Using retainers as a negotiating point with suppliers
Hi all, I am looking to connect with anyone who has used retainers as a way of negotiating a longer term rate card price with suppliers to understand how that was received and the impact it had, along with any common pitfalls I should be aware of.
Thanks in advance
Luke, I have used retainers before in procuring consulting or engineering services, but generally in situations where timing for the need is uncertain, and I need to secure availability. If you do use it as a tactic to negotiate rates, I would suggest obtaining rates before mentioning the idea so that you can truly see what you're gaining for what you're risking.
From your question, I'm assuming that the risk that you are trying to mitigate is escalating rates over years. If that's correct, I would suggest doing a well organized competitive bidding initiative with the intent of issuing preferred master service agreements with a duration of maybe three years. Start by reaching out to 8 to 12 vendors that supply the services you need. Communicate transparently that this is a competitive bidding event for preferred supplier agreements. Handle your negotiations in three stages. First, obtain and negotiate first year rates. Second negotiate terms that definitely how much those rates can be escalated each year of your agreement. This negotiation will solve your concern if I interpreted what you are looking for correctly. For a third step negotiate a volume discount based on quarterly spend, so you can strategically maximize your value out of the agreements. Assuming that you will have a fairly significant need for these services, I'd award maybe three or four proponents the agreements, but if it's less you could just award to one, but give yourself a right to terminate.