Recently I have seen a few situations where clients have been placed in disadvantageous situations in terms of their costs and tie-ins with suppliers. Why? Because they entered into a contract without fully appreciating the terms contained within it. This is usually brought to a head when the client is unhappy with the supplier and/or their costs and wishes to make a change.
At this point, they are confronted with the brutal reality: they can’t terminate because they signed up for an extended period of time and have to give notice. In particularly extreme cases, that contract can have a five-year term and an automatic roll-over, if termination is not given at the appropriate time.
Termination is usually 90 days, prior to the end of the relevant contract period. Unfortunately, people move jobs and contracts get filed – so nobody is managing this nasty little problem and clients can then find they are committed for another three to five years.
The net outcome of that is that the client is saddled with a supplier with whom they don’t wish to work, where the service may not be satisfactory and/or the costs are uncompetitive. But they can’t do much about it. If the costs are just 15% above what might be deemed reasonable (bearing in mind certain costs have reduced in the last few years), the client is going to pay 75% over the odds over the course of a five-year contract term, plus any rises allowed in the contract – so it could be approaching 100% – in other words, a whole year’s charges!
These days, with the increase of cloud computing and remote support contracts, time-bound contracts with tight terms and very limited exit potential are much more common than they used to be. It’s much easier to deal with problems before they occur – by putting in place safeguards to prevent this happening.
Expense Reduction Analysts are experts in negotiating IT contracts and identifying areas likely to cause problems for clients further down the line. We can negotiate these out, or alleviate the risk. We also make clients aware and ask them to diarise the key dates, so they don’t fall into this trap.
For more information on our business to business consultancy, please contact us.
Article by Simon Atkinson