IBM CONTRACT RISK OVERVIEW
IBM's growth strategy is dependent on preserving annual spend levels and deterring attrition of licenses. As a method to support their growth strategy, IBM uses terms and conditions to eliminate the feasibility of switching solutions or reducing annual fees. In this IBM report, we dive into the top IBM contract "Gotchas" used to lock in customers and continually drive cost increases. The IBM contract language that is addressed in this report include:
1. IBM Not-to-Exceeds (NTEs)
A Not-to-Exceed (or NTE) is IBM’s version of renewal caps in their enterprise agreements (ESSO/ELA). Organizations that do not have any NTE caps in place are vulnerable to list price increases on any IBM products in their portfolio. Furthermore, NTEs are honored only if all product maintenance is renewed. This means that if a customer tries to reduce maintenance, they no longer qualify for the NTEs and their products are no longer protected from increases. This section identifies what a competitive NTE looks like based on market standards.
2. IBM Aggregate Capped Program (ACP)
IBM’s Aggregate Capped Program (ACP) calls for a pre-paid pool of funds or credits that can be used to deploy a pre-determined catalog of products within the term of the agreement. If the ACP pool of credits is not used prior to the end of the term, they expire and cannot be used for future purchases. This section outlines the risks associated with IBM's ACP.
3. IBM Audit Rights
IBM’s standard contract language allows them to audit the customer at any time during the ELA term. If the customer is found to be out of compliance on what they deployed versus their contractual entitlements, they will be forced to true-up at list price for the over-deployed products. The true-ups are calculated with two years of back payment to account for lost maintenance fees. This section details how IBM customers can identify and mitigate gaps in compliance.
IBM is one of the most aggressive IT suppliers in the market and has designed their sales and pricing tactics to exploit as much revenue as possible from their customer base. To combat these tactics and drive a successful deal outcome, customers need to create and preserve a positive negotiation position that prepares the business for the inevitable IBM strategy. If you are looking for more information on how to secure best-in-class terms on your next IBM deal, review some of our other resources listed below or reach out to ClearEdge for a tailored IBM Assessment to help plan your strategy and mitigate risk.