Limiting vendor lock-in: how do you maintain freedom and flexibility in a digital world?

What is vendor lock-in?

Vendor lock-in means that an organization is highly dependent on the technology, software or services of one specific vendor. This dependence often occurs unnoticed: a vendor offers a solution that works well, you invest in implementation and training, and before you know it, switching to an alternative is a huge obstacle. Consider:

• A cloud provider with its own (proprietary) file format.
• Software without export capabilities or with limited interoperability.
• Contractual restrictions that make migration difficult.

Why is vendor lock-in a problem?

Vendor lock-in can lead to several risks:

• Limited bargaining power: If switching is difficult, the vendor has more power over price, terms and service. In practice, hefty price increases are common, which you will have to accept at the bottom line because of the dependence on the service.
• Innovation limitation: Because you cannot easily switch, your organization cannot easily benefit from new or better solutions from other providers.
• Compliance and security risks: If you are stuck with a vendor that does not (or no longer) meet your standards or laws and regulations, compliance can become a challenge.
• Continuity risk: What if the vendor quits, is taken over by a party you object to?

How do you prevent or mitigate vendor lock-in?

Vendor lock-in comes in several forms. Each form has its own countermeasures. Below are some examples from our practice .

1. Interim price increases

A common form of exploiting dependency is unilaterally raising the price during the term of a contract.

Countermeasures:

• Price fixing: Set a fixed price in the contract for the entire term.
• Allow indexation, but controlled: Allow indexation, but base it on an objective and common price index (e.g., from CBS) to avoid arbitrary increases.
  
  

2. Price increase after termination or renegotiation.

If a price really no longer suits a supplier (we still sometimes see this after the supplier has been taken over) then the contract is terminated by the supplier with a new contract being offered almost simultaneously at a much higher price .

Countermeasures:

• Limit termination options by the supplier so they cannot force a renegotiation.
• Contract with automatic renewal: Work with a base term and renewal of one year each time to maintain control.
• Maximize price adjustment at renewal, for example through fixed indexation.
• Consider legal action: there may be an abuse of power or breach of duty of care here.
  
  

3. Suspension of services as a means of applying pressure

Suppliers sometimes use suspension as leverage in payment disputes, including discussions about the service itself.

Countermeasures:

• Limit the right of suspension:
• Not when the customer has a legally valid claim to suspension (e.g. due to faulty service).
• Exclude suspension for business-critical services: such as MS Office or access to customer data.
• Guarantee continuity: Establish contractually that the continuity of business operations may never be jeopardized.
  
  

4. Hosting problems and system failure

Non-availability of systems or data poses a major risk to business continuity.

Countermeasures:

• Use multiple data centers or fallback locations for critical processes.
• Arrange backups in a separate environment, offsite.

5. No willingness to interface with other systems

Some vendors refuse to open up their systems for integration with third parties.

Countermeasures:

• Design IT landscape in advance: Map out what the IT architecture should look like and choose vendors that fit into it.
• Requirements for interfaces: Define standards for APIs and interoperability.
• Include a linkage requirement on reasonable terms in the contract.

6. Upgrade obligation and forced migrations.

Vendors may deliberately "phase out" older versions of software to force customers into costly upgrades or reimplementations.

Countermeasures:

• Ask out what an upgrade entails: A minor update or a complete new implementation process?
• Inquire about the remaining useful life of the version in use.
• Establish minimum useful life by contract.
• Arrange the possibility of remaining one or more versions behind, keeping in mind security updates.
• Establish how migration will take place: including planning, costs and support.

7. No or limited cooperation on exit

A crucial pitfall: at the end of the cooperation, the supplier does not cooperate sufficiently in a smooth transition to a new party.

Countermeasures:

• Exit arrangement drafted, including:
  • General obligation to cooperate on reasonable terms.
  • Preparation of an exit plan, in cooperation with both current and new supplier.
  • Migration of data and deletion of old data.
  • Possibly a temporary extended license as a "fallback" in case of delay.
    
    

In conclusion, proactive contracting is key

Vendor lock-in is not a problem that only arises at the exit - it creeps in at the start. This is precisely why it is crucial to build in legal and technical safeguards during the contract negotiations. This way, as an organization, you maintain control, remain agile and avoid becoming dependent on one party.

Would you like advice on contractual safeguards, exit arrangements or setting up an open IT architecture? We would be happy to help you.