April 2017: Samaha Associates’ CEO Sabeh Samaha Featured in Credit Union Journal: Why CUs need to start thinking of vendor contracts like marriages

April 2017: Samaha Associates’ CEO Sabeh Samaha Featured in Credit Union Journal: Why CUs need to start thinking of vendor contracts like marriages

Why CUs need to start thinking of vendor contracts like marriages

by W.B. King


Credit unions may want to start thinking about their vendor contracts a little differently, according to one observer. Don’t think of it just as a contract, but as a long-term partner – and a very intimate one, at that.

“A vendor contract is like a marital agreement. And in this case, you need a prenuptial agreement before signing,” said Sabeh Samaha, CEO of the Chino Hills, Calif.-based Samaha & Associates. “This allows the credit union to be protected.”

In the majority of cases, the contract is authored by the third part vendor, explained Samaha. These “subscriptions” should be transformed in to “agreements,” he said, adding that credit unions should serve as “co-authors” on the contract language. Further, negotiating third-party technology contracts that interface with a CU’s core processor requires a special skillset – one that may be above the paygrade of well-intentioned in-house IT executives.

“The origin and the true authoring should come from the supplier because the supplier then has liability,” said Samaha. “But the credit unions should get in there and make as many changes as the want—many are afraid to suggest changes. You have to get your hands dirty.”

While Samaha said unscrupulous behavior on the part of third-party vendors is the exception rather than the rule, he cautioned credit unions that some companies will try to slip in language that compromises the original contract.

“Automated tools are good for tracking, but they are never sufficient,” said Samaha. “You can have an ambitious vendor representative that might be trying to make a quota. For example, an IT hardware person from a credit union orders servers and signs for them, but the supplier had slipped into that purchase order an automatic renewal of licensing agreements. This is not the norm, but I have seen it happen.”


Avoiding surprises
Industry experts agree that contract renewal negotiations should begin roughly 18 months before the contract is scheduled to expire or automatically renew. The review process can be tedious and time-consuming, especially for small and mid-sized credit unions that are short-staffed. But one executive is touting a new solution that could ease the process.

“People go to Kelley Blue Book before they buy a car or Zillow before they buy a house,” said Aaron Silva, founder and CEO of Paladin fs. “When a banker wants to know the value of services, they can now refer to Quote Check.”

Silva referred to his firm’s solution, Quote Check, which is a feature of the Paladin Blue Book of Core and IT contracts. The vendor contract, pricing and market data was yielded over the last decade from vendor contracts and invoices from more than 1,200 institutions.

For a fee per contract query, Paladin Quote Check allows credit union executives to upload their current service quote via a website portal or through encrypted email. Within 48 hours the terms of the contract are deemed either favorable or they are flagged. Silva noted that in rare cases, there might not be enough aggregated data on a vendor or service to make accurate ruling.

“We may look at a quote and tell our clients it’s at fair market value,” said Silva, who added that the information is only shared with the firm’s client not the vendor. “This is an insurance policy for financial institutions. This takes the guessing out of a long-term contract that might be worth $20,000 to $100,000 dollars.”

Samaha said any tools that help credit unions better navigate the contract negotiations and renewal process is a good thing because oversights can be costly and ultimately impact membership.

“When contract surprises have come up for our clients in the past, it rocked our client to the core and we really had to go to war,” said Samaha.