Capital Chapter Blog

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Win-Win Contract Renegotiations

By Kelly Kidwell, Burns & McDonnell

At the beginning of the COVID-19 pandemic, our household faced a dilemma - what to do about our house cleaning services. At the time, with little known about the virus or how to stop it (very few people outside of healthcare workers or contractors had face masks), having non-family members in the home was simply not an option. Yet we did not want our housekeeper to have to close up shop and pursue a different line of business to make an income. What to do in an unprecedented-in-living-memory pandemic?

Many large and small organizations are facing the same issues. Facilities Managers often find themselves at the center of the essential services discussions, providing insight on how to make efficient cuts that won’t adversely affect the operations of the facility or the mission of the organization. Although the timeline of the pandemic is unknown, and the uncertainty of possible future lockdowns remain, it is important to keep a long-term view in mind when dealing with business partners and take a win-win stance in renegotiating contracts.

Even if your contract is not set to expire for some time, many service providers in the current climate are willing to work with their clients to come to agreeable terms for both parties. There is a vested interest in workplace partners helping the entities they depend on to stay in business. However, keep in mind some partners you reach out to may have less leeway in terms of deviation from their contracts. Organizations that derive smaller profit margins and have less control over supplies or services will have a harder time modifying contracts while keeping the lights on. Distributors, small businesses, private landlords, and small contractors generally have less ability to negotiate. Instead, consider contacting larger companies, financial institutions, larger contractors, manufacturers, and direct service providers to renegotiate terms. 

After deciding which contracts to renegotiate, it comes time to lay out strategies. One common tactic is service extension—where the customer pays at the normal rate, but the provider delays current services and instead extends the payments towards future service. For example, many gyms are adding months to the end of members’ contracts while they are shut down. There are advantages to this strategy, as it keeps the service provider in business, however it may put undue burden on future service if the business is no longer able to fulfill all existing business commitments without taking on new service to maintain cash flow. Therefore, it may not be appropriate for certain types of contracts.

Another strategy is determining if services, support, equipment, or software licenses can be reduced as a way to save money. For example, there may be less demand for printing services while everyone works from home; could your facility reduce the number of leased printers without much operational impact? Retaining some services while still paying for others reduces the burden on your business partners while still utilizing their services. It is usually easy to increase those services again when the time is right.

When it does come time to sit down at the table, be sure to listen carefully to your business partners. It is likely they have problems that you are unaware of, but also just as likely they have solutions you didn’t consider. Ask if they are offering any plans to their customers to help both sides through the Pandemic. Perhaps they are able to discount a “management” or “service” fee typically required of customers. Maybe they are offering something new to provide more value (some companies started offering masks and disinfecting supplies or even disinfection services as a way to supplement their services during the Pandemic). It is important for both customer and service provider to see the other’s point of view, so they can make a fair deal that accounts for the new status quo – one of uncertainty but progressing towards recovery.

In the end, our house decided to pay our housekeeper for one month with no service, followed by two months where the services was canceled and no payment rendered (although we did tip quite a bit extra on the first cleaning post-lockdown). We are now back on a regular schedule, with social distancing and mask wearing. We couldn’t be happier that we were able to come to an agreement that suited both sides while maintaining the relationship we’ve built with a valued service provider.

 

 

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