Negotiating Vendor Contracts: Best Practice Tips

Oftentimes, the contracting process becomes an afterthought for procurement professionals. So much time goes into developing and executing sourcing events, that when the business is finally awarded to a winning vendor it may seem like the job is done. While selecting a supplier to partner with is a certainly an achievement to be celebrated, the supplier relationship cannot truly begin until a contract is signed. And in order to make sure that the relationship is long-lived and effective, the contact should be fair for both the vendor and the customer. Below are some tips that can help you get through the contracting process as quickly as possible, while also getting the most beneficial terms for your company:

• Always use your own contract draft. Suppliers will try to convince you that using their paper is more beneficial, as they have included certain terms and definitions that only apply to their services. While this may be true in some instances, it is always possible to include some of this supplier suggested language in your own contract draft via the red-line process. However, using your own paper helps ensure that you stay in control of the negotiating process.
  
• Whenever possible, give vendors the opportunity to review and comment on your contract draft throughout the evaluation process (i.e. during the RFP process). This way, if you have two suppliers with identical capabilities and pricing proposals, but one supplier indicated that they would require extensive changes to your contract draft while another indicated that their required changes would be minimal, you can go with the one you know will lead to a quicker contract negotiation process.
  
• Identify the internal team that will need to be involved in the contract negotiation process. The procurement and legal teams will typically always be involved, but depending on the complexity of the agreement you may also need input from the business stakeholders, the insurance department, etc. Identifying all of the stakeholders ahead of time will help ensure that you will not miss anything throughout the process.
  
• Identify any points or terms that are must-haves for your company and any that are only nice-to-haves. This way, if you notice that a supplier does not want to accept some of your nice-to-have terms, you can use that as leverage to ensure that you are able to get all of you must-haves.
  
• Make sure that your team and the supplier always track their changes via the red-line process whenever making changes to the agreement document. If one party fails to track their changes for even one version, it could result in having to restart the contract negotiation process to ensure that no not-agreed upon changes accidentally made their way into the final version of the agreement.
  
• Remember to be professional and fair. Although your instinct may be to want to come out of the negotiating process without any changes to your contract draft, the reality is that because most drafts are very standard, some changes will be required to address specific aspects of a supplier’s service offering. In order to maintain a long term on-going relationship, both sides should see the contract as fair and conducive to the future growth of their respective companies.

Although the above list is certainly not a comprehensive list of everything you need to think about during the contract negotiation process, it should provide a good framework for the negotiating process. Neglecting some of the above ideas may lead to issues in the day-to-day relationship with your vendor, and eventually a combative renegotiation or even contract termination.