Locked in and Locked Out: Contract Horror Stories
Part 3 of a 6-Part Series
We’ve all found ourselves stuck in a lousy contract… the free phone that really isn’t free, the cable contract you can’t cancel, the home security bill that’s higher than what you agreed to at signing, or the utility rate that automatically goes up every year. Getting stuck in these kinds of contracts doesn’t just happen in our personal lives, it happens in our professional lives all the time. Check out a few contract horror stories that our members experienced prior to joining Sourcing Alliance:
“Our 5-year copier contract expired… and just as we were about to run a new bid, we were notified that, because we hadn’t provided advance notice of non-renewal for an expiring contract, our contract was automatically renewed and we were stuck for another year.”
“A few years ago, we locked in our electricity and natural gas rates and were told that if rates go down during our contract term, our rates would go down as well. Turns out that we had to pay a $2,000+ contract cancellation fee (that we were told wasn’t in the contract) in order to get the better rate.”
“We entered into a long-term HVAC maintenance contract that was supposed to provide preventive maintenance for all of our HVAC units in all of our buildings. Long story short, the vendor’s service levels did not meet our expectations. We wanted to cancel our contract and couldn’t. So for the 12 years remaining on our contract, we were stuck with subpar performance and had no recourse.”
“Our team wanted to compare the office supplies pricing we receive from our current vendor to pricing offered by other suppliers. We asked our current vendor to provide a detailed breakdown of the products we purchased and the prices we paid. Our vendor refused to provide that information. Really? It’s our data!”
“Our janitorial services provider had agreed to a certain scope of work that they just were not delivering. They were cutting corners on hours, half cleaning our building, and leaving a bad impression about us for our employees and visitors. Our contract did not provide us with a way to enforce minimum cleaning level requirements or terminate as a result of failing to perform satisfactorily. We just had to deal with it until our contract expired.”
At Sourcing Alliance, we believe in educating our members on how to see through the horrors of lousy contracts, hidden terms, and unexpected surprises. Here are four actions you can take to ensure that you won’t have a contract horror story of your own to tell:
- 1. Talk to subject matter experts.
You engage in procurement and contracting processes every day, but you don’t procure every product and every service every day. How often do you procure copiers? Maybe once every five years? There is no way to be an expert in every spending category. Before you conduct a request for proposal (RFP) for the product or service your organization needs next, talk to subject matter experts and other organizations that may have more recent exposure (and perhaps bad experiences you can learn from) to standard industry contract terms that can come back to haunt you. Take their feedback and create RFP specifications that include “yes” or “no” requirements for your respondents. For example, you can write your specifications in the following way: you agree that there will be no early cancellation fees, yes or no. Leave no room for grey.
- 2. Modify language in your customer agreements.
There is often a big difference between the proposal you receive and the final contract presented to you for signature, and usually those variances are NOT in your favor. Eliminate that risk by incorporating the following language into your customer agreements: “The vendor’s proposal is incorporated into the customer agreement and should there be conflict between the terms of the vendor’s proposal and the terms of the customer agreement, the terms of the proposal shall prevail.”
- 3. Use your own contracts.
You know better than anyone what you need from a potential supplier. Why not create your own contracts and make the suppliers propose changes to YOUR standard terms? It’s much harder for a supplier to insert unfavorable or hidden contract terms in your contract documents. Using this method, you can create various contract templates for products and services and incorporate the terms of the supplier proposals you receive into those templates.
- 4. Allocate time and expertise to review supplier contracts.
Time is a scarce resource. Outsourcing the review of your supplier contracts to experts knowledgeable in particular spending categories could be the way to go. Although there may be a near-term financial cost, the long-term savings and cost avoidance often outweigh the upfront investment.
At Sourcing Alliance, we incorporate these very same principles into our own procurement process so that our members can confidently rely on the contracting work that we do on their behalf.
In our next segment of The Law of Unintended Consequences Meets Public Sector Procurement, we will discuss how to bypass getting stuck with a bad news supplier. Don’t miss out on 7 Strategies to Negotiating Contracts.
Until then, our website offers a wealth of knowledge and resources about how you may leverage your Sourcing Alliance membership to secure the products and services your organization needs to operate, save time, get better contract terms, and leverage our combined buying power to secure lower prices and a reduced Total Cost of Ownership (TCO).
Missed our last edition? Click here to read about Total Cost of Ownership and how applying TCO thinking to public sector procurement enables you to achieve better outcomes and reduce overall costs within your organization.