Saturday, February 19, 2011

Using a Partner to Help wth Vendor Contract Negotiations - Can You Save Money and Time?

my first desk at MegsINetImage by wjr via FlickrTo start, I want to ensure those of you reading this post that it's not intended to have any "sales" motive behind it. I'm merely interested in getting your take on the viability of this concept since many of you are involved with your vendor agreements, particularly when it comes to core processing and other "large dollar" investments. As a former banker myself, I know first-hand that these account for a majority expense for many data processors, spending thousands of dollars every month. With the "number crunch" underway at most institutions, I suspect that any ways to save money are being given consideration...

Some of you may have experience with vendors that will work with your organization and do "audits" of cost and agreements. I've been through these before when it comes to telephone and Internet service (since many of us miss the subtle elements that unknowingly cost us more money and can be cut - or at least re-negotiated to save money in the future). But I've recently been contacted by a former vendor (and friend) that left one of the major core processors to start a business that can come in to a financial institution and help with this function as it relates to the "big" contracts. I'm wondering, after sharing some of what they have told me are key differentiators of theirs, what your take is and if this strategy holds water.

Key Factors:
  • No Risk: They work on a contingency basis and only are paid a percentage of money saved. This protects the institution from having someone come in, charge money and then deliver minimal results that don't justify the cost. I'm told if there is not an opportunity to save a client at least $100k or more, they will walk away.
  • Former Vendors: They believe this is important since they know where the "skeletons" can be in contracts and can act as an advocate on behalf of their clients. While the initial reaction (if you are a vendor) may be negative to this, they also understand the value of extending contracts when the time is right and how to leverage this for the mutual benefit of the institution and the vendor (signing a 5 or 7 year deal can result in some significant savings for the institution and a longer-term customer for the vendor).
  • Maintain Existing Relationships: While some in this space focus on helping an institution generate an RFP and shop out the service to get a competitive bid and present cost savings this way, these guys realize that switching vendors (unless there is a good reason), ranks right up there with root canals. Their focus (as referenced above) is working with the incumbent to help achieve a cost savings through product combinations, contract terms and areas for savings that preserves the relationship and helps keep internal operational disruption to a minimum.
  • Time Savings: You're busy enough these days, right? Rather than you take the time to comb through agreements looking for things that may (or may not) be able to save you money, they take the burden off your shoulders and do it for you.
  • Proven Results: It's nice to know, that while I'd still consider them a "startup" they have been able to save some clients money in their short time of operation. They have been doing this for almost two years and their average savings over a five-year period (most standard contract terms) is around $750k with an average institution size in the $500MM asset range. I'm sure as with anything else, performance and savings will be a factor (to a degree) based on asset size, but would even a few hundred thousand dollars be worth it (that's what I'm asking)?
  • Vendor Respect: They have received actual testimonials from some of the major core processors for their work, which seems counter intuitive since they work for the customer and seek to save them money. But, I suspect due to their past "vendor lives" they are able to bridge the gap here and ensure that both sides walk away happy, since the institution and vendor are the ones that have to "live together" once the negotiations are over.
I think that gives you the gist of their business model. Since I'm no longer in a position to take advantage of a service like this, but have a great deal of respect for the folks that are starting this up, I'm curious to see what your thoughts are. What are your questions? What are your concerns? Have you tried this before (and did it work or fail)? How much in savings would make it worthwhile to engage a service like this? What else would you want to know before giving something like this a try in your institution?

Looking forward to your comments and getting some ideas. In the sense of keeping this informational and NOT sales related, I'm not sharing the name of the company or any of the individual names. Only if you are interested in learning more about the actual service will I share this and ask that you contact me directly so as to not turn this into something that would not be appropriate for this type of forum.

eric (at)
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