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Do You Have the Technology Know-How to Effectively Manage Your IT Contracts

By Kelly Flynn, National Director

As technology becomes more and more of an integral part of how financial institutions operate and provide account holders with the products and services they need, information technology (IT) services can account for as much as 70 percent of total spending, depending on the scope of services implemented. And as efforts to curb unnecessary expenses continue as a strategy for countering declining revenue, credit unions and banks must keep a watchful eye on their IT service contracts to make sure they are getting the most appropriate tools to meet their goals, along with the best prices and terms.

But technology agreements can be lengthy and confusing. And if you aren’t familiar with the terms and language used to describe the conditions and intricacies of the services you receive, your contract could be more beneficial to your vendors than to your organization.

How do you know if you are getting what you need at a reasonable price?

Negotiating through the complexity of IT service contracts can seem overwhelming, especially when you are already strapped with increased responsibilities. But understanding the terms and conditions contained in these documents will give you an advantage when it comes to negotiating for the most value and best service from your existing vendors.

If you don’t have someone on staff with the knowledge necessary to effectively represent the institution’s best interests, an expert in contract review and negotiations can provide this service so that you and your staff can concentrate on more value-added business functions.

A complete examination of all aspects of your current contracts can help to uncover areas that may need to be renegotiated and determine the following:

  • Are you getting the best available rates for the services you use?
  • Do annual price increases add to your costs over the length of a contract?
  • Are you experiencing billing errors?
  • Are you paying for services that you no longer use?
  • Is it possible to consolidate services to increase efficiency?
  • Do any contract terms need to be modified to make them more favorable for your credit union?

Preparing for unforeseen changes in vendor relationships

In today’s environment, change is inevitable—for your financial institutionr credit union as well as your technology service providers. If you don’t have someone reviewing your IT contracts on a regular basis, or the person tasked with this responsibility is inexperienced or doesn’t have sufficient time to devote to this important assignment, it can cost the institution in a number of ways.

For example, if a vendor is involved in a merger or acquisition, how might this affect your service? While it may allow you to consolidate multiple services with one provider, the loss of competition could lead to increased costs down the road. A contract negotiator can help identify vendor options or recommend opportunities for bundling services to save money and improve efficiencies.

Or, if your current vendor doesn’t offer the services you need to support your plans for growth, what are your options for contracting with other providers? It is important to have a clear understanding of the termination details in your contracts to avoid any surprises should you decide to make a change before your contract expires. A thorough contract review can provide a clear definition of termination penalties, exclusivity clauses, and other details that might make it difficult or costly to change service providers.

Avoiding security risks

In addition to the obvious concerns regarding price and service quality, credit unions and banks must be sure that their technology vendors provide security throughout the network and customer account holder portals. In addition to disrupting business, security breaches can wreak havoc on an institution’s reputation and member relationships. Plus, failure to adequately address security issues can lead to increased scrutiny from regulators.

There is a hassle-free solution

In many cases, the major complaints involving service contracts are limited to price and poor service issues. A third-party expert in contract negotiations can suggest solutions for mending conflicts in the relationship between you and your vendor. Plus, their objective viewpoint often encourages the vendor to become more strategically involved in your goals. For example, with some guidance your ATM/debit card vendor could actually play a role in your marketing efforts.

And while these remain important elements of a healthy relationship between a financial institution and its vendors, there are many additional aspects of a contract that need to be addressed from time to time. When the issues become more difficult, an expert can help you receive maximum results without the headaches of going through the negotiation process yourself, especially when you consider that a typical ATM/debit card processing contract alone contains between 50 and 60 line items. If you don’t know what to look for, you could miss out on a significant number of savings and improved service opportunities.

Some institutions credit unions may be hesitant to challenge their contract costs and/or terms for fear of a resulting vendor change or system conversion that could inconvenience staff and account holders. The truth is, a contract review does not necessarily lead to a new service provider. If you are receiving good service and you are happy doing business with an existing vendor, a contract review can result in better terms with a higher level of service.

To learn more about effectively managing your IT contracts, contact Kelly Flynn at 800-809-2307 or Kelly.Flynn@JMFA.com.

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