“By failing to prepare, you are preparing to fail.” Benjamin Franklin.
To say reviewing technology agreements (core processing and related agreements) is a large part of my job would be an understatement. Not only must I review all agreements at the beginning of any engagement I undertake (either a competitive vendor evaluation or a contract renewal), I also see several each year as a result of merger and acquisition activity. Since 2005, S&P Global Market Intelligence ranks ProBank Austin fifth nationally among whole-bank M&A advisors. Consequently, I review dozens of contracts each year, and in many cases (actually in nearly every case) the contracts in force have clauses that are quite detrimental to the financial institution, or lack protective clauses entirely. In either event, this can easily become financially burdensome or restrictive.
Contracts that were executed a decade or two ago will not have sufficient protection for issues that are only now prevalent. Certain actions such as deconversion support and pricing may not even be addressed, or they are poorly defined. Since the vendor provides the contract, the terms will obviously favor the vendor, unless the institution has aggressively negotiated the business terms to their benefit. But, I seldom see that. More often I see contracts that have standard boiler plate language that never have been negotiated. Even when the contract has passed legal review (which I highly recommend and have previously blogged about, Lawyers and Money), and unless the business issues are identified and negotiated, there could be considerable financial risk for the institution.
Once I review the agreements, I review the business issues with my client. Many times, they are surprised at the shortcomings in their vendor contracts, as well as potential issues that they were not aware of. Even institutions that have a strong vendor management program are often surprised.
In every engagement, my eventual strategy is shaped by an understanding of the current contract’s business issues. And likewise, this is the point at which each institution should begin preparing when considering a renewal, a competitive evaluation, or even a change of control of the institution. This should be the very first step to be taken, long before initiating vendor contact.
To further assist institutions, ProBank Austin offers a Technology Agreement Business Issues Review, in which our experienced professionals review the business issues contained in a financial institution’s agreements, and provide a report on the status of each. We then discuss the findings with the institution, focusing on areas that need improvement. This prepares an institution to move forward with an understanding of the most important issues on which to focus. If ProBank Austin is eventually retained to manage subsequent vendor activity, the charge for this service will be deducted from the resulting engagement fees. The cost of the service is slight; the cost of not being prepared could be substantial.