If you are highly satisfied with your service provider’s performance – congratulations! You are one of the lucky few. The majority of firms rank their service provider’s performance as “satisfactory,” and continue with the status quo unaware of an industry-wide view of optimal engagements. The question, however, is how do you do a contract negotiation when you are highly satisfied with your service provider? Mattern offers three different solutions depending on the type of service being provided:
- Closed Request for Proposal
- Open Request for Proposal
- Renewal Negotiation
Before you begin any negotiation, know what a good deal looks like based on the market and the services being performed. To achieve optimal pricing and terms, this is a must for, as Yogi Berra noted: “If you don’t know where you are going, you’ll end up someplace else.” If you are waiting on the service providers to provide the target (for example, the lowest price of the three), you are leaving money and terms on the table. Invest the time (and money) in defining what a good/great deal looks like.
Closed Request for Proposal.
This is a process where you conduct a request for proposal process but only send it to the incumbent service provider. In other words, you are giving them the 1st bit of the apple. If their response compares favorably to your target/benchmarks, you move forward with them. If not, you open it up to other vendors. In some situations, it may make sense to even provide the target pricing and terms that define your target. The leverage here is the “threat” that if the incumbent does not meet the target (or get close), then their competitors surely will. The key here is having the RFP complete and ready to go so the incumbent vendor knows it is facing a competitive situation if it doesn’t meet the target pricing terms. Click here to read a closed RFP case study.
Open Request for Proposal
Even if you are highly satisfied, the open Request for Proposal may be the best route for your firm, especially if you are trying to achieve the best possible pricing and terms. This is especially true with your outsourcing contract, which is typically in your top five largest expenses or your offsite records storage contracts which usually handcuff you with outrageous permanent withdrawal fees. You can structure the process so that the incumbent gets the opportunity to resubmit their pricing if they are not the lowest. Please note this has to be handled ethically as not to damage your firm’s reputation. Click here to read a case study on an open RFP process.
Renewal negotiation
The last route you can take is to have the incumbent submit a renewal and based on your benchmarks, negotiate from there. This may be the best route if time is an issue and you possess little or no leverage in the process, for example, outrageous permanent withdrawal fees on an offsite records storage contract. If this doesn’t work, you can always go with an open RFP however make sure the effort will deliver the results.
In summary, even though you are highly satisfied, it doesn’t mean there can’t be improvements in service delivery, terms, costs and workflow. Know your target and choose the best tool to get you there, and if your firm doesn’t have the industry-wide perspective, consider a consultancy that does—such as Mattern, of course.
As a recent client stated – “The benchmarking and analysis of our outsourcing contract was invaluable. Mattern’s work armed us with the necessary market information to be able to drive a much more competitive renewal and feel comfortable that the negotiations with our current vendor led to a good competitive outcome without needing to take this out to a full competitive bid process.”
