Adopting a Long-Term View of Vendor Contract Relationships

In this dynamic financial services landscape, credit union executives are grappling with the rapid pace of technological advancement, regulatory shifts and economic fluctuations. Amid these challenges, one crucial aspect often overlooked by credit unions is the management of vendor contracts, which can significantly impact an institution’s financial health and growth trajectory if not approached correctly.

It is no secret that navigating critical vendor contracts is an intricate process. Critical contract renewals, reviews, RFPs and subsequent negotiations can be difficult for credit unions to manage on their own, especially when compounded with outdated clauses and terms introduced by legal professionals and other third parties.

Another common pitfall occurs when personnel changes happen during the lifespan of multi-year contracts, leaving new stakeholders disconnected from the original agreement’s terms and obligations. This fragmentation across vendor relationships, coupled with various contract amendments, poses a significant hurdle for credit unions to overcome.

Regarding vendor contract negotiations, credit unions should seek to secure fair and favorable terms for themselves and vendors. However, the complexity of managing vendor contracts can get in the way of this goal. With the proper strategic guidance and foresight, credit unions can unlock substantial cost savings and secure more favorable terms.

Challenges Encountered by Credit Unions During Contract Negotiations

One of the biggest mistakes credit unions can make upon finalizing a lengthy contract is becoming complacent. It is easy to place thoughts of contract negotiations on the back burner, especially when contracts extend over multiple years. This relaxed mindset can catch credit unions off guard, especially when a five-year contract goes by quicker than anticipated.

As vendor contracts approach their expiration, the window for meaningful action dwindles. Things like built-in auto-renewal clauses further limit flexibility, rendering negotiation leverage ineffective. Even if a credit union decides to remain with its incumbent vendors, it can miss out on securing better terms and savings opportunities.

One year is inadequate time for credit unions to complete both the RFP process and the implementation phase. Credit unions should take proactive measures to avoid a “lame duck” period by streamlining vendor negotiations and adopting vendor contract strategies that prioritize a comprehensive, long-term view. Accomplishing this goal requires a firm understanding of expiration dates, identifying key negotiation opportunities, and recognizing critical dependencies among vendors and contract types.

The Importance of Alignment

Amid the ever-changing landscape of solutions and providers, the complexity of interdependencies within operational platforms remains a constant challenge. Credit unions that switch operational platforms often experience a domino effect that impacts their entire system – a difficult scenario to avoid. Although APIs and middleware can alleviate some disruptions, unforeseen interactions are inevitable.

This issue can be simplified by establishing a long-term relationship with an experienced industry partner. Such partners are invaluable and bring a wealth of knowledge across the market solutions landscape, aiding credit unions in aligning their strategies. This partnership should encompass all facets of the vendor sourcing and contract negotiation process, including vendor capability assessments, price benchmarking, negotiation of favorable terms and seamless integration of new technologies into existing systems.

Access to institutional knowledge and expertise provides institutions with a competitive edge. It enables them to receive crucial insights and guidance, fostering enhanced agility in response to evolving market conditions and supplier risks. With a knowledgeable partner, credit unions can maximize cost savings across contract cycles and identify previously unavailable new product options.

Institutions must take a strategic stance, allocating resources wisely to meet evolving market demands and maintain pricing in line with industry norms. With a comprehensive outlook of eight to 10 years out, institutions can strategically assess, plan and execute their contracts efficiently.

Ben Mrva is the Chief Revenue Officer for SRM (Strategic Resource Management), a Memphis, Tenn.-based independent advisory firm serving financial institutions.