Reactive Contract Renewals Waste Your Member’s Money

Nov 30, 2020

 

Written by Debbi Dial, MBA, CCE, Senior Negotiator

Time can either be your friend or your enemy when it comes to contracts.

Here is a simple question: Would you rather be proactive or reactive?

The answer is obvious. However, many credit unions and community banks fail to properly prepare for contract renewals. The results can be millions in wasted money.

Reactive contract management means you’re reacting to what your vendor has already done, rather than strategically planning for what they can do for your institution. It’s the exact opposite of where you want to be.

Let’s look at an example. One credit union was so busy handling day-to-day operations, it let a FinTech contract automatically renew for another five years. By the time the credit union realized what it let happen vs. what could have happened through skilled negotiation, it spent over $1 million more on the vendor than it would’ve had it proactively looked at contract renewals.

How can you proactively and strategically manage contract renewals to reduce expenses? You must start with these four questions:

  • Are you getting the results you want from your vendor?
  • Are there vendor performance issues or problems that need to be fixed?
  • When was the contract last negotiated?
  • Will the vendor provide what you need for the next three to five years?

Knowing the answers to these questions will help you determine if you want to keep or replace the vendor when the renewal time arrives.

In addition to the questions above, you also need to know which vendors have multiple contracts and owners, and you must keep track of each contract’s renewal date. It’s very important to know your Notice of Intent (NOI). Along with knowing your contracts dates, this is super critical.  If you miss your NOI window, meaning the date you must notify the vendor you don’t want to auto-renew, you’re stuck until the next renewal period.

Once you have all that information available, there are two key elements that, if used properly, can put you in control of contract management to get the results you want.

  1. The first is time. The more time you have, the more you can shop around to replace your vendor. Knowing you have a replacement in the wings (or letting the vendor think you do) allows you to apply competitive pressure in getting a fair price for the services you stipulate. In addition to the effective use of time, obtaining or developing price data allows you to know current, fair market value and even the playing field with your vendor.

2. Knowing how the vendor’s abilities and performance will affect other contracts is crucial to determining if you have vendors in place to meet your goals. Using system thinking allows you to see overall structures, patterns and cycles in vendor management, rather than evaluating one vendor in a vacuum.

A lot of institutions mistakenly don’t take their contracts into consideration when entering the strategic planning season each year. You must always align your strategic plan and contracts – if not, it could cause issues to your overall plans.

For example, you may what to include in your plan that you want to change your digital banking provider in the next 18 months.  When you start the project next year, you discover the contract rolled over for another five years and doesn’t expire until 2026.  Well, that project will be put on hold and your vision will need to wait as well.

To align contract renewals with your strategic plan, ask yourself the following questions:

  • What product or service do you need to execute the plan?
  • Which current vendors may need to be replaced?
  • Which vendors will be renewed?
  • What are the results you want?

Maple Street’s Vendor Advantage System® has the power to help you effectively manage your contracts and empower your credit union or community bank to thrive. When it comes time for contract renewals, our team of professional negotiators is standing by to help you get the most bang for your buck. We’ve saved our clients over $115 million and that number is growing daily.

Do you want to reduce expenses and get more from your vendors? Give us a call at (321) 257-3930 or email info@maplestreetinc.com.

Get laser focused on managing your vendors now!

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