Let’s say it’s budget planning time for your customer.  Your customer wants to include in her budget a funding request for the following year which involves hardware, software, implementation, services, consulting, training, and first-year maintenance*.  She comes to you for advice…  What to do?  If you’re lucky, you might be able to provide the estimate yourself just based on your past experience and dealings.  Or you could look at a price-benchmarking or resource service like Gartner or Forrester (assuming you have access, which you should).  You could write an RFI, assuming you had the time and your customer had the appetite.  Your customer likely just wants to get the budget number without a lot of effort, so RFIs are usually unpopular.  That leaves another option, which typically makes the hair on a procurement pro's neck stand up: contacting a vendor directly for a budget planning estimate.

Why do procurement pros get antsy with this option?  Well, for one, it could tip your hand to the vendor—the vendor now knows that you’re going to have a procurement next year.  Another problem is that the vendor is in control of the “budget planning” number that your customer is going to get.  Potentially worse, it gives the vendor an opportunity to “talk” with your customer to “understand” the requirements (which basically means doing an end run around procurement).  These are all legitimate fears for a procurement pro.

One solution I’ve seen is draconian.  That’s where the vendor that provides the budget planning number is cut out of the future RFP or procurement.  Not only do I think that’s not fair (if you tell the vendor in advance) and is unethical (if you don’t tell the vendor in advance), it could be that particular vendor had the best solution, the best value, and the best price.  You’d be missing out…

So how to use a vendor for budget planning and not give up the farm?  Just like anything else in procurement, involve your customer!  In this case, I would explain to my customer what the downsides are, particularly that the vendor is going to try and schmooze her (and use every other vendor ploy, like the “Getting to Know You” ploy that I describe in my negotiation handbook).  I would ask my customer to include me on any calls or meetings with the vendor and I would caution her to refrain from giving the vendor too much information, like project criticality, payback periods, deadlines, project org charts, and the like.  The vendor doesn’t really need that sort of information to provide a budget planning estimate.  I would also have a discussion with the vendor so that the sales rep understands that if he does something untoward, like cutting me as the procurement pro out of the back-and-forth, that it could jeopardize the vendor from winning the deal.

Don’t be worried that the vendor knows what your budget number is.  Just because the vendor gave you a budget planning estimate doesn’t mean that’s what was actually budgeted.  Budget plans get cut all of the time, and vendors understand that.  If you do decide to begin negotiations with the vendor that provided the budget planning estimate, the vendor won't be surprised (even though the sales rep may act that way) that your negotiations begin at a price-point less than the budget planning estimate.  At the same time, remember that the vendor’s numbers are likely padded (which is OK given the nature of your likely vague request), so that means some money should almost automatically come off the top (assuming your customer didn’t make a bunch of add-ons to the deal).  I would also ask the vendor for a number of different pricing options.  This tactic helps to mask exactly what will be budgeted and subsequently procured.

When it comes to timing, which a vendor can very effectively use against you (see the “Wait!” and “Hurry Up!” vendor timing ploys in my book), you should advise the vendor that the procurement may not even be made in the subsequent budget year.  The project could be cut or postponed to another budget year.

Just in case you do decide to go with that vendor, ensure that the pricing the sales rep gave you is set for a reasonable period of time to allow you to do the procurement without any price “surprises.”  This may be legitimately difficult for the vendor to do given the complexity of the procurement, but at least ask.

One last reason procurement pros don’t like asking vendors for budget planning estimates: the sales rep will pester you from that point on by “just checking with you every now and then.”  Every now and then could end up being weekly.  Just be upfront with the vendor—no reason to be coy—and tell the sales rep that you don’t want to hear from him and that you’ll call him when you need something.  If the sales rep still contacts you after that, don’t feel bad about ignoring the phone calls or e-mails.

To avoid a number of issues that I've raised above, get the budget planning estimate from your vendor-of-choice and then go through an RFP process in the next budget year.  Competition is the best negotiation tool!

*By the way, why are you agreeing to pay first-year maintenance!?  That should be a freebie!