In order to have vendor management control, you must have a firm understanding or knowledge of third party vendor contracts. Learn the 3 pillars in managing them and other points about mitigating contract risk.
Welcome to this week’s Third Party Thursday! My name is Ashley Roberts and I am one of the In-House Paralegals here at Venminder. Today we are going to talk about 3 pillars in managing third party vendors contracts:
Let’s get started . . .
In order to have control, you must have a firm understanding or knowledge of the third party vendor contract. Two questions you should ask yourself:
1. Have you properly identified all vendors critical to your operation and can you easily put your hands on their contracts?
Many vendors, especially large vendors, have multiple contract items with different products covered under separate schedules, exhibits, statements of work, purchase orders or addendums. Be sure to read through the contract items to ensure the product or products being purchased are called out. If not, make sure to ask your vendor representative.
Developing a plan to manage the relationship is the first step in the third party risk management process. This step is necessary when considering vendors that involve critical activities. An effective risk management process incorporates the entire life of the vendor relationship.
The second pillar in managing contracts is visibility.
2. What processes do you have in place for storing contracts?
Having a central repository can play an effective role in establishing and controlling potential risks. A central repository allows the contract manager to do three things:
1. Have visibility of each contract, on the product level.
2. Provide an effective means of reporting on contracts.
3. Ability to monitor the third party relationship throughout the duration of the contract.
Proper reporting and monitoring facilitates both oversight and accountability.
The final pillar to managing contracts is compliance.
3. Do you know which third party contracts are coming up for renewal or are expiring?
Prior to a renewal is a great time to review an existing contract, especially those involving critical activities to address significant risk controls and legal protection. Did you know that it can take up to 24 months to negotiate a new contract or a renewal for a critical vendor?
When negotiating, you should insist your vendor coordinate the expiration date of contracts for inter-related services. This will minimize the risk of terminating a contract early and incurring penalties as a result of the early termination.
Being proactive will limit liability and mitigate risks about performance. The benefits to effectively managing your third party vendors contracts are not limited to the examiner’s request. There are true strategic business advantages to be gained from it.
Again, I’m Ashley and thank you for watching! Don’t forget to subscribe to next week’s Third Party Thursday video.