What Do You Know About Vendor Contracts? – Part 1

Guest Blog Author: Barry Zweibel & Co-Author Larry Treas

The following Part 1 of “What do you know about Vendor Contracts” comes from Barry Zweibel whom I got to know and respect while performing work for the Chicago Mercantile Exchange in the 90’s. He was the manager over all of the communications for the Chicago Mercantile Exchange and he needed someone to help determine if there were other ways of not having to replace their very large telecommunications system. I was able to show the Chicago Mercantile Exchange how they could reprogram their existing system so that they didn’t have to purchase a new system. Several years after this project, Barry ended up leaving and starting his own professional coaching practice. He is a Master Coach and has also coached me from time to time. Our mutual respect for each other has kept us in touch. I was thinking there is no better way to kick this subject off than with a person that has negotiated many vendor contracts, a Master Coach and a friend.

It’s ok to say, “you don’t know”.

Vendor contracts, in many ways, are necessary evils. While they often seem filled with random and meaningless jargon about Acts of God, Arbitration, Indemnification, Breach of Covenants, Limitation of Liabilities, Boilerplate Provisions, Severability, and such, the endless jargon creates powerful tools and protections for customers and vendors, alike, when problems arise. To the inexperienced, it can all be quite unnerving – even if you have an in-house attorney or contract specialist assisting you through the process.

What’s REALLY Important?

Sorry to say, but the short answer is EVERYTHING – it’s a binding legal document, after all! And while most vendor contracts are rarely contested or even ever referenced after the fact, if you have the pleasure, that is, the responsibility for negotiating contract details with your vendor of choice, is accompanied by some important pitfalls to avoid.

Here are 7 tips for being effective in managing your vendor contracts:

1) Read Every Contract in Two Different Ways

No, not ‘forward’ and ‘backward’. Not from ‘top to bottom’ and then ‘bottom to top’, either. No, when reading a contract, first read it from the perspective of what it INCLUDES. This is the way – the only way – that most people will read a contract. How many widgets? At what price? What type of service and support will be provided? The usual stuff. But, reading it, again, this time from the perspective of what it EXCLUDES or, does not include will tell you much more:

    • What it INCLUDES: Service call response intervals during normal business hours
    • What it EXCLUDES: Service call response intervals outside of normal business hours
    • What it INCLUDES: Shipping intervals for in stock replacement or expansion gear
    • What it EXCLUDES: Shipping intervals for out-of-stock replacement or expansion gear

See the difference?  If you just read what a contract INCLUDES you can miss a number of very important negotiation points.

2) Separate ‘Legal’ Issues from ‘Business’ Issues

Many organizations assign in-house attorneys or contract specialists to those negotiating vendor contracts. And while these are important (read: essential) advocates, it is not their job to insure that the contract addresses all relevant BUSINESS issues. That’s YOUR job – to do yourself or hiring someone who can do it, effectively, for you.

As example, let’s say your vendor wants to use your company name in its sales and marketing materials which runs opposite of your company’s policies. Left to your legal, they will craft language that specifically prevents such use. But, let’s say that in exchange for some limited PR, you’re able to negotiate meaningfully lowered pricing and faster product upgrades – both of which are important for your operation and the organization, as a whole. In that case, you want your legal team to do the exact opposite – craft language that specifically allows such use.  

3) Clarify the Spirit and Meaning of the Language

Often a vendor will provide a boilerplate contract – a draft from which to begin. Know that this is a STARTING POINT for your negotiations, not an end, and surely much more than a mere formality.

In reading it, don’t skip over whatever doesn’t make sense to you. Take the time to actually try to understand it. If you still don’t get it – some contracts are surprisingly dense – ask. It’s ok to not know. Ask your internal contract liaison. Ask your vendor contact. Ask a specialist in the field. There’s no shame in it, and chances are good that whoever you ask will need to really concentrate to understand it, themselves, or be very pleased that you cared enough TO ask.

Often the language needs to be edited. As example, there may be a clause about how confidential information should be handled. They may want you to return everything, but it may be far easier, less costly, and equally acceptable for you to properly shred it, instead. Now either side can craft the revised language, but there’s a definite upside in your side doing it. You see if you already know what you want the language to specifically INCLUDE and EXCLUDE, you can write it in a way that does exactly that. And if you’re asked to negotiate those edits, you’ll already know what is and is not acceptable.

4) Don’t Negotiate in a Vacuum

Many vendors rely on you not pushing back on, or asking questions about, their Terms and Conditions. Why? Because even in the best of win/win interactions, if YOU don’t care enough to ask for additional concessions, why should they just offer them up to you?

So, as example, here are some ideas of questions you might ask your vendor’s negotiator to get a bit more insight into what flexibility they might still have:

    • “What have you offered similarly-situated customers that might be better for us, as well?”
    • “How far can you go without having to ask for additional authorization?”
    • “Where would the next price-point discount kick in?”
    • “What other variables would shift what you’re able to offer us?”  
    • “How can we help you advocate better, internally, on our behalf?”
    • “Who would be helpful for me to meet?”

5) Leverage Short- and Long-Term Needs, Wants, and Preferences

Most salespeople focus on top-line sales – how BIG is the deal. And that can leave an LOT on the table for you to work with. So, as example, if you’re willing to pay a little more for your contract, but they’re willing to give you free or expedited shipping, in return, that could be a significantly better deal for you over the life of the contract. Committing before the month or quarter (or their fiscal year) ends often yields good results, as well. Similarly, while they may not be willing to negotiate on price, they very well may be willing to allow you to extend payment terms without cost.

And speaking of negotiating on price, try the ‘make them say ‘no’ twice’ rule. Ask for their best price. Once they give it to you, politely ask, “Is there any flexibility in that?”

Often there will be. And if there is, great!

But don’t stop there. Follow that up with another ask: “Thanks. And might there be any flexibility in THAT?” In other words, keep asking until they say no, twice.

    • “Is there any flexibility in THAT?”
    • “Are you sure this is the absolute best you can do?”
    • “So you have absolutely no flexibility to tweak it even just a bit more?”
    • “Is there someone you might be able to ask to be sure?”
    • “Is there someone that I might ask on your behalf?”

It’s helpful to keep asking even after their first ‘no’ because often times they really CAN still do better! And if not, a simple, “Well I appreciate you considering it,” will suffice and leave no bad feelings.

6) More on NEEDS versus WANTS

The importance of you knowing the difference between your NEEDS…and your WANTS cannot be overstated. Because while it’s perfectly reasonable to ask for whatever you WANT, deal-wise or contractual term-and-condition-wise, you can still be satisfied if you only get some (or none) of what you’ve asked for. NEEDS, however, are essential and otherwise nonnegotiable.  

There are two exceptions: (1) when some of what you’re calling NEEDS are actually WANTS – like saying you NEED ‘unlimited data’ from your cell provider when what you really need, because of price, is some lesser amount coupled with the ability to purchase more, without service interruption, when needed; and (2) when some of what you’re calling WANTS are actually NEEDS – like wanting an on-site project rep to assist you with the rollout when you know you don’t have the staff to properly handle the expected volume of activity without some additional outside support.

So, again, it’s critical that you properly categorize things so you don’t inadvertently negotiate a NEED away, no matter how appealing the counteroffer, or tradeoff, might be.

7) Aim for a TRUE Win-Win

It may sound trite and hackneyed, but a ‘win-win’ is what you should be aiming at – in both your contracts and negotiations. After all, if you get what you need and some of what you want, as well, it’s a bona fide win.  Same for them.

The best way to do that is always know – and be able to explain in plain English – the business rationale for your requests and concerns. This will keep you from negotiating away what you truly need and tee-up for discussion what all you want. And if they feel you’re treating them fairly and respectfully, they’ll be all the more likely to offer up some of your wants that don’t really cost them that much, anyway. And vice versa.

THAT’S THE POINT


About the Author, Barry Zweibel & Co-Author, Larry Treas

Author Barry Zweibel: I believe it matters how conflict competent you and the leaders on your team are, because every business interaction has the potential for conflict, challenge, and discomfort. I believe ‘doing your job’ is not enough – you must provide a consistently more meaningful, timely, and visible business impact. That’s why I founded LeadershipTraction (and its parent, GottaGettaCoach!®, Inc.) – to specifically focus on helping leaders increase their confidence, clarity, decisiveness, and impact. Learn more about Barry and LeadershipTraction.

Co-Author Larry Treas: My name is Larry Treas and I am the CEO and Head of New Thinking at Dagger Guild. I have 35 years of witnessing the madness that blows through companies around the world, and it’s a foul breeze. I created the Dagger Guild to forge peer discussions, mentoring sessions, and specific information pipeline deliverables to address, solve and alleviate the standard issue nothingness you go through daily. Dagger has no allegiance, no affiliation, and no ties to carriers, vendors, advertisers or telecom marketers of any kind. As a result, our advice is both untethered and unbiased. You can see from my CV/resume my track record and years of experience. The Dagger Guild is my dream built upon the belief that together, we will create the next generation of heroes.

2019-08-28T09:07:46-06:00

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