Service provider gone rogue

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by a searcher from University of California, San Diego
in Portland, OR, USA

5mos ago

Service provider gone rogue

Can any seasoned dealmakers provide some feedback on how to handle third party service providers who are invoicing amounts far above and beyond what was discussed during the engagement phase. And outside of letter of the law tactics, how have you been successful at reducing those fees? Thank you!

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reply by a professional 5mos ago
from IESE Business School in Amsterdam, Netherlands

Sharing some fee management tips from my IB Transaction Advisory days. We define a scope of work and milestones, and have triggers that could impact total fee which are largely driven by time (if it gets longer), scope (do 5 things instead of 3) and complexity (which will impact the first two). There is also a reasonable cap on the potential increase and if that threshold is crossed, both parties will discuss the next steps...

reply by a professional 5mos ago
from Manhattan School of Music in New York, NY, USA

In our position as trusted advisor for all things technology for businesses, we see this not infrequently. And if not watched carefully, it can get out of hand fast. A few things can help keep from these situations in the first place: - Screen your vendors and ask for references. (All vendors can make a nice brochure, but references can tell how how long other companies work with them and what they really think) - Make sure you have solid contracts which avoid ambiguity. (Ambiguity is often assumed to let you make changes when it suits you, but it does the same for the other side. It's better to get it all nailed down early) - Make sure you always have access to all of your systems and services as well as redundancy. (If you don't have a way to do business without a system or specific vendor, they hold all the leverage. This makes you vulnerable. Even if you trust them, make sure you have a way to work without them. It could be the difference in your business survival) When these things do show up, you have to look at other options. - Talk to the vendor. (Most reputable vendors are happy to discuss negotiating down large invoices especially if they are out of the ordinary) - Start moving workflow away from that vendor. (You MUST be able to operate even if a vendor goes completely hostile. That means redundancy and security) - Involve your lawyer. (Try to avoid this as things can get heated quickly, but if they are "outside the letter of the law" tactics, as you stated, the right letter from your lawyer can get the conversation moving again. We often help our clients navigate these situations in both practical and strategic ways. Let me know if you'd like to chat more in depth. Depending on who the vendor is, we may have some contacts who can assist as well.