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Paladin Blog

Wisely Restructuring Requires Strong Internal Management

Posted by Aaron Silva on Aug 7, 2014 12:38:00 PM

By Aaron Silva

Contrary to popular belief, you cannot just pick up your Core and IT service contracts a few months before expiration and hope to get it restructured in a way that isfavorable to the franchise. Frankly, this may be the worst timing with respect to trying to get your contract restructured. The act of negotiating a renewal agreement can begin the minute after you sign the original agreement and then continue for years.  It takes a team that is in control, well managed, detailed and articulate.  And it takes strong management to make sure it gets done and at the right time.


Be honest.  Are you one of those banks that manages your contracts with an Excel spreadsheet? If you said yes then congratulations, you are in the majority.  While Excel is a great database for this type of "stuff", it doesn’t work unless you actually open that particular worksheet or workbook in time to review your renewal dates.  This means you have to set a reminder in your Outlook calendar or other system.  Sometimes you might delegate this internally. Either way, it’s inefficient and relies on a human and is now subject to human error.  Outsourced Core and IT services contracts with the likes of Fiserv, Fidelity, Jack Henry, CSI, D+H, etc. are usually the second largest expense in your institution, behind payroll.  Weigh down this reality with the fact that they are one of your most critical vendors and this is no small matter or fleeting concern.  Make a mistake and it will be another 5 to 7 years before you get another shot at your core vendor contracts.  An Excel spreadsheet is just not enough and wisely restructuring is key.

Contract Management Systems

You’ve got more than just one major agreement to track. While Core and IT vendor renegotations and agreements alone can encompass 5-10 separate agreements and oodles of amendments, you probably have many other contracts across the organization that have to be tracked and managed as well.  Fear not! There are some really slick, cloud-based solutions out there to leverage. One that is top of mind is called Venminder by Digital Compliance (http://www.digitalcomply.com/). Send all your contracts to these folks and they’ll enter in every detail, every nuance and any critical information. They will also organize the data and setup all of the reminders and future ticklers you might ever need.  Their system will make sure the right people are notified at the right time for each agreement and if that manager is n/a or no longer with the institution they have a backup plan in place to make sure it gets escalated again and again until it is responded to completely.  Combine Venminder Core with DC’s cloud based Contract Management add-on and you have an assigned resource to not only program and steer Venminder but you get a professional that will make sure contract needs are responded to properly and always in your best interest.  You run the bank or credit union and they’ll guarantee the contracts are watched.


Day One

Here’s some free advice on a fool proof way to never get caught with your pants down when the contract auto-renews 180 days to 1 year before expiration.  Kill the auto-renewal clause, now.  Yes, today…right this minute.  Send your vendor an email stating that you are, at your option, terminating the auto-renewal provision of your agreement and that you don’t wish for it to auto-renew. In most all contracts it is your right to ‘opt-out’.  If you cannot option out – you’ve got a really bad contract!  For whatever reason many bankers seem to believe such a maneuver is a nuclear bomb that will upset your vendor or raise doubts about the partnership. Not necessarily. Getting these notices from customers is pretty routine at these vendors.  Vendors will not remove this language from their agreements and so rather than fight about it – sign the renewal and then move to your keyboard to type out the aforementioned note.  Voila! You just mitigated a mistake that would have crept up and got you canned in about 4.5 years from now. I’ve seen more than a few M&A deals fall apart because someone wasn’t minding their renewal dates and that is sad to see.  Just imagine if the sale of your bank was held hostage by a core vendor.  That would suck.  Have more questions about this scenario? Join our end of the month web seminar and submit your questions. Click Here or below to register. 

 Register For: The Core Way Forward Executive Summary  Web Seminar with Live Q&A Discussion.

Own it

When we begin to review contracts for bank and credit union leaders we always try to match up the name of the banker that signed the original agreement with the management team remaining at the bank. We want to know if the person responsible is in the room or still hanging around somewhere.  There is always a risk that we could say something about the weakness of the current agreement that might hurt someone’s feelings. Most bankers are adults and have a thicker skin than that (you hope).  About 8 out of 10 contacts we review versus the Paladin Blue Book are problematic. They are over Fair Market Value or in some way materially deficient when compared to the current strategy and new terms you may need.  A few of those are a downright embarrassment and we can see that someone was asleep at the wheel. 

Anything not measured cannot be improved. Anything now owned will not be cared for either.  Someone on the management team has to own the systems, the contracts, the analysis and getting your deal negotiated when the time is right.   Make sure contract management is on the agenda at least 1 time per quarter so you might never lose sight.  Make sure that the provisions in the agreement that are optional, that aren't triggers that only benefit the vendor over the institution, are removed, modified or replaced with something more reasonable. 

Get an outside professional to help you negotiate and implement a system that will manage the variables for years to come.

Interested in learning a few more best practices for running your bank or credit union. Click here to be directed to download the Core Way Forward Report


Topics: Editorial