Contract Negotiations, Provider Engagement, Relationship Management
Candor and Transparency: Contract Renegotiation in a Time of Change
We all know that businesses do not exist in a vacuum. At any given time, circumstances can change, requiring an organization to rethink its costs and obligations. Your organization may be facing some difficult circumstances right now, and often leadership first looks internally for ways to reduce costs and realign. Although this is understandable given the payroll impact on operational costs, it is time to schedule open, honest, and transparent conversations with your external HR service providers.
Recently, Mark Stelzner recorded a brief video to walk you through the reasons you might need to approach a provider to renegotiate a contract, ways to prepare for that conversation, and a quick primer on the concept of force majeure. You can view the full video and read a summary, below. If you’d like to schedule a time to speak with Mark or another IA member on this (or any other topic), we continue to maintain open office hours.
Catalysts for Renegotiation
The primary driver for renegotiation is a change in population size. This may be due to permanent reductions in force, employee furloughs or temporary closures of locations, or a change in the use of contingent workers. Businesses may also be undergoing divestitures or spinoffs, which can lead to a change in population. Also, geographic realignment can result in changes for an organization, particularly if a state is added or subtracted from the business footprint. Finally, some industries are seeing a spike in their population growth that may or may not be temporary.
Any of these situations may trigger a need for a candid converation with your HR service providers. As many contracts contain “to be negotiated” language should there be significant changes in the contracted population, your cost per transaction may go up, but your total cost of ownership may go down.
Preparing for the conversation
There are some basic things you can do to get ready to talk to your providers. This includes finding the agreements and contracts associated with the provider (which may be more difficult than you think). Review those documents closely so you understand how the billing is constructed, the contract length and expiration date, and any language around terminations, renewals and notice requirements.
Some more advanced steps you can take include preparing some analysis around your current and future workforce (including employee counts by type and location), known upcoming increases or decreases, as well as any predictive modeling around your future workforce needs. Contracts are typically built around minimum and maximum pricing tranches, so understanding how your tranches may change, whether seasonally or otherwise, is a critical input the conversation. You may also want to explore different service bundling options and explore new term lengths. Sometimes providers can offer more flexibility if you extend a contract term. It all depends on how you need to be structured going forward. As every decision you make has a cascading impact on your external partners, approach the conversation with empathy and grace.
You may have heard this term from time to time. It refers to a clause invoked that essentially frees both parties from liability or obligation when unforeseeable circumstances prevent one or both parties from fulfilling the contract.
If your organization is considering this possibility, consult with legal counsel first. Learn what the requirements are and retain any and all documentation around communication and research into this option. To learn more about force majeure, you can visit the National Law Review website.
If you’re interested in learning more about contract renegotiation specific to your circumstances, or are looking for additional resources for your business, you can visit our Resources page.