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Contracts Are Not Straightjackets!

By Neil Grime

Introduction

Where appropriate, contracts can be good for both the supplier and buyer. They should clearly confirm the details of the agreement that has been reach, the responsibilities of each party and the overall terms of the agreement. However, it is important that they are not seen as being cast in concrete and that the buyer has no options available until the contract expires. Of course, options are limited and there needs to respect to the other party but it needs to be remembered that there are still some available.

 

The initial discussions with a client look to identify the areas of cost that are going to be included in the review. The requirement for traditional landline telephones along with connectivity & IT Support were recommended to the client to be included. They were sceptical, as they still had 18 months of a 5 year contract remaining & thought that they had to wait until closer to the expiry date.

 

We could clearly see that the client liked the service he was receiving and that they had a good relationship with the current supplier so we reassured them this would be taken into account during the review.

 

Actions

 

From accessing the client’s records along with data from the current supplier we generated a detailed baseline of the current costs. This identified the current cost in each service area and to the itemised level.

 

When presented with a sole supplier arrangement we would normally look to anonymously approach the market and benchmark the majority of the current costs, The results of this process is then used to open negotiations with the current supplier and to start to explore the option available.

 

Both connectivity and IT support services take longer to review, as it is important that sufficient technical information is collected so that any comparison is done on a like for like basis. However, traditional line rental charges and call rates can quickly be assessed to determine if they are in line with the market. In this instance we quickly confirmed from recent data that the client was incurring higher than market rate on their calls from their offices to mobile phones.

 

Negotiations

 

We immediately reached out to the current supplier and opened discussions on a possible extension to the current contract on the basis that they would bring the call rates to mobiles in line with the market. We were also had an added incentive, as our client wanted to bring forward their plans to upgrade and improve the connectivity services.

 

Negotiations developed quickly, as the supplier preferred the option of having a new agreement rather than an extension. In return they negated the costs to conclude the current contract early. The improved call rates to mobiles were confirmed and implemented together with a plan to upgrade the connectivity services.

 

The client had secured a new long term agreement with their preferred supplier, a plan was in place to upgrade the connectivity services and they had obtained a reduction in their costs of 29%.

 

Conclusion

 

While not all contract situations develop in this way it is critical to understand that you should at least take the time to explore what options are available to you.

 

Here a few tips which you could use:

  • Identify all your contracts and know when they expire.
  • Take your time and start the review process at least 6 months beforehand.
  • Always ensure that any review is based on the same specifications and service levels.
  • Should you discover it is competitive then you can either do nothing or take advantage and consider extending it based on the costs remain fixed or at the very least with an agreement on how any movement is managed.
  • If the contract is uncompetitive look to reopen negotiations
  • Ensure that you are factual with the supplier and show them where they are behind the market
  • Again, introduce a possible contract extension in return for more competitive costs.
  • Make your business more attractive by offering additional products or services the supplier is capable of providing, making sure they are more competitive than your current costs.

 

Suppliers will not walk away from business just because you want to reopen negotiations. Just 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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