CXO

5 best practices for managing vendor contracts at SMBs

Contract management at small or midsize businesses can be fraught with challenges. Here are tips on overseeing and maintaining vendor contracts.

It's not uncommon for company leaders' contract negotiations with IT vendors to take hours, since pricing, terms of service, disaster recovery, service level agreements (SLAs), and more details need to be discussed. Diligent contract negotiations usually pay off because companies wind up getting a good deal, and risks are reduced when vendors ensure they will meet expectations.

More for CXOs

Report: 2018 IT budgets are up slightly; spending focus is on security, hardware, and cloud

In a recent Tech Pro Research survey, 39% of respondents said their 2018 budget would increase slightly. This report and infographic has more information about how that money will be spent.

However, at small or midsize companies, once a contract is negotiated and signed, it might be a middle manager's responsibility to oversee a vendor's performance as it relates to applications, database, telephony, networks, security, systems, or other area. Most middle managers don't have contract management backgrounds or even exposure to contracts and contractual conditions, so they may not have a clear idea of what to expect from vendors. There are three reasons why this happens.

  • Middle managers are not evaluated by their superiors based upon what they know about contracts;
  • Once contacts are signed, business processes break down, and the middle managers usually don't see those documents; and
  • Middle managers focus on daily IT work and operations, and administrative tasks such as contract management is a lower priority.

In these environments, it is easy to slack off on contract management, but managers shouldn't because outside vendors are integral and collaborative elements in IT work. Almost no project or operation gets performed without a product, service, or even direct collaboration from one or more vendors. Consequently, if a vendor's work doesn't measure up, internal projects won't either—even with extremely smart IT team members.

SEE: Service level agreement (SLA) policy (Tech Pro Research)

5 tips for managing vendor contracts

Here are five best practices that middle managers can follow to manage vendor contract promises, while still focusing on important operational and project work.

1: Know which vendor contracts affect your work

This might seem elementary, but many middle managers are unaware of the contracts that have been signed with the vendors they work with. At the minimum, you should know your vendors' SLA commitments, because those guarantees will directly impact project and operational performance.

2: Identify a direct contact for each vendor

If a vendor's performance falters, you need to know who to contact at the vendor company. Many companies have been working with particular vendors (especially those offering generic services) for so long that they have no personal link to the vendors. This becomes a risk factor if a vendor's product or service plays a major part in your IT production, and you start running into vendor-related problems.

SEE: Special report: How to choose and manage great tech partners (free PDF) (TechRepublic)

3: Monitor the status of every vendor contract

When is each vendor's contract up for renewal? Does the contract auto-renew? Or, do you want the contract to lapse? These are some of the important questions to consider about every vendor contract.

4: Be wary of vendor sunsetting practices

Many cloud-based vendors deliver continuous release versions of their software, so the software can change daily. Continuous change software can create integration issues with your own applications and systems that must interface with it. Ask the vendor if you must accept all enhancements as they are issued, or if you have the flexibility to install a vendor update when your project is ready to accept it.

5: Bone up on contract management

If you want to move up the management ladder, you should make it a point to read about contracts or to take a course on the subject. Sooner or later in your career, you will be asked to negotiate a vendor contract.

Also see

istock-512549722.jpg
Image: Yuganov Konstantin, Getty Images/iStockphoto

About Mary Shacklett

Mary E. Shacklett is president of Transworld Data, a technology research and market development firm. Prior to founding the company, Mary was Senior Vice President of Marketing and Technology at TCCU, Inc., a financial services firm; Vice President o...

Editor's Picks

Free Newsletters, In your Inbox