Colleges and universities purchase an impressive array of services and products.  The underlying deals are commonly negotiated by employees across campus, and the agreements are not always reviewed by a lawyer.  Although most of these agreements never create a problem, the ones that do cause major headaches.  As explained in more detail below, many of the headaches could be avoided, or at least minimized, if the contractual relationship was limited to a year or less.

Many institutions allow their employees to enter into multi-year contracts

The problem is not unique to higher education.  A vendor’s sales team promises your employees the best product and great customer service.  The excited employees move forward and sign a long-term agreement.  Inevitably—3, 6, 18 months later—the product or service is not as promised.  The employees are frustrated, but the frustration level only grows when an attorney tells the employees that the solution will not be easy.  Hindsight is always 20/20, but, more times than not, the solution would be much simpler if the employees had not signed a long-term contract.

Practical reasons to avoid long-term agreements

Long-term deals often look good initially because the price per year decreases the longer the relationship is guaranteed.  The perceived savings can, however, quickly turn into fool’s gold if the relationship decays.  Before entering into a long-term contract, here are several considerations to keep in mind:

  • Your needs may change. Even with the best planning, it is difficult to know what your needs will be one or two years from now.  Enhancements to your processes may render the product or services incompatible with your systems or strategic vision.  Limiting the term of a contract to one year or less helps ensure that your institution is constantly evaluating what products and services it actually needs.
  • The vendor may change. You cannot predict changes with the vendor’s business operations.  For example, the contact at the vendor that your institution enjoys working with may take a new role within the company or may take a new job.  Or the vendor may be acquired by new ownership.  Either way, vendor internal changes that are mostly out of your control may make the relationship stressful or undesirable.
  • The product may not work. Technology may become outdated.  Vendor changes to formulas or subcontractors may alter the effectiveness of the product for your purposes.  Or the product may simply not function as promised.

Limiting a contract to one year allows you to mitigate your losses if the vendor does not perform as expected.  It also provides leverage so that the vendor is constantly required to earn your business.

What this means to you

Price is always an important consideration, but price is only one of the many terms in a contract.  Long-term agreements certainly have their place, but trading flexibility for discounts can ultimately cost your institution more in the long run.  Before allowing an employee to enter into a long-term agreement, consider putting procedures in place—such as the use of template agreements, systematic checks and balances, and supervisor or attorney review—to make sure that a long-term agreement is actually in your institution’s best interests.