Service providers showcasing new tech offerings and excellent customer service should be willing to bake the promises explicitly in the service agreement, delegates were advised at PEI’s 2015 PE/VC Finance and Compliance Forum in San Francisco this week.
“During your pre-evaluation of vendors, a lot of amazing things are being said. Well, that is the time to document those awesome things and make them part of your contract,” one private equity CFO urged on-stage.
A second CFO echoed the sentiment, adding that certain features showcased during demos and trail-runs were difficult to utilize after purchasing new accounting software.
The CFO went on to say that trial runs themselves are a source of risk: “One fund administrator we were testing didn’t turn out be what we wanted. We ended up having to migrate all of our data back to the old systems, but when I asked for it back, I ended up getting 20 gigabytes of PDFs. So just remember to store the data in a format that works.”
More generally, CFOs advised pushing service providers on their limited liability limits. The first CFO said a service provider offered him a contract stipulating that any damages related to the loss of client data would be paid for by the service provider in the first year of the contract. The CFO was able to extend the liability limit indefinitely if the loss of client data was the result of a cybersecurity breach at the vendor.
“As we all know, the SEC is looking at how you review your third-party vendors’ cybersecurity readiness. Well, the contract is one way to show how you achieve that,” he said.
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