Getting a Handle on Unmanaged Spend...Getting a Handle on Unmanaged Spend Friday, November 2, 2018...

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Getting a Handle on Unmanaged Spend

Friday, November 2, 2018

Dan Schneider, CEO

SIB Fixed Cost Reduction


Who is this guy and why is he talking to me?


SIB in the News

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Opportunities We See Across Different Industries


Partial Client List


“That’s Not My Job”

This is a story about four people named Everybody, Somebody,

Anybody and Nobody. There was an important job to be done and

Everybody was sure that Somebody would do it. Anybody could

have done it, but Nobody did it. Somebody got angry about that,

because it was Everybody’s job. Everybody thought Anybody could

do it, but Nobody realized that Everybody wouldn’t do it. It ended

up that Everybody blamed Somebody when Nobody did what

Anybody could have.


(Lack of) Departmental Communication


Cutting Class and Not Getting Caught

A real-life case study in not checking on things


Contract Language

• Auto-Renew Clauses

• Signatures at Manager Level

• Price Escalators

• Hyperlinks

• Company-Wide Contract Term Policy

• Fuel Charges


Auto-Renew Clauses

• Agreements should automatically renew month-to-month after the initial term.

• This is a better option than an agreement terminating, as favorable agreement terms can be maintained into perpetuity.


Signatures at Senior Level

• Employees should be trained not to sign agreements and to be careful not to commit to verbal agreements during phone calls.

• Some vendors and service providers may use deceptive practices to get low-level employees to make contract changes and renewals.


Price Escalators

• Firm rates for the full term of an agreement is always best. When that is not an option, a fixed maximum % increase is necessary. Some companies will offer language tied to CPI or labor rates.

• There can generally still be a cap: the greater of CPI or 5%. Worst case scenario, make sure the rates are based on a specific index from a neutral party which can be easily accessed.

• Tying labor rates to union rates won't do any good if the union will not release the information.

• Never enter into a contract that does not specify exact pricing and term length.


Hyperlinks

• Hyperlinks allow vendors and service providers to change the terms of an agreement on a whim.

• Whatever is on the website is what you are bound to.

• Why even sign a contract if the other party can adjust it however and whenever they like?


Example: Hyperlinks


Negative Effects of 12-Month Contracts

• There is no one-size-fits-all for contracts. A “maximum 12-month term” policy is generally the result of fear and getting burned on previous bad decisions, but can result in significant overpayment.

• Attempting to manage a service contract without the proper resources and knowledge can lead to the entire company being forced to overpay.

• Properly written and managed, longer term service agreements can save time and money.


Fuel Charges

• Fuel charges are similar to price increases.

• Ideal fuel charge scenario:

- Remove fuel charges to reduce cost

- Cap fuel charges to reduce cost

- Tie to an index to reduce cost


Printer Case Study


Standard Terms

“Dealer has the right to increase monthly payment on each anniversary date, not to exceed 15%.”

Modified Terms

“All pricing will be capped at 3% escalation per year.”


Standard Terms

• $57,283.32 over a 5-year agreement

• Initial monthly increase from Year 1 ($708) to Year 5 ($1,238.30) is 75%

Modified Terms

• $45,106.44 over a 5-year agreement

• Initial monthly increase from Year 1 ($708) to Year 5 ($796.86) is only 13%


Yearly Costs for Standard Lease Agreementsvs. Modified Lease Agreements


Auto-Renew ClausesRemoved ambiguous auto-renewal language

– Default contract said it would automatically renew for another 5 years at initial terms (15% annual increase)

– Modified contract is now month-to-month after the first 5 years, which makes it easier to cancel at any time.

– This offers much greater leverage when it comes time to renegotiate.


• With the rate reduction, savings of $12,176.88 were achieved over the 5-year term.

Original ($57,283.32) - Negotiated ($45,106.44)

• Savings percentage over 21%

Results


Contact:

Q & A

Darren Boulton, Director of Business [email protected]

Dan Schneider, [email protected]

mailto:[email protected]

mailto:[email protected]

Getting a Handle on Unmanaged Spend...Getting a Handle on Unmanaged Spend Friday, November 2, 2018...

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