As I watched my children leave for their first day of the new school year, I felt a sense of renewal. Now, many folks will tell you that renewal happens in the spring when flower and fauna return from their winter hibernation. But I think renewal occurs in the fall when kids and adults alike return from summer hibernation, rolling up our sleeves in the pursuit of knowledge and/or business opportunities.
- Autumn is also the time to think about budgets and plans for the upcoming year. Decisions must be made about the allocation of resources. In that spirit, this Firm would like you to consider the following issues when renewing an existing vendor contract.
- Set prompts to alert you well in advance of the commencement of the renewal term.
- During your review, consider any and all changes to your business before renewing the contract.
- Circulate the contract to people within your organization who have a stake in continued usage of the vendor’s services or products.
- Confirm key provisions such as price, term, notice, etc.
- Properly record and confirm changes made for the renewal.
- Agree to dates to negotiate terms for the subsequent renewal term.
- Give Yourself Plenty of Time to Prepare for Renewal
Check the renewal clauses of your current vendor documents. You may find that a vendor requires a notice of non-renewal 90 or even 120 days prior to the commencement of the renewal term. If you miss the deadline, you may be locked in for an annual term you no longer want or need and a mandatory increase in rates. Taking ample time to prepare for a renegotiation of terms will enable you to (i) understand which vendor services are essential and which may be discarded, (ii) strategize on how to lower existing fees or mitigate price increases, and (iii) think about any other issues that may have caused problems during the current term (eg. intellectual property ownership or publicity issues, among others).
Consider Changes to Your Business and the Industry as You Prepare to Negotiate
This Firm recommends that you review prior redline drafts leading up to the then current agreement. Taking the time to consider previously negotiated points can alert you to where you may be able to extract concessions or highlight areas causing headaches that may be subject to renegotiation.
Receive Input on Terms From Stakeholders Within Your Organization
Though your current legal team may understand all of the legal issues in a contract renewal, other teams within your organization may provide valuable input into the negotiation of the renewal. This Firm would advise you to circulate any and all revised terms to your finance and operations teams to receive guidance on costs and services that the vendor intends to provide during the renewal term.
Negotiate Discounts or Other Company Friendly Terms
For most renewals, changes to existing terms will not be substantive. That doesn’t mean that you should blindly agree to the renewal without combing through the document for potential areas in which terms could be improved such as possible discounts for increased usage of the service, improved vendor response times, additional tiers of support and/or the extension of payment terms. If you are using different vendors that provide similar services at different rates, you may leverage one vendor’s rates to request the same or better rate than you currently pay.
Confirm All Terms Before Execution (Presumably with your Attorney)
Is your contact personnel, address, and other information still the same as that in the current year? If an important change has been made to one part of the renewal contract, please make sure that the term is consistently edited throughout the document. Use the “track changes” feature to keep a record of when and who made the changes.
Agree to Specific Dates for the Subsequent Renewal Term
Agreeing to a specific date for negotiation of the next renewal term will set a target for future negotiations, using the tactics mentioned herein.
Even if you have a tremendous relationship with your vendor and the relationship is running smoothly, each renewal term deserves a thoughtful review. Businesses do change over time, and those changes may necessitate a reallocation of resources or provide a greater bargaining position to renegotiate rates. By being mindful of the steps listed above, your business can take advantage of opportunities to modify its vendor agreements to reflect your company’s most recent needs while continuing to operate in the spirit of collegiality with your vendor partner.