Even an IT department that"s good at managing contractors can be tripped up by unexpected problems such as a dispute over the definition of software defect, according to a panelist at Computerworld"s Premier 100 IT Leaders Conference here in Scottsdale, Arizona.

Rob Minicozzi, vice president of applications development at Arrow Electronics Inc., said the Melville, N.Y.-based firm successfully outsources some of its application development and maintenance work, but had a major disagreement over terminology with one unnamed offshore vendor.

Arrow"s IT staff was seeing obvious software bugs in the outsourcer"s code, Minicozzi recalled. But the contractor didn"t want to classify them as defects, which led to questions about who should pay for the problems. Minicozzi investigated and found out that the offshore programmers were compensated based on the amount of defect-free code they produced, so there was a disincentive to call anything a defect.

Minicozzi met with the contractor to fix the definitions and reach a "common understanding," but the episode tarnished the vendor"s reputation with the IT staff, he said.

Arrow Electronics is one of a growing number of companies that have established a vendor management office that keeps a close eye on IT spending and contract terms to avoid overpayments, duplication and inconsistencies, Minicozzi said. The practices used by the vendor management office have cut mainframe costs by 40 percent.

Asked about the two biggest challenges in vendor management, Minicozzi said that even for large users, it can be hard to keep a vendor "engaged" after the contract is signed and the company becomes just another customer. And he said it"s difficult to get apples-to-apples comparisons among vendors for particular IT wares because the vendors package their offerings in different ways.

"Sometimes it"s not that simple to get down to common information," he said.

The conference panel on vendor management also discussed enterprise agreements, which consolidate all of an organization"s contracts with a vendor to reduce overall costs and provide consistent service. David Wennergren, CIO at the U.S. Department of the Navy in Washington, said he"s a big believer in enterprise software licenses because there are economies of scale and "you only have to write one check," instead of having 100 or more agreements in an organization as large as the Navy.

Another advantage of enterprise agreements is that they provide predictable costs, said Frank Enfanto, vice president of health care services at Blue Cross and Blue Shield of Massachusetts Inc. in Boston.

Enterprisewide vendor agreements that bundle a variety of products and services can produce a great overall price, Minicozzi said, but he cautioned that it"s very difficult to pull individual line items out of the bundle to see if you can get a better deal from another vendor.

The panel was moderated by former CIO Bart Perkins, now managing partner at Leverage Partners Inc. in Lexington, Ky., and a Computerworld columnist.