Smart purchasing decisions help a practice run more efficiently, improve the firm’s bottom line, and make your job easier.
But what should you include in purchasing contracts and lease agreements? As important, how do you negotiate the best possible deal for the firm?
Determining requirements
Before you solicit bids or attempt to negotiate a contract, it’s essential that you understand the firm’s priorities.
For example, you may be able to get better pricing if you pay immediately upon receipt of products or services. However, if the practice prefers to pay within 30 days for cash flow purposes, the savings may not be worth it.
Here’s another example. If you enter into a contract with an IT technician at considerable savings when that person’s response time isn’t quick enough, the savings probably isn’t justified.
Likewise, product brands may be an issue. Off-brand products will typically cost less, but there’s often a difference in quality. This is the old “make sure you’re comparing apples to apples” adage, and it’s essential to smart purchasing decisions. If you decide off-brand products will work for certain items, such as paper clips as opposed to hardware, for example, determine this up front rather than during contract negotiations. This way, your price comparisons will be accurate.
It’s helpful to make a list of must-haves and nice-to-haves before talking to vendors. This list serves a dual purpose: It allows you to determine requirements and it becomes a checklist you can refer to when soliciting bids or negotiating contracts.
You may even want to rank your must-haves in order of importance. This will allow you to identify your true priorities.
Getting the best deal
When it comes time to negotiate, keep that list handy. Vendors are salespeople, and some of them can talk a good game. It can be easy to lose sight of your objectives, especially if a salesperson introduces new options.
Vendors will sometimes try to sweeten the deal by offering better terms if you extend the contract, suggesting other products or services, or introducing new components, such as alternative payment terms that you haven’t requested. Be careful not to get sidetracked by these offerings.
It may be in your best interest to change the terms of the contract, but you need time to consider if this is the case. Stick to the products/services and terms you initially requested, and get pricing based on that criteria. This way, you can accurately compare one vendor to another.
If the new deal sounds compelling, ask the vendor to provide a separate proposal. Then, do your homework, which should include obtaining comparative pricing.
Before you enter into an agreement, make sure you have secured competitive pricing. However, keep in mind that pricing is more difficult to negotiate than terms; prices are never going to be rock-bottom—and if they are, you should be wary.
However, you can usually generate savings or get added value by negotiating contract terms. Remember the early payment example? For many firms, payment in 30 days is preferable to due on receipt.
Similarly, systems downtime comes with a cost to the firm, so you want to negotiate as short a response time as possible from service vendors.
Entering into a contract
A contract is a legally binding agreement, so before you sign you want to make sure you’ve covered all the important details. These include:
- Length of agreement.
Is the contract for one year? Two? Does the contract automatically renew? Beware of agreements that automatically renew unless you cancel.
- Product or service pricing.
Have you locked in pricing for the length of the contract? Don’t assume; ask. Then, read the fine print to be sure. Sometimes a vendor will guarantee pricing, unless the manufacturer has an increase and then the cost will be passed along to you. Avoid these kinds of agreements if at all possible.
- Cancellation clause.
Do you have an out? There could be any number of reasons you want to cancel an agreement, including that the firm’s needs have changed. Make sure you have an option to cancel with reasonable notice, such as 30 days.
Finally, even though you’re busy, read the agreement. Then, check and double-check the pricing and contract terms for accuracy. You spent time negotiating a great deal—make sure you’re committing to the deal you negotiated.
