Measuring your costs against the competition is an important tool for staying competitive and minding the bottom line. Benchmarking studies performed by outside consultants are an increasingly common way for businesses to gain insight into how their contracts stack up against others’ in the industry. In an age where retailers rely on outside vendors to provide many integral functions, making sure you are getting the best deal matters.
Hiring a consultant to review your vendor contracts for benchmarking purposes could, however, expose you to risks because many of these agreements contain broad confidentiality clauses and non-disclosure agreements that allow for claims of money damages and injunctive relief if those terms are violated. What is made confidential and subject to non-disclosure provisions varies and will be defined by each individual agreement, but normally includes the terms of the contract itself and the pricing or rate charged by the vendor. In a worst-case scenario, a vendor could claim that a violation of the confidentiality and non-disclosure terms constitutes a fundamental breach of the agreement that justifies termination.
So how do you share your business contracts with an outside consultant without violating your agreement in the process? A retailer interested in performing a benchmarking analysis should consider the following options to contain risk:
- Seek Permission. Seek express permission from your vendor to share confidential information with your outside consultant. This is the most sure-fire way to eliminate the possibility of a breach of contract claim by your vendor. To avoid the issue in the future, when drafting vendor agreements, consider adding, as an express provision carved out of the confidentiality restrictions, a right for you to share information with your outside consultant(s).
- Prevent Leaks by Your Consultant. Draft a highly restrictive non-disclosure agreement that prevents the consultant from disclosing any information to a third party. Also, make clear that your benchmarking consultant is not permitted to use the data that you provide them for projects for their other clients, even if the data is anonymized.
- Use Your Audit Rights. In some cases, you may find that you are able to share information with your benchmarking consultant under the existing audit rights in your agreement with your vendor. In such instances, include terms in your consultant’s engagement agreement that align the engagement with the exercise of your audit rights under the vendor agreement.