The trend in contemporary contract negotiations is to establish extended term contracts. Vendors often start the discussion with seven-year proposals and in some cases I have seen ten. Obviously, the vendor would like to lock you up for the longest period that they can. After all, It makes their life easier, but not yours.
Point: The competitive banking world will not stand still during your five, seven or ten year contract!
Technology will continue to evolve, and you could very well be locked in during a period of significant change that could spell competitive doom for your organization. Do not disregard the fact that new products and services will emerge during your contract term and you will be unable to move.
Don’t get me wrong, five year contracts can be beneficial to your organization, but they take work to create and implement. The key to remaining competitive is to plan ahead.
Point: Do not to sign a contract solely based on how much you can save. Furthermore, contract negotiation should not be hire-and-forget events.
Develop a contract that is based on what you can do today and in the future. Contracts should always represent a road map that includes multiple steps over time not just one big one.
Yogi Berra made it very clear about planning as the CIO behind the plate. He said; “If you don’t know where you’re going, you’ll end up someplace else!” and that is absolutely accurate.
Looking ahead and researching your market is critical. Don’t rely on any one source and be sure to develop a clear understanding of where your organization wants to go before you “X” the deal. Next create a step by step plan that identifies the moves you will need to take during your contract term. This may include unwinding current contracts in order to position your organization to take advantage of new products or to move a different core vendor.
Point: Identify all of the auto-renewal periods in your existing contracts and ensure that these clauses don’t accidentally activate and ruin your plans.
Next, build in flexibility and make sure your contract has plenty of options for you. Warning; a contract where the vendor requires you to buy only from them is not a relationship, it’s a trap! Particularly if your vendor has a history of being very slow to adapt to changing market conditions.
Point: Assuming that unfulfilled Service Level Agreements (SLAs) or breach of contract is the easy way to get out of a contract is naïve.
Knowing your vendor goes hand in hand with knowing your customer. Include your vendor in on your planning, and ask them to provide to you a response (road map) that emulates your strategic technology plan and assists you in achieving the plan within the established timeline. Also, a continuous dialogue that updates your plan with the vendor is a best practice and your contract should reflect this. Remember, the plan duration should equal the contract term (i.e. five year contract, five year plan).
Finally, this approach will not eliminate all of your competitive challenges during the next contract term, but it will ensure that you will have more successes than surprises. A solid plan is a map to your objective not a single step in the right direction!