want to negotiate the best deal possible. However, most lab leaders—at least at the beginning of their careers—have little or no experience in this realm and leave benefits on the table. Understanding the basics of finance, contracts, and negotiation tactics while being equipped with clinical laboratory expertise and operations knowledge will put you in a good position to make better decisions and negotiate successfully.
Some important points to consider when reviewing contracts and formulating negotiation tactics include: identifying your negotiation style and developing strategies accordingly; being clear and straightforward in communicating your needs to the vendor; and requesting quotes for all purchase/lease/reagent rental options, even if you don’t have the budget for a purchase. The latter will give you an idea of what your reagent cost should be after you’ve fulfilled the vendor's minimum commitment.
I also recommend looking closely at your annual testing and reagent volumes before asking vendors for a quote. If your lab has reached its minimum commitment earlier than agreed in the contract, you have an opening to renegotiate the con-tract reflecting lower reagent costs. In addition, see how the contract spells out responsibilities for instruments’ laboratory information system interface. Most vendors pay for this; ask for it if it is not there already. What warranty length does the vendor propose? Expect a minimum of 1 or 2 years on hardware.
Before signing on the dotted line, double-check the operator training package to see whether the company is offering key operator or regular operator training and negotiate according to your needs. Make sure the vendor offers simulation studies so that you can verify whether the new instrument or system is right for your lab. Carefully consider your service agreement options and choose the one that best fits your lab’s needs. Remember, 24-hour service is not always necessary. In a similar vein, look closely at what the vendor proposes in terms of its resource allocation, which will vary depending on the size of the project. The bigger the project, the more vendor support you should expect.
The good news for many laboratorians is that you are not alone in this process. Your organization’s purchasing department should be your ally and partner in negotiating with the vendor. The purchasing and legal departments also can help decipher the vendor’s terms and conditions statement. Another ally could be any group purchasing organization in which your institution participates, for pricing breaks and other benefits.
When it comes to negotiating your deal, remember that most sales representatives have received extensive training in customer psychology and negotiation. The sales representative is not your golf buddy nor close friend, and can figure out your negotiation style quickly. Your job is to keep neutral, be prepared, and ask the right questions. In so doing, you will set the tone of the contract negotiation.
Making It Win-Win
Both vendors and labs generally approach negotiations with a deal-maker mind set, but I recommend an implementation deal-maker approach, which allows a win-win situation and creates an environment for both sides to work together. After all, you will be married to this company for 5 to 7 years, and a divorce can be nasty and expensive.
One of the key questions to have answered during the negotiation is the total cost of ownership (TCO). TCO is a financial estimate intended to help you determine the direct and indirect costs of lab equipment; it offers a more accurate basis for establishing the value of the overall arrangement. In addition, determine the conversion cost of the equipment under con-sideration. How much money will the vendor give to support validation studies? They usually offer a reagent credit, and the amount offered should cover the cost of reagent as well as the estimated labor for these studies.
Before you ink a deal, check out the vendor as thoroughly as possible. Contact labs comparable to yours that have imple-mented the instrument and ask them about both the vendor and the instrument in question. What has been their performance experience in terms of service calls, recalls, and downtimes? On the flipside of downtimes, does the contract have an uptime guarantee?
Everyone wants the best contract price possible. If the vendor offers a cost reduction feature, ask for specifics about the savings proposed, ensuring that savings are tangible and measurable. Examine the interest rate and contract length. Standard contracts last 5 years, but sometimes 6- to 7-year proposals come with more attractive reagent prices. Your contract also should be clear about which party retains equipment title at contract’s end. Some companies charge a hefty fee to transfer the title.
About 80% of negotiators report believing in a win-win approach, and indeed, it is in labs’ best interest to partner with their vendors so as to avoid costly, time-consuming, and unsatisfactory negotiations. A lab’s overall performance and ability to support quality patient care can be seriously impacted by a poor contract. Be prepared, maintain your negotiation power by asking the right questions, and remember that even if the vendor is the only company offering that test, it needs you as a customer.
Juan David Garcia, MBA, BSMT, manages the clinical laboratory services at New York Presbyterian Weill Cornell Medical Center in New York City, and is the founder and director of HealthCare and Laboratory Advisors. He gratefully acknowledg-es the contribution of his colleague, Pam Sun, in developing this article.