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Is it Time to Rebid Your Vendor Contracts?


While it's great to have a good rapport with your vendors, it's important to ensure the relationship remains businesslike. Vendors who know there is a threat that they could lose your contract are more likely to focus on staying competitive.

And when the vendor is, for example, a retirement plan third-party administrator or recordkeeper, you've got fiduciary liability to consider. The courts are littered with class action cases against employers whose retirement plans were deemed to be paying excessive fees for asset management and plan administration. That's because in the retirement plan arena, employees — not the company — are typically paying the price through reduced retirement asset accumulation. As the plan sponsor, your fiduciary duty is to those employees, of course.

That doesn't mean you always give your business to the least expensive vendor. But if you can get the same level of service for less or even if you're getting Cadillac service for a Cadillac price but the service is more than your participants need, they may start questioning your wisdom.

Why Seek New Bids?

The point of periodically rebidding service agreements isn't only about making sure you aren't overpaying. Other reasons can include:

By the way, unless you're thoroughly dissatisfied with your current vendor, it may not hurt to ask them to rebid.

Other Perspectives

Depending on the specifics of the service contract you rebid, it might be prudent to enlist the help of a consultant. Those who specialize in the service category know the players and their capabilities. They know how to put together an RFP that's detailed enough to give you the data you need without being overly complicated.

Consultants also have access to benchmark data that can help you assess where the bids you receive fall on the spectrum. And they have the benefit of previously working with other employers and know how satisfied, or unsatisfied, those other clients have been with the various vendors who respond to your RFP.

Sometimes it's appropriate to get employee input into the process as well. Their views on the quality of service they're receiving from your current vendor might surprise you, either on the positive or negative side. Also, you can gauge their interest in optional services they can use that might cost more. While you're seeking employee opinions, you might ask if they would value having a financial planner visit the worksite a few times a year to answer questions. If so, add that to your RFP.

Size Matters

Since you'll want to receive several bids in response to your RFP, you might need to take a couple of steps to make your company more attractive to prospective bidders. As noted, if your company is relatively small, a vendor might not see the value in taking the time to respond to your RFP. Not only does the size of your company matter, but the size of the prospective vendors matters also. Smaller companies that have the resources to handle large clients may provide the best service, so you may want to include them when you're deciding where to send your RFPs.

You can also enhance your company's appeal, regardless of size, by asking for multi-year contract bids. That assures prospective bidders that you're expecting the relationship to last a while. That doesn't mean you can't build safeguards into the contract you sign with the successful bidder to allow yourself an early out if the service provider's performance is way off the mark.

Final Thoughts

When the dust settles, you might conclude that you're better off sticking with your current vendor. That doesn't mean the process was a waste of time, however. That's because you will have gained confidence that you're working with the right vendor, and it doesn't hurt for your vendor to know you're prepared to switch if service quality falters.

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