Negotiating Customer Agreements: 7 Strategies to Establish the Upper Hand
Part 4 of a 6-Part Series
Our last edition identified a series of unfavorable contract terms across various industries that vendors often include in their standard customer agreements and provided suggestions on ways to recognize and eliminate those terms when negotiating your final customer agreements. Under the old adage that an ounce of prevention is worth a pound of cure, wouldn’t it be better to eliminate the ability for a vendor to sneak in unfavorable contract terms in the first place? Why fix the problem after the fact when you can prevent the problem altogether?
Today’s segment of the Law of Unintended Consequences Meets Public Sector Procurement provides seven proactive strategies to ensure you establish the upper hand with vendors when it comes to negotiating customer agreements for the products and services your organization requires.
1. Leverage the experience of others.
The reality is that no one can possibly be a procurement expert in every purchasing category or know how to navigate the nuances of each industry. Before you develop a request for proposal (RFP) for any products or services your organization needs, talk to individuals familiar with the industry. Like who? Industry subject matter experts, consultants (if you have the budget), and peers from other organizations that have more recent experience with the industry in question. Ask them about standard industry contract terms that aren’t so favorable, lessons they have learned the hard way, and what they would do differently if they had the opportunity. Take their feedback and create RFP specifications that include “yes” or “no” requirements for your respondents to leave no room for grey. For example, you can write your specifications in the following way: you agree that there will be no early cancellation fees – Yes or No.
2. Draft your RFP specifications with thought & care.
It may seem obvious that we would advise you to carefully draft your RFP specifications, but the reality is that most of us are understaffed with too much to do and too little time to do it. The natural inclination is to speed up to get the work done, when actually we should be slowing down to get the work done right and prevent long-term problems that ultimately cost more to resolve. Again, an ounce of prevention is worth a pound of cure. The specifications you write are critical.
Moreover, the specifications you don’t write are often even more critical in terms of unintentionally creating those long-term issues. Take the managed print services industry as an example: if you don’t write into your requirements that there will be no annual price escalator clauses, then you shouldn’t be surprised when a vendor quotes a great initial price, but also includes an escalator clause in the final customer agreement that leads to 10-15% price increases each year that are not clearly or fully disclosed in the initial proposal. And if you don’t catch that clause in your review of the customer agreement, you’re stuck with those increases for the next five years.
3. Utilize your own contract templates.
For many of our members, the bid documents for products/commodities double as the final customer agreement, with the vendor’s bid added as an exhibit. But when it comes to services, our members often rely on vendors to provide the underlying customer agreement and negotiate the addition of key contract terms into the vendor’s standard template. Why not create your own customer agreement contract templates for products and services 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. You can create various contract templates for products and services that meet your organization’s needs and incorporate the terms of winning supplier proposals into the appropriate template. And, knowing that vendors often promise things in their proposals that somehow don’t make it into the final customer agreement, include a clause in your templates stating that if there are conflicting terms between the customer agreement and the supplier’s final proposal, the terms of the supplier’s proposal shall prevail.
4. Require full disclosure.
Here’s a common scenario: the price a vendor presented in a proposal was different then what the buyer ultimately ended up paying.
The best way to navigate hidden costs within a contract is simple… require full disclosure. Full disclosure requires vendors to reveal any and all costs associated with the product or service they are providing to you. As the buyer, require that your vendors i) state in writing there are no other costs, fees, or financial obligations other than those included in the proposal, ii) clearly define each of the costs presented and how they are calculated, iii) document in writing under what circumstances any identified costs would change, and iv) agree that they will notify you in advance of any proposed price changes AND that your approval is required PRIOR to any price changes taking effect.
5. Own your data.
Some vendors make it extremely difficult, if not outright impossible, to secure data from them regarding the products and services you have purchased. Why? Because you might use that information to audit whether the prices they have charged you are consistent with the pricing they originally proposed, or because you might use that information to “shop” your business with other vendors. Write into your RFP specifications that the vendor is required to produce your data, whether it be usage, payment, etc., electronically and in a format that is usable for you (e.g., an Excel file and not a .pdf), upon request.
6. Clearly define your service level requirements.
Take the time to think through what service levels you require, how those service levels will be measured, who will measure them, and what the consequences will be if those service levels are not met. Once you have your service levels all planned out, write them into your RFP specifications, include specific service level agreements (“SLAs”) in your final customer agreement, and rigorously enforce those SLAs during the term of your customer agreement.
7. Conduct detailed reference checks during your RFP process.
Who knows better about the quality of service a vendor provides than someone who has worked with that vendor before? When conducting an RFP, require 3-5 references from your respondents. Ask those references, at minimum, the following questions about the vendor:
- What did they do well?
- What didn’t they do well?
- If you could wave your magic wand, what would you change?
- Would you recommend them to someone else? Or, if you had the opportunity, would you work with them again?
Write into your RFP specifications that a vendor may be eliminated from the RFP process if that vendor does not pass your reference checks. Requiring that vendors pass the reference check requirement as part of your proposal scoring process protects you from potential challenges from vendors who were “lowest” but not “best.”
At Sourcing Alliance, we understand that the RFP process can be time-consuming, costly, and often downright frustrating. We incorporate these same seven strategies into our own procurement process so that our members don’t have to experience that frustration.
In our next segment of The Law of Unintended Consequences Meets Public Sector Procurement, we will discuss how to write RFP specifications that solve for both your current and future needs.
As always, 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 members’ combined buying power to secure lower prices and a reduced Total Cost of Ownership.
Missed our last edition? Click here to view our tips on navigating bad purchasing contracts.