RFP vs. Direct Negotiation for SAP Contracts: Pros and Cons
SAP’s dominant position in the enterprise software market often leaves procurement leaders facing a dilemma: should you run a full Request for Proposal (RFP) to get competitive bids, or negotiate directly with SAP as a sole source?
In a typical IT procurement, an RFP helps drive competition and secure the best value for the organization. However, with SAP, a vendor many companies consider irreplaceable, the usual rules may not apply.
On one hand, a formal RFP process can create leverage. Inviting alternative vendors to bid (such as Oracle, Microsoft Dynamics, or Workday) might pressure SAP to offer better discounts or terms. Read our complete guide, SAP Procurement & Vendor Management Strategies.
On the other hand, a direct negotiation with SAP can be faster and more pragmatic, especially if switching away from SAP is unlikely to occur. Direct talks can save time, but they may leave money on the table if you don’t push hard enough.
This article serves as a practical guide for procurement professionals considering these options.
We’ll explore when a competitive RFP makes sense, when a one-on-one negotiation is more effective, and how to effectively combine these tactics.
The goal is to help you choose the approach that maximizes your leverage – and ultimately get the best deal – on your SAP contracts.
When an RFP Makes Sense
In many enterprise IT procurements, issuing a formal RFP is the default strategy to ensure competitive pricing. Even with SAP’s dominant footprint, there are situations where a competitive RFP absolutely makes sense for an SAP contract.
Consider an RFP approach in scenarios like these:
- Viable alternatives exist: If credible rival platforms (such as Oracle Cloud ERP, Microsoft Dynamics 365, or Workday) could fulfill your requirements, an RFP can draw out genuine competition. Having multiple vendors in the mix forces SAP to compete rather than assume it’s the only option.
- Willingness to switch: Your company is truly open to switching providers. If leadership has signaled that they’d seriously consider leaving SAP for a better deal or functionality elsewhere, then an RFP isn’t just theater – it’s a real market test.
- Competitive services environment: Perhaps the software choice is already SAP, but you’re selecting among implementation partners or service providers. Here, RFPs are standard. For example, you might solicit bids from several systems integrators for an SAP deployment. Competition among service vendors (even if SAP software is a given) can drive down rates and improve quality.
When these conditions are met, a well-run RFP can provide significant advantages.
Pros of running an RFP:
- Creates strong competitive tension. Vendors know they’re pitted against others, which typically leads to more aggressive discounts and concessions.
- Allows transparent, side-by-side comparison of offers. You’ll receive structured proposals that can be evaluated on an apples-to-apples basis, bringing clarity to cost and value differences.
- Often forces SAP to sharpen its pencil. Facing the prospect of losing the business, SAP’s team is more likely to come back with a better price or throw in extras to sweeten the deal.
Risks and downsides:
- It’s time-consuming and resource-intensive. A full RFP process – from drafting requirements to reviewing lengthy proposals and holding vendor meetings – can take months and lots of employee effort.
- If SAP suspects the RFP is a bluff, they may not engage earnestly. For instance, if it’s obvious your company won’t actually choose Oracle or another competitor, SAP might offer only a token discount, figuring the “competition” isn’t real. In worst cases, an insincere RFP can sour your relationship with SAP or waste everyone’s time.
Read our procurement checklist, Procurement Checklist: Legal & Compliance Must-Haves in SAP Contracts.
When Direct Negotiation is Smarter
In some cases, running a formal RFP for an SAP deal adds little value. This is often true when your organization is essentially locked into SAP for the foreseeable future.
If you know you’ll be staying on SAP’s platform, a competitive bid process may become a costly distraction.
Direct negotiation (sole-sourcing with SAP) tends to be the smarter approach when:
- You’re committed to SAP for the long term: If your strategy is to continue with SAP’s product suite (for example, migrating from SAP ECC to S/4HANA rather than moving to a different vendor), then inviting other vendors might be just window dressing. In such cases, an RFP would likely confirm what you already know – that you’re sticking with SAP.
- No true alternatives in sight: Sometimes, there really isn’t an equivalent alternative. Perhaps due to specific industry needs or the degree of SAP integration in your business, switching isn’t realistic. When a “competitive” RFP would only bring in vendors that don’t fully meet your requirements, it’s better to skip it and focus on negotiating the best deal with SAP.
- Time and resources are limited: A full RFP can take months, and not every organization can afford that delay or the associated effort. If a project timeline is urgent or your procurement team is small, you may opt to focus directly on negotiating terms with SAP.
Choosing not to run an RFP doesn’t mean you have zero leverage. Even in a one-on-one negotiation, procurement can create pressure on SAP through other means:
- Leverage third-party support options: Obtain quotes from third-party SAP support providers (companies that offer support and maintenance for SAP software at lower costs). Showing SAP that you could take your support business elsewhere puts pressure on their maintenance renewal pricing and terms.
- Use timing to your advantage: Align your negotiations with SAP’s sales incentives. For example, let SAP know that you’re willing to delay the deal or project start. SAP reps facing end-of-quarter or year-end targets have a strong incentive to close deals now – which can translate into last-minute discounts if they worry you’ll hold off.
- Escalate within SAP’s ranks: If your account team isn’t offering you an acceptable amount, involve higher-level personnel. Engaging SAP senior executives (such as a regional VP or an executive sponsor) signals that you expect a superior deal. Often, escalated negotiations bring additional concessions because upper management has more authority to approve special pricing or terms.
Pros of direct negotiation:
- Faster and more focused. You save considerable time and complexity by not running a formal RFP, and can focus all your efforts on negotiating the contract details with SAP.
- Discussions stay on-point. Without multiple vendors in play, you can concentrate on SAP’s proposal and dive deeply into specifics like pricing models, contract terms, and service levels.
- Aligns with reality. If SAP is truly the only viable choice, direct negotiation acknowledges that reality and avoids the charade of a pretend competition.
Risks of direct negotiation:
- Less pricing pressure on SAP. Without another vendor vying for the business, SAP might not feel compelled to offer its very best price. The dynamic is more “take it or leave it” unless you create pressure through data and timing.
- Requires strong benchmarking and negotiation skills. In a sole-source negotiation, it’s on you to determine what a fair price is. You’ll need solid internal benchmarks or market intel to ensure you’re not overpaying. If your team lacks experience with SAP’s pricing intricacies, there’s a risk of agreeing to less favorable terms than you could achieve with competitive bids.
Hybrid Approaches – The Middle Ground
Sometimes the best approach is a bit of both. Organizations might introduce some competitive pressure without a full-blown RFP process. These hybrid strategies aim to gain pricing insight or leverage while keeping the process lighter and faster than a formal RFP.
One hybrid tactic is to run a limited RFP or “bake-off.” For example, you could invite SAP and one of its rivals (such as Oracle) to submit proposals for a specific project.
You may have no serious intention of choosing the other vendor, but their quote provides a concrete benchmark. This “token” RFP can provide useful pricing data and demonstrate to SAP that you’re willing to compare options, even on a small scale.
Another approach is to rely on external benchmarks and market data as a stand-in for a competitive bid. Instead of soliciting formal proposals, you might use industry research, past deals, or third-party advisors to get a sense of what a comparable SAP deal should cost.
You can then take that data to SAP and say, “Here’s what we see as market pricing – we need you to match or beat this.” In effect, you’re injecting competitive pressure by citing outside evidence, not actual rival bids.
Risks of a hybrid approach:
- Savvy sales teams can smell weak competition. If you only bring in a token competitor that clearly isn’t a fit, SAP will likely recognize that and may not take the “rival” seriously.
- Credibility is crucial. To make a hybrid tactic work, you must convince SAP that you could switch or walk away based on the alternative or data presented. If the effort appears to be purely a ploy, it could damage your negotiating credibility, and SAP might simply call your bluff.
Decision Criteria
How do you decide which path to take? Here are a few key questions procurement and stakeholders should ask when choosing between a full RFP, direct negotiation, or something in between:
- Is a viable alternative available? Be honest about whether any other vendor or solution can realistically meet your needs. If the answer is yes (even if it would be painful to switch), then an RFP – or at least checking the market – is worthwhile. If not, a drawn-out RFP may be a waste of time.
- Do we have the bandwidth for an RFP? Consider the time, effort, and expertise required to conduct a thorough RFP process. If your team is stretched thin or the timeline is tight, a direct negotiation may yield results more quickly. On the other hand, if the deal is huge and you have the resources, an RFP could pay dividends by uncovering better offers.
- How strategic is this deal? If you’re making a once-in-a-decade platform decision or a very large investment, the thoroughness of an RFP can ensure you’re not missing a better opportunity. If it’s a relatively routine renewal or incremental purchase, a simpler negotiation could be sufficient and more efficient.
Read how to align procurement and licensing, Aligning IT and Procurement for SAP Negotiations Success.
Procurement’s Role in Both Models
Whichever route you choose, the procurement team has a critical job: driving the process to secure maximum value.
In an RFP, procurement’s role is to orchestrate a fair, competitive process. In a direct negotiation, procurement becomes the chief negotiator and deal architect. In both cases, a strategic procurement approach can significantly impact the outcome.
In an RFP process, procurement should:
- Craft clear requirements and evaluation criteria. The RFP documents must clearly outline exactly what the business needs and how proposals will be evaluated. Clear criteria ensure vendors address the same points and can be fairly compared, preventing confusion or loopholes in responses.
- Keep comparisons “apples-to-apples.” One of procurement’s jobs is to normalize the bids. This might involve providing a pricing template or requesting a standard proposal format, allowing you to align components and costs side by side when responses are received. An apples-to-apples comparison is the only way to truly identify the best value offer.
- Manage the process diligently. Act as the ringmaster of the RFP: set deadlines, facilitate vendor Q&A sessions, enforce ground rules (like no off-the-record deals), and coordinate internal stakeholders for evaluations. A disciplined process maintains competitive tension and signals to vendors that they must put their best foot forward.
In a direct negotiation, procurement should:
- Insist on market competitiveness. Don’t accept SAP’s pricing at face value – ask them to explain how it’s competitive. Push SAP to either match known industry benchmarks or justify why their offer is reasonable. This demonstrates to SAP that you’re informed and won’t settle for an “SAP premium” simply because they’re the incumbent.
- Demand transparency in pricing and discounts. Make SAP break down the costs and discounts line by line. Understand the list price and net price for each component, the maintenance or subscription fees, any bundled items, and any future price increases. Transparency prevents the vendor from hiding high margins in the fine print. If something isn’t clear (like a vague bundle), ask for clarification or unbundling.
- Document everything. Keep a detailed log of what’s discussed and agreed upon during negotiations. If SAP concedes on a point – say, adding extra user licenses at no charge or including a credit for future services – note it and make sure it appears in the final contract. By tracking every concession and term, procurement ensures nothing promised falls through the cracks. This also holds both sides accountable as talks progress.
To summarize, below is a quick comparison of the two approaches:
| Factor | RFP Approach | Direct Negotiation |
|---|---|---|
| Leverage | Strong if competition is real | Moderate – depends on benchmarks & tactics |
| Time & Effort | High – structured, lengthy process | Lower – more agile |
| Vendor Response | Defensive, competitive | Relationship-driven, flexible |
| Best Fit For | Multi-vendor options; services competition | Sole-source SAP migrations; renewals |
Outcome – Maximize Value, Whatever the Path
Ultimately, choosing between an RFP and direct negotiation is not about declaring one method “right” and the other “wrong.”
It’s about selecting the approach that gives you the most negotiating power in your situation. SAP’s dominance might tempt some to skip competitive steps, but every bit of leverage counts when you’re dealing with a vendor of this size.
Whether you pursue the RFP route or negotiate directly, the ultimate goal is the same: to secure the best value and terms for your organization.
Procurement must keep this big picture in mind and not get too fixated on process over outcome. A well-executed RFP can yield a great deal, and so can a shrewd direct negotiation. In either case, preparation and discipline are key.
Procurement’s job is ultimately to:
- Assess the market honestly. Do your homework on the alternatives that exist and how they compare in terms of cost and capability. Even if you don’t run an RFP, knowing the market price for comparable solutions or services is critical to judging SAP’s offer.
- Choose the path with the greatest impact. Use the strategy that maximizes your leverage — whether that’s playing vendors against each other or using timing and data in a sole-source negotiation. The choice should hinge on what will drive the best outcome, not on adhering to a rigid procurement playbook.
- Stay disciplined regardless of the model. If you launch an RFP, run it rigorously. If you negotiate directly, plan your concessions and walk-away points carefully. Don’t let a smooth-talking sales team or internal pressure knock you off course. Stick to your objectives and process through to signing.
By assessing your situation and executing the right strategy, you ensure that SAP’s size and sway don’t result in an oversized bill.
The ultimate measure of success is a contract that meets your business needs at a competitive price – whether you arrived at it via a competitive bidding war or a skillful solo negotiation.
End-of-Section Checklist – Choosing the Right Approach
☐ Alternatives identified and evaluated
☐ Internal readiness for RFP assessed
☐ Benchmarks or third-party intel secured
☐ Unified IT + procurement negotiation strategy defined
☐ Final decision made: RFP, direct, or hybrid
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