Contract Negotiation Tips

How happy are you with your current vendor contracts?

It’s a fair question. Your financial institution has specific goals in mind—particularly when it comes to meeting the demands of the future. Your local bank or credit union needs every advantage it can get to remain competitive with larger institutions.

As vendor contracts come up for renewal, it’s time to ask if you’re receiving the services you require at a cost that makes sense or if there is room for improvement. If you’re considering a brand new contract, you need to determine if you’re getting the value you deserve.

Understanding your options for contract negotiations is a responsible way to serve both your business and your customers. In addition, it will help control your cost curve over the life of the contract.

Here are some valuable tips for getting the most out of your vendor contracts.

1) Know Where You Are and Where You’re Going

Before anything else, it’s essential to understand where your financial institution is in terms of the services they provide, the efficiency of procedures, and current costs of operation. But, equally important is knowing where you want to be in a year or any long-term goals in place.

What products and services do you provide, and what do you plan to provide in the future? Where can your operation become more efficient? What innovations are you adapting? Are you planning any acquisitions or sales?

Ideally, you want to think about your long-term strategy and how a particular vendor can help.

2) Considering the Length and Terms of the Contract

Make sure the contract’s length matches up with your overall strategic plan. This should factor in any future mergers or acquisitions and the time it takes to integrate a new core system if applicable.

Look for auto-renewal provisions and understand the conditions under which they work. Every bank operates under a different strategy and timeline. You want your contract to match up with that. You’re within your rights to offer changes to those terms.

how to negotiate with vendor

3) Desired Service Level Agreements (SLAs)

Different core systems provide various services—not all of which may be the same or on the same level of service. Therefore, you want to look carefully at how your vendor monitors and tracks the services they provide and what steps they’ll take to give you the level of service you require. This is particularly critical if your vendor uses any third-party elements.

Examine the service level agreements in your contract with an eye toward how nonperformance is addressed, how long implementation of changes take, and what penalties they are liable for in case of nonperformance, missed deadlines, or other failures to deliver. Look to the Federal Financial Institutions Examination Council for guidance concerning SLAs and service providers.

4) Exclusivity Clauses and Restraints

As banking needs develop over time, there will be situations in which you may need a quick and effective solution that exists outside your vendor’s services. Ensure that your contract does not constrain you in cases like this with exclusivity clauses and punitive provisions should you decide to access a third-party solution.

The freedom to choose the best solution for any issues or innovations you wish to employ should be protected. This includes limiting onerous interface fees to third-party providers and non-disclosure language that inhibits third-party contract negotiating tips

5) Liability and Indemnification

Who’s responsible when something goes wrong, such as a significant security issue or significant loss of data?

Go over your contracts to make sure liabilities are clearly defined and, most importantly, fair. Look for potential issues over limitation of liability in cases of gross negligence or security breaches on the part of the core service, subcontractors, and other third parties.

6) Access To Data

Examine the contract to determine who owns the data. In some cases, bank data is the bank’s property, and sometimes it’s the property of the core service provider. Be wary of any agreement that does not allow your community bank or credit union full and ready access to data for the bank to use for reporting, mining, and analysis.

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7) Penalties For Termination

As with autorenewal provisions, make sure to note any termination provisions in your core services contract as well. Any termination penalties or costs should be easily identifiable and how they’re triggered.

Your contract should include a clear itemization of deconversion fees, early termination fees, exit fees, and length of notification, so you don’t have to deal with any surprises later.

The Value of Vendor Contract Negotiation

It may seem here that we’re describing an adversarial relationship with your core service provider regarding contracts.

Nothing could be further from the truth.

Whether you’re dealing with a legacy core system or looking to bring in a new core system to better service your business and clients, your vendors are there to provide services. In many cases, they are your partners, as their success depends on your success.

That said, the most effective partnerships happen with a solid foundation beneath you both, and that’s where a mutually-beneficial contract comes into play. It helps you control costs while also ensuring quality service.

If you find yourself negotiating or renegotiating a contract with an existing or new vendor, don’t hesitate to call upon expert assistance to help you get the most value you can from your vendor relationships. It will help you now and help you in the future. 704-907-8501