Vendor contract amendments can look simple and harmless – a brief paragraph, perhaps up to two pages, addressing some routine items. They often even include an upfront payment to recompense for your troubles, an unexpected “bluebird” that might help offset the inevitable budget worries. Don’t be lulled into complacency. These few sentences can carry significant implications and should be inspected just as closely as your original vendor contract.
It’s imperative to understand the full repercussions of a vendor contract amendment, both financial and contractual. In a previous post, we discussed the perils of “free money” and how there’s almost always a price to be paid on the contract’s back end in exchange for these gifts. This most often takes the form of an extended expiration date or establishment of a cancellation penalty allowing for these funds to be regained. Make sure you understand the full picture before inadvertently signing off on new constraints.
The fine print may also affect other active agreements with the same vendor. Depending on how various contracts are connected (for example, under a single Master Agreement), a change to one may extend the expiration date to others in entirely different parts of the enterprise. Colleagues relying on a contract management database may eventually notice their recorded end date is no longer valid, but not until it’s too late.
The Bottom Line
We don’t want to imply that account reps bearing vendor contract amendments are always looking to get over on their clients. Most of these relationship managers lack a complete view of your company’s situation and may themselves be unaware of the amendment’s full ramifications. Additionally, they often see themselves as presenting a win/win package that provides unexpected upsides for the company while making financial sense for the vendor.
The problem, however, is that although the manufacturing company is receiving some benefit, in our experience, it rarely equates to market value. And by agreeing to a nominal amount, the manufacturing company has likely pushed out even further its next opportunity to make a market rate deal, serving as more proof as to why it’s important to stay attuned to the market pulse, not just at contract expiration.
The bottom line: whenever a vendor gives you something to sign, it should be analyzed with the same precision – including legal review – as the original contract. You may discover an offer, and some “free money,” that you’re more than happy to accept. If so, you’ll then be pocketing it with the comfort of knowing you haven’t left money on the table or complicated your company’s future situation in unanticipated ways.