Where do your vendor contracts go after someone signs them? Who is tracking the renewal dates and deadlines? If a key person leaves, do you have a record of all their vendors and contracts? If you don’t know the answer, it’s likely because your vendor contract management process is lacking. This won’t just make you sweat come budget season, it can cost your company money, create dissatisfaction with your residents, and cause you to miss out on better vendor relationships.
But you’re not alone. Running ad-hoc systems to manage vendors and contracts is standard in multifamily. Why is multifamily so manual when every other industry has already solved this problem?
We conducted a focus group with six industry leaders in operations, marketing, and other executive roles to shed light on the current state of vendor contract management in multifamily real estate. They identified seven realities of this process.
“I have conversations about billing to contract discrepancies monthly.”
Most property management companies (PMCs) have no plan for what comes after a vendor’s contract is signed. They might be particularly watchful the first few weeks after that vendor is onboarded, but then the contract is filed away as everyone moves to other, more pressing priorities.
While many essential processes compete for your attention, not making vendor contract management one of them can cause:
“Our process is not as sophisticated as it could be. It's managed in a spreadsheet right now and it's got a whole host of problems.”
It’s easy to think that larger organizations have solved more of their vendor contract management challenges, but that isn’t the case. As PMCs scale, unresolved challenges compound unless they’re nipped in the bud. Everything from non-standard processes to rogue spending from unauthorized contract signings grows alongside you, impacting your company’s financial health throughout that growth. This makes being proactive about vendor contract management critical at every size.
“We need a more holistic approach overall.”
Despite PMCs all encountering similar vendor contract management challenges, each organization needs a solution tailored to its needs. Processes, responsibilities, and decision-making frameworks vary from organization to organization and even team to team. Overly rigid software platforms or “one-size-fits-all” processes can only go so far.
“If it needs to be signed, it goes through the process.”
When the responsibility of signing and managing vendor contracts is spread out throughout your organization, you run into more problems. These three challenges came up again and again with these leaders:
“Many vendors are very quota-driven, so they may go out and sell services directly to a property manager who, with the best of intentions, signs up for an additional out-of-scope service. Then someone from the regional or corporate arm has to go to that vendor and remind them it’s a breach of contract.”
Many organizations only review vendor contracts when a problem comes up, like receiving unsatisfactory services or needing to review expenses ahead of budget season. This reactive approach leaves PMCs open to excess risk and unnecessary costs. This process might get attention when the company gets burned by an unwanted renewal or breach of contract, but the urgency tapers off after the immediate problem is resolved, rarely leading to lasting improvements.
“It’s the unknown that bites us.”
Most PMC leaders have clear key performance indicators when it comes to their portfolio’s performance or owner satisfaction. They can rarely identify similar indicators for managing vendor contracts. Selecting, tracking, and analyzing relevant metrics can be especially challenging when the necessary data is scattered across various teams and functions.
"Even the smallest pest control contract can get out of hand if it's not managed correctly. Just because it’s a small contract doesn’t mean it can’t be a big mess."
While any mismanaged contract can potentially create outsized problems, they shouldn’t all be managed in the same way. Contracts vary, affecting the level of attention they require. For instance, even a centralized vendor contract management process has to account for input from subject matter experts. A construction contract, for example, should be reviewed by someone with experience managing, approving, or even working on construction projects. Otherwise, the person approving that contract might unknowingly go with a less-than-reputable contractor or an overpriced estimate. A robust vendor contract management process should be able to handle this kind of variance.
Properly choosing, vetting, and onboarding vendors is essential to running a more profitable PMC. But that level of visibility shouldn’t end once the contract is signed. Properly storing contracts, extracting key data, tracking vendor obligations, and analyzing renewals all fall within vendor contract management. Currently, multifamily's lack of appropriate tools and systems for contract management means too many contracts fall through the cracks, creating unnecessary costs and risks, and most importantly, missed revenue.
Something needs to change. PMCs need a dedicated solution with enough flexibility to handle any contract.
