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• Results of meetings with vendor references.
• Professionalism.
• Vendor stability.
• Vendor financials.
• Vendor staff to be assigned to project.
• Scope of vendor responses (not too narrow or broad).
• Willingness to compromise.
• Willingness to negotiate.
Vendor Selection
As the saying goes, let the buyer beware. Initially, everything might look great, but there is a series of
danger points to be aware of. First, review the vendor‟s financials. If it is a public company, then the
financials are readily available. However, if the company is private, you must obtain them from the
vendor itself. Many will resist supplying their financials, but that is a red flag. In today‟s day and age,
transparency is expected.
Is the company well funded? Look for negative working capital. Is the company dependent on
progress payments from its customers in order to survive? Examine its sources of funds. Is the
company generating positive cash from operations, or is it dependent on borrowings?
Have shareholder class action lawsuits been filed against the firm, or has the Securities and
Exchange Commission (SEC) initiated an investigation into the firm? In the late 1990s and early
2000s, a few very large software firms were the target of both class action shareholder lawsuits and
SEC investigations, resulting in significant fines, settlements, and, in at least one case, imprisonment
of some of its officers. Such action would indicate stock price manipulation through possible financial
fraud. In early 2009, Satyam, a major outsourcing company in India, confessed to falsifying its
financials. It overstated its cash by $1 billion, its revenues by 20%, and its profits by 90%. This was a
company that was audited by one of the major U.S. accounting firms and was listed on the New York
Stock Exchange (NYSE). Its customers included the U.S. government, General Electric, Nestle, and
Cisco.
Has the company undergone a major restructuring, or have there been significant resignations at the
executive level? During an economic boom, a number of sins are obscured by the success of the times,
but during a recession, internal problems become more apparent. Companies must be aware that in
tough economic times their vendors could be in jeopardy and the success of their project or outsourced
service could be in peril.
Beware of bargain prices. They could indicate a company is willing to buy its way into the
marketplace, but they could also be a signal of a company in distress. In either case, proceed carefully.
Companies that lowball a quote could merely be planning price increases later on in the relationship.
A company that wants to enter the market can be an interesting play. However, the outsourcer
company must decide if it is comfortable being a guinea pig or a training ground for a vendor that
wants to gain experience in the marketplace. Does it want to bear the risk in return for potentially
substantial savings?