Contracts can ruin a good relationship
A large portion of our practice is assisting our clients in contract negotiation. Be it a new service, product, vendor relationship, or an existing contract renewal, the results can define—or ruin—your relationship. Make no mistake, the sales representative and vendor want to be your partner. But at the end of the day, they will represent their best interests, not yours. Bottom line, you are on your own. And too often, after a contract has been executed, facts come to light that do not reflect your understanding of the deal. Or you learn of facts that you were not made aware of.
Going in prepared
Here are tips to protect you as you deal with your vendors:
1. No time for greenhorns. Moving forward, a rule that you should apply is that vendor contract discussions or negotiations should not be conducted without an experienced advocate on your team who has negotiated contracts before. This is especially so if the contract under discussion involves more than $25,000 or would run longer than six months
2. No contract should be executed without a legal review. Signing a lopsided vendor contract can cost your organization just as much as a bad loan. In competitive terms, a you can be locked into a deal for years, preventing you from adjusting to changes in the market place and causing you bank to fall behind.
3. Things to look out for and avoid. Contracts that allow add-on amendments to extend the term of the entire contract. Contracts that allow for an automatic price increase. Do the math—an 5% annual price increase on a five-year contract, with the first increase at the start of year two will increase your contract price 21.5% in year five.
Other things to look out for are products and services listed in the contract that you do not use today, but due to the exclusivity clause in the contract require you to purchase from that vendor in the future.
Wait a minute, you didn’t agree to that—but it is in there. A legal review would have pointed that out and prevented you the painful experience of finding this out when it is too late.
Don’t rush into long-term trouble
Good contracts take time to put together. They take knowledge and experience.
There is nothing you can ask for that the vendor that the vendor has not heard before. Vendors negotiate contracts almost every day and are good at what they do. You may negotiate a major vendor contract once every five years and are rusty—at best.
Vendor contracts and in particular technology contracts should not be taken lightly. Knowledge is power and leverage.
When entering into a contract discussion who do you think has the advantage? Don’t ever think that just because you have been with the vendor for X number of years that it automatically entitles your institution to the best deal they can offer or that it is just as good as the other guy.
You never get anything you don’t ask for.
Having resources on your team that know what to ask for and look for is the best way to maintain a long term and positive vendor relationship—as opposed to planning your next move five years from now.