Blog

Contract Conundrum

16.09.19

Introduction

 

Contracts give good protection to all parties that are part of it but it is important not to see them as straitjackets and that they place any future actions into concrete until the contract has expired. Yes, the options available are going to be limited but it should be remembered that there are still some you can explore.

 

Case Study

 

A recent project included costs for traditional landline telephones together with IT support and connectivity services. As the customer was in a contract that 18 months remaining they initially believed that there were no options available to them. They were wrong.

 

From using recent data it became clear the customer was not obtaining the market rate on the volume of their call activity.

 

Discussions were immediately opened up with the current supplier regarding a potential extension to the contract in return for improving the call rates in line with the market. As a further incentive, the client was prepared to bring forward plans to upgrade their connectivity infrastructure.

 

The potential costs to conclude the current contract early were negated by the supplier. New call rates were introduced and a plan agreed to upgrade the connectivity services were put into place. The supplier had secured the business for a further 5 years and the customer had reduced their costs by 30%.

 

Conclusion

 

Not all scenarios turn out this way but it is important to remember to at least investigate what is possible.

 

Here a few tips which you could use:

  • Know when your contracts expire and start to review them at least 12 months beforehand.
  • Benchmark the current contract on a strict like for like basis
  • If it remains competitive then you can either stay as you are or see it as an advantage and potentially extend it ensuring the costs remain fixed or at the very least with a mechanism for any movement
  • If it’s not competitive look to reopen negotiations
  • Be upfront and advise the supplier where they are behind the market
  • Discuss extending the contract in return for a reduction
  • Potentially offer additional products or services the supplier can provide, ensuring that they are more competitive than the current baseline. This adds value and makes your business more attractive.

 

Don’t be afraid to reopen negotiations but treat your supplier with respect and make sure you are offering something in return for the outcome you are after.

 

If they are the right supplier they will see it as an opportunity.

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