When it comes to your firm’s contracts: begin with the end in mind
Are you willing to hand over an additional $50,000 to terminate your vendor contract early? How about $150,000 to retain key office services personnel during a vendor change? Your answer to these questions are, undoubtedly, “no.” However, it is possible you may have already agreed to similar terms in your existing Labor, Services or Equipment contracts.
It is no secret; most contracts contain clauses and loopholes which favor one party over the other and that some of these loopholes have financial penalties attached to them which can range from triple the monthly bill, to a factor of a person’s salary, to a flat dollar amount.
Some of the more common types of these penalties Mattern has encountered are:
- Equipment Buyouts. Just like buying your leased car. If you decide to return your existing equipment, you may be responsible for remaining lease payments or the fair market value of a device.
- Equipment Removal Fees. If after termination of the equipment agreement you decide to return the devices, additional costs may be added to remove equipment from your premises.
- Early Cancelation/Termination. If the firm elects to cancel a labor or service contract prior to full term and without cause, this penalty can be a multiple of the base contract amount.
- Termination of Client Personnel. As the result of terminating a labor agreement, the vendor may not be responsible to keep those individual in their employ, but the client may be responsible to bear the severance costs of these employees until they are reassigned.
- Non-solicitation Fees. If you decided to change vendors and wished to retain any of the existing staff, the vendor may assess a penalty. Note: They may also assess this penalty if a third party hires the existing staff, with or without your knowledge/approval.
Although many of these penalties are only applicable if you terminate your agreement early, there are still some which can be imposed even at the end of an agreement which has gone to full-term. Where these really hurt you is when your firm is attempting to streamline services under one vendor or simply make a vendor change due to performance.
At Mattern, we are all in favor of vendor’s protecting themselves, but many of these penalties are just handcuffs to keep your firm from making cost-effective changes to your operation.
What do you do? First off, begin with the end in mind and think about what happens if you have to cancel a contract prematurely. Decide from the beginning on what controls you want over the situation and structure the contract appropriately. By creating a competitive situation your firm can minimize the impact of these penalties. The problem is the vendors all want the same protection so many of them are pitching the same penalties this is where market knowledge comes in to play.
If you feel you have an issue with the penalties in your contracts, contact the experts at Mattern who can develop a strategy to eliminate or reduce your firm’s exposure.
Welcome Joe Trdinich and Betty McAlvany to the Mattern & Associates Executive Team
Sometimes it’s nice to take a moment to observe a job well-done and also, in this case, to roll out a little proverbial red carpet.
Which in this case means we are pleased to say that, as a result of year over year double digit growth in revenues, we at Mattern & Associates are in the fortuitous position of bringing on two industry veterans to significantly strengthen Mattern’s Executive Team: please welcome Joe Trdinich and Betty McAlvany.
Joe joins Mattern with over twenty-five years of industry expertise, including nearly 15 years of executive leadership at Pitney Bowes in both the Management Services and Legal Solutions divisions and where he led operations for over 150 clients in 275 locations nationally and managed annual contract revenues exceeding $250M. He will be taking on responsibilities in operations.
Betty, a Six Sigma Black Belt, was a Solutions Principal in Records and Information Management (RIM) and the lead for RIM solutions, development and delivery at Pitney Bowes Management Services where she implemented customer satisfaction programs yielding an impressive 96% client satisfaction rate and 97% client retention rate.
We’re pleased to always move Mattern & Associates in the direction of excellence, and bringing Joe and Betty onto the Mattern Team will continue to serve that company goal.
We look forward to both the industry expertise that each of them will bring to Mattern &Associates, and also to working with them as highly respected colleagues.
Welcome to the Team.
Q: Who Is Minding the Store? (A: You)
I am sure many of you saw the article about the Fried Frank employee charged with stealing $376,000 worth of copy machine toner. This is not the first time we have run up against this type of behavior; it’s office theft, a surprisingly common practice. In the past, our team has encountered situations where employees were selling copy machine paper out on the street.
How does this type of large scale office theft happen, though? Surprisingly easily—given the opportunity and if no one is minding the store—which was obviously the case (no pun intended) here.
There are many misconceptions about office theft that lead to a lackadaisical reaction including the misunderstanding that the cost burden of theft is on the copier company since the supplies are normally covered under the service contract. This is incorrect; in the long run, your firm will be the one paying for this theft through higher supplies and maintenance pricing. Also many service contracts have language that allows them to increase pricing if your yields are not in line with normal usage/coverage—which, of course, occurs in the instances of large scale theft.
So, how and where can firms apply the tourniquet to stop this kind of theft?
The solution is straightforward if you have the controls in place or, more to the point, if the vendors who support you do.
If your service contract includes supplies:
- Have your vendors provide your firm periodic reconciliations on supplies shipped versus volumes ran on their equipment.
- Require them to ask for a meter read when supplies are ordered.
- Some companies implement automatic shipping based on projected volumes. This is can be troublesome at times but is another option.
If your service does not include supplies:
- The reconciliation is on you. Perform a semi-annual reconciliation tying in your volumes to toners used based on average yield.
- Better yet, tie the volume and yield into your cost recovery system’s reported volume and get a picture of your whole process.
$376,000 is a lot of toner—but you can leverage your contracts and cost recovery protocols to gain visibility and control over your firm’s office supplies, and take away opportunities for large scale theft your firm will eventually foot the bill for.
How Winning is Done
First, a quote from the legendary fighter, Rocky Balboa, from the inspirational speech to his son, “How Winning is Done”:
“It ain’t about how hard ya hit. It’s about how hard you can GET hit and keep moving forward. How much you can take and keep moving forward. That’s how winning is done!
Now, if you know what you’re worth then go out and get what you’re worth.”
I am sure you are aware of the issue highlighted in the media about DLA Piper and the accusations of overbilling raised by a former client. Having worked with DLA on a number of engagements, I would be shocked if these allegations were true. We don’t know the whole story, but the truth will come out at some point.
However, much as it is primarily a problem for DLA Piper now, it sure doesn’t help the image of the legal industry as a whole, either, which, let’s say, has been on the ropes a bit particularly on fees; this sort of story is like taking a hit in a fight.
But, take a step back and look at the big picture. The situation also creates opportunities for law firms to continue to build trust through transparency and data driven fee arrangements. Get out in front and fight the good fight of knowing their value. Well-structured fixed fee arrangements and transparency on the recovery of hard and soft costs really puts all these issues to rest not only for the clients, but for the firms as well.
While Mattern & Associates is not an authority on well-structured fixed fee arrangements, that is how we work in our business—and we are, in fact, an authority on cost recovery and the creation of a client-focused strategy that will increase the net realizations of your costs. We bring clear, unbiased and comprehensive data to bear upon your firm’s contract negotiations.
That’s how you know what a contract is worth, that’s how you communicate with transparency—and that’s how everybody wins.
OfficeMax and Office Depot merger: creating opportunities across the board
As most assuredly everyone knows by now, OfficeMax and Office Depot announced a merger this past week that is expected to close by the end of 2013. While this move creates one less competitor in the marketplace, it also creates opportunities for their customers.
Here is Mattern’s take on the merger:
- A more competitive market with lower pricing. If you haven’t priced your office supplies recently (which you should do at least once a year) then now is an excellent time to do so. After any type of merger, the merged companies are highly focused in retaining existing market share and will be aggressive in trying to keep current customers of both entities satisfied. If you are currently a Staples customer, then now is also a great time to shop. Staples, like Office Max/Office Depot will be desperate to maintain market share and will be very aggressive maintaining your business.
- Expect Staples to be hyper- aggressive in the first six months of 2014 once the merger closes to take advantage of post merger mistakes by Office Max/Office Depot.
- Less bricks and mortar for the merged companies. If retail locations are of importance to you, there will be less stores for you to chose from for the Office Max/Office Depot customers due to the plans to close and consolidate locations.
- Your strategy if you are a current customer. A pushback now to either vendor can reap some benefits. If you are an OfficeMax/Depot player, avoid a long-term commitment until the service aspect shakes out.
- If you are not a customer of either organization, now can be a great time to shop your office supplies. If you go with Office Max/Office Depot make sure your contract covers you from a performance and service aspect.