The Myth of the 3 Year Contract

Everyone loves a deal but the old adage of “If it looks too good to be true – it is” holds true. Sometimes companies define a deal based on the best price, without understanding the ramifications of the soft costs that the price will entail. So, how do you determine the soft costs associated with the price?

You have completed the RFP process and selected a partner who you believe will fit your company’s culture. You see eye to eye, you spoke with their references, and you feel you have dotted your ‘I’s and crossed your ‘T’s. Wait – the provider offers you a discount if you sign a contract for three years – it can’t get any better! But wait.

You implement the first project. Hmmm – there are some mismatches on the scope of work, but hey, the relationship is still good. Then, you implement additional countries/scope/functionality and it’s still a bit rocky, and wait – some items were missed in the contract negotiations – where is my Service Level Agreement (SLA)? The provider says, well we do not have a SLA now, but we would be happy to include one when we renew the contract in 2 and ½ years. So now you think, no SLA for 2 and ½ years and things are not going well. What did that 3 year contract really buy me? Not quite what you expected!

When building a relationship with a new provider, it is often wiser to consider a 1 year contract to ensure you have the right scope and service level quality prior to signing up for a longer-term investment. During that first year, there is often need for adjustment and it is important that value is recognized and quality is proven. Then, once the relationship is solid a longer term partnership can be established incorporating cost reductions, quality improvements, and efficiency gains.

TOPIC: Global Payroll
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