It’s easy to let contracts just roll on; your team is working to maximum capacity and contract reviews are not their number one priority. The problem is, as more and more pressure is placed on internal teams to optimise costs and improve service, contract negotiation is critical to ensure optimum service and market value for your organisation.
Contract negotiation is common at the point of renewing a contract, making a change to the existing service offer, or moving to new premises, for example.
We often speak to organisations looking to run a tender process that, as a result of a benchmarking exercise, we then establish that a contract negotiation should be explored first. As a result, we encourage the organisation to work with the supplier to agree the best terms to retain the relationship.
This collaboration between buyer and supplier is often welcomed by the suppliers, and is seen as a positive outcome of contract negotiation. The supplier retains the contract and the buyer is more satisfied with the terms, delivery model and commercials.
Jane has over 15 years’ experience of working in B2B sales and marketing. She oversees the sales strategy for eXceeding, but also directly engages with our clients, to understand their challenges and translate them into a tailored service offer to meet their specific needs.
However, organisations can enter into negotiations at any point if they feel that the terms of the agreement are not being met.
At eXceeding, we believe that contract negotiation offers an opportunity to improve and enhance your organisation’s performance. Taking a collaborative approach to contract negotiation often produces great results. Monitoring supplier contracts can open the door to business negotiations in key areas such as duration, delivery, management, solutions, technologies and cost.
83% of companies have no formal renegotiation process or strategy.
Before launching into a full contract renegotiation, take some time to analyse the existing contract and supplier relationship so that it aligns with your organisation’s strategic objectives. Consider the key questions you need to answer before entering into a contract renegotiation;
Consider what is triggering you to potentially renegotiate the contract. It may be driven by you as the customer, dissatisfaction with current performance, lack of innovation, upcoming contract expiry, or by the supplier who is looking at changing terms or prices. Whatever the scenario, it is important for you to objectively consider current satisfaction and potential disruption caused by changing supplier at this time. Without this, it is hard to determine the outcomes you are looking to achieve.
Specify what you need to achieve. By ascertaining and clearly outlining what the optimum outcome is for your organisation, you can then decide whether a full contract renegotiation is the best way forward, or whether you should look at other options such as running a tender process. Think about how you will manage your supplier relationships going forward or whether to outsource this activity.
At the time you entered into your contract, the price you agreed may well have been the right option for you. But with long contracts or supplier price increases, it may be that you are no longer paying the best price for the service provided. It is important therefore to do some market or category benchmarking to find out whether there are other options available and how you can optimise your costs. It’s essential to understand scope creep and whether you are paying appropriately for ad-hoc elements, sometimes the introduction of a standard rate card can be beneficial.
What does your supplier performance look like? Take a deep dive into the original contractual agreement to check the Key Performance Indicators (KPIs) and Service Level Agreements (SLAs) that were put in place. Ask yourself if these are still appropriate and being met? If not, question why this might be the case, as sometimes this may not be the fault of the supplier. This is your opportunity to learn from the existing contractual agreement to ensure that your contract renewal meets your organisation’s needs.
As the world evolves over time, so do your organisation’s requirements. The product or service you agreed at the start of your contract may no longer fit the strategic objectives of your organisation, or be the best solution on the market. Understanding what is available, how it could impact your performance and analysing the risk in your supply chain is a vital stage of the renegotiation process. Sometimes technology has shifted during the agreement and there are other more appropriate solutions.
Contract negotiation can be a complex process, especially if you have a harmonious long-term relationship with your supplier.
In addition to the process, the art of business negotiation is a skill in itself. It doesn’t come naturally to everyone and sometimes it’s better to have an external consultant as the ‘bad cop’. It is important to have someone fronting the discussion who is experienced in negotiation, teamed with input from the right internal people to bring an aligned view of the best outcome, not just from an operational perspective, but from a compliance, strategic and contractual basis too.
This is when an external perspective, from a specialist contract negotiation consultant like eXceeding, can really be beneficial. Our specialist consultants have renegotiated hundreds of contracts across many sectors and categories, giving them valuable insight on areas such as market value, expectations in terms of supplier performance and potential innovations in the way the service is delivered.
Without this wider market insight, how do you know if your current supplier is the best option available to you?
Our clients often tell us that they do not have the time or sufficiently detailed understanding of their suppliers to be sure they are getting the services, the contracts and the SLAs entitled to them at the right cost.
We commit to offering you the best advice to really suit your organisation’s needs.
In reviewing your contracts, we may advise that running a tender is a better way forward, or perhaps we will conclude that you already have the best supplier, so a cost or solution optimisation process may be better.
Whatever the outcome, our contract negotiation consultants can provide ongoing support to maximise your supplier relationships and act as a vital additional resource to your procurement team in the future.
Our specialist team have led numerous successful renegotiations for clients in both public and private sector organisations. These are people ready to help you.