Overview

Those managing any aspect of portfolio operations face a myriad of challenges. From rising property taxes, and insurance premiums to lingering labor issues and slower demand, the need to reduce expenses has become just as critical as increasing revenue. 

An often neglected opportunity to reduce expenses lies in improving fiscal control and streamlining the processes necessary for managing vendor and partner contracts.

‍Why Vendor Contracts Matter

“Contracts are at the heart of every organization. On any given day, at least one-third of employees touch contract data.” (Source MGI research, LLC)

No matter what kind of multifamily business you’re in, your organization relies on vendors and vendor contracts. Contracts are the basis of almost all relationships and are essential to the smooth operation and longevity of a multifamily organization and its properties. In fact, no external party is more directly tied to your business’s success than your vendors. Yet, they are often treated in a transactional manner. Additionally, vendors represent the largest non-salary expense in multifamily, and as the dependency on vendors continues to grow, so do the challenges that come with the decentralized, disorganized and manual way that vendors and contracts are currently being handled. 

‍The Business Impact

Poor Contract Management Costs Companies 9% Of Their Bottom Line

‍Many financial and operational challenges come with not having visibility or control over vendor contracts. Inadequate vendor contract management costs multifamily organizations millions of dollars every single year. 

1. Financial Loss: Ineffective (or unmanaged) vendor and contract management is responsible for bleeding costs, such as wasted spend on underperforming vendors, scope creep, hidden fees, or unplanned spend where there are vendor redundancies or duplicates across the portfolio.
   
   
2. Missed Expiration + Renewals: Failing to track vendor contract expirations or missing contract renewals can result in rogue spend, loss of essential products/services, or missed opportunities to negotiate better rates.
   
   
3. Transaction Disruptions: Time is money, and a lack of centralized storage and visibility to vendor contracts by asset complicates the acquisition/disposition process, impedes audit/due diligence, and can delay or impede transactions.
4. Risks: Without a solid contract management process, multifamily organizations risk financial, operational and reputational damages or disruption. Issues such as poor quality or delivery, vendor non-compliance, pricing disputes or physical damage to properties.

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‍Vendor Contracts: Signed and Forgotten

While plenty of focus and work goes into selecting, approving, authorizing and negotiating an approved vendor contract, the real effort and value happens once the contract is signed and execution commences. A signed contract is an enforceable document, with the vendor legally responsible for their obligations. This means the contract itself is a critical vendor management tool and organizational asset that should be readily visible, referenceable, and trackable by key stakeholders. 

Post-execution (signed), vendor contracts should not be shelved, filed or forgotten. Instead, several important tasks should be initiated, such as obligation monitoring and enforcement, spend oversight, key date tracking for renegotiation, renewal or termination, compliance, and vendor performance management. Failure to review and enforce vendor contracts can erode the vendor relationship and prevent a company from realizing the full and expected contract value or put the organization at risk as outlined above. 

The reality is that post-execution vendor contracts are being stored across multiple locations, often lacking a single point of accountability. The biggest pitfall is the limited use of technology to centralize, automate and regain control of this mission-critical area.

“The scenario is the worst case of [contract management] ‘halfism’ I see, and it happens all the time. And yet, companies still wonder why there are overruns, scope creep, misaligned expectations or insert euphemism for ‘no one knows what is going on in that contract.’ Sadly, these behaviors cost money, time and relationships – things we shouldn’t still be wasting in 2024.” (Craig Conte, Global & UK Lead Partner Contracts, Deloitte)

Multifamily organizations often allocate resources to pre-signature activities — drafting, and negotiating vendor contracts. Yet, post-award is where the true value of contract management is either realized or lost and where the opportunity lies for technology to centralize and streamline processes, automate manual tasks, enhance compliance, spend or obligation tracking and ultimately save organizations time and money.

‍Getting Value From the Critical “Half” of VCLM

Technology offers the opportunity to play a critical role in enhancing vendor contract lifecycle management (VCLM) for the multifamily industry post-award. Here’s how:

• Contract Consolidation: Most contracts are delivered by personal email, and then scattered throughout personal hard drives or shared locations in the organization making retrieval extremely time consuming and difficult.  Automated contract capture streamlines this process to ensure that every contract is automatically captured and stored in a centralized repository without any manual effort.
• Centralized Repository: Digital vendor contract management provides the ability to centralize all vendor contracts by property (one source of truth). All relevant documents are stored securely, providing full visibility (organization-wide, or by permission) and making retrieval and tracking easier.
• Automation: Technology streamlines contract processes. Automation can manage tasks like contract intake and categorization, notifications, and reminders, dramatically reducing manual effort.
• Analytics: Advanced reporting analyzes contract data. Organizations can gain insights into spend, upcoming renewals or expirations, vendor gaps or redundancies across properties or regions enabling more informed decision-making.
• Risk Mitigation: Technology helps identify non-compliance and expiration dates. Alerts ensure proactive risk management.
• Collaboration: Cloud-based solutions can facilitate access and collaboration among stakeholders. Plus, real-time access allows teams to work together seamlessly but with the same centralized data set to avoid confusion or error.
• History: Digital systems can help maintain accurate contract history and avoid confusion caused by outdated documents.
• ‍Integration: Integration with other business systems ensures consistency and data accuracy across vendor contract lifecycle processes.

‍Summary

With expense mitigation and operational efficiency being top priorities for multifamily, gaining technology capabilities to centralize, streamline and automate these processes will help to reduce contract neglect or value leakage, improve contract outcomes, save money and ultimately help multifamily realize the full value of their vendor contracts and the relationships they depend on to run their businesses.