How to Build a Vendor Contract Playbook

We are not recreating the Customer Contract Playbook as a Vendor Contract Playbook; there is no need for you to create and propose contracts to a vendor. Instead, we will create this playbook to highlight the key terms your company should consider and negotiate prior to signing a vendor contract. There are risks and benefits that need to be balanced in a contract. The terms that most affect your business should be identified, ideal terms listed, and walk-away terms defined prior to signing contracts to streamline the process and prevent expensive or limiting mistakes.

The impact: A Vendor Contract Playbook will streamline your vendor contract negotiations and help you maintain clarity on what terms are most important to your company. This preparation will help ensure your company gets the service and products it needs to get the job done on terms that benefit you.

The goal: We will walk through a process to identify vendor terms that impact your company the most, what terms would be ideal and a process for approving vendor contracts.

Steps

1. Identify which vendor contract terms affect your business the most. These could be terms that add unacceptable risk, remove control, add variability, or reduce your ability to increase revenue or customers.
2. Ideal Agreement Language: what are the ideal terms to help your company meet its objectives?
3. Justification: Give a short description of why to codify your thought process.
4. Acceptable Fallbacks: If a vendor is unwilling to sign to your ideal term, what would be an acceptable fallback? Rank in terms of preference.
5. Unacceptable Fallback: What is an unacceptable fallback? Where is the line to indicate it is time to walk away from this vendor negotiation?
6. Approval Process: Does there need to be an approval process for deviations from the ideal agreement language? What does that look like?
7. Codification and Use
8. Set a process around how to use the playbook: does the contract negotiation process need to be documented?
9. Distribute the contract playbook to the appropriate players.
10. Train those players on expectations and how to use the contract negotiation playbook.
11. Update regularly.

We recommend the following two terms, Multiyear Price Lock and Assignment without Approval, as two terms to include in your contract

Term: Multiyear Price Lock

Multi-year price locks are very valuable at keeping your costs predictable and your forecasted EBITDA accurate. Push for them. It might also be worth a slightly higher price. Remember your goal isn't the lowest price you can squeeze the vendor into, the goal is a good relationship. It is worth remembering how you would like your customers to treat you during negotiation and reciprocate that with your vendors.

Term: Assignment w/o Approval

As mentioned in the Customer section, when it comes time to sell your company, you are fundamentally selling your contracts, including vendor contracts. A buyer wants to know what it's expenses will be upon purchase. If your vendor contracts do not have an Assignment without Approval term, then your vendors will need to approve the reassignment of the contract to the buyer. This adds uncertainty and a potential pitfall to the buying process. No matter how nice, a vendor will likely use this situation as an opportunity to increase their contract value. You don't want a vendor to be able to renegotiate