When to Renegotiate Vendor Contracts

Buyers' Training
May 17, 2013 — 1,736 views  
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Renegotiation is one of the ways to make major changes to an outsourcing contract. It requires thorough research, careful strategy planning, and an understanding of your leverage points. Renegotiation of a contract also requires a careful consideration of the changes that needed to be incorporated in the contract.

Depending on the urgency of renegotiation, the risks involved and the review of the contracts should also be performed. There are many ways in which you can renegotiate a vendor contract. But see to it that you perform the contract renegotiation at the right time, so as to avoid losses. The following points will give you an idea about when to consider vendor contract renegotiation.

Misinterpretation of Terms and Conditions

The ways in which contracts are created and enforced are changing constantly. Due to this many vendor contracts may fail because of the difficulties experienced in interpreting the terms and conditions. In such a situation, where a problem is experienced in interpreting the terms and conditions of the contract, it is necessary to renegotiate the contract so as to make things easier.

Make sure that the vendor contract helps all the involved parties to have an understanding of the terms, conditions, and processes that are involved. You should take note of terminology issues for future reference. You can also develop a glossary for important terms, so they are not misinterpreted in any way.

Failure of Communication

Communication gap is one of the main reasons behind the failure of many vendor contracts. Communication gap can lead to confusion regarding the terminology, service content, and performance expectations. Failure of communication can also lead to confusions regarding the service content. This will greatly influence the business deals in a negative manner.

Performance reporting can also get affected due to communication failure. If you move on to renegotiate contract agreements, you can sort out this problem. Organizations should review contracts against actual working practices to ensure that the service levels, content components, and quality levels are clear.

Disparities in Performance Expectations

Many a time disparities will arise between the vendor and the customer regarding the type of performance that was expected and the level of standards maintained. If such a disparity arises, you should immediately consider renegotiating the terms of the vendor contract. This will help in eliminating ambiguity and providing clarity to the terms in the contract.

Loss of Productivity

You might observe a loss of efficiency and productivity among the employees, while following the terms of the vendor contract. In such a situation, contract renegotiation becomes essential. This will help to reason for inefficiency in the work procedures that are stated in the outsourcing contracts. Contract renegotiation will help to increase the overall profitability of the company.

The Renewal Cycle

A vendor contract will have a specific period for which all the terms and conditions will be valid. In the absence of any other issues, you should take into consideration the validity of the contract. Do see to it that the contract is renewed and the terms are renegotiated as and when required.

Apart from these, make sure you take into account the opinions of the key internal stakeholders of the company, while thinking of renegotiating a contract.

Buyers' Training