TL;DR
- Auto-renewal clauses often close 30 to 90 days before the contract ends. The real deadline arrives earlier than you think.
- Check whether the price changes at renewal, and compare it with what the market charges today.
- Compare what you pay for with what you use, and cut anything sitting idle.
- Review how the supplier has performed, and ask the people who use the service every day.
- Check the renewal term and the exit clause, including early exit fees and minimum commitments.
- Use software to track renewal dates so they don’t depend on one person’s calendar.
- Line up an alternative, such as a second supplier or a contract through a GPO like Una, before the notice window opens.
- Make a decision, write it down and set the date of the next review.
Everyone has been caught by an auto-renewal at some point. The gym membership billed you through a full year of good intentions and zero visits. The Netflix subscription you took out for one series is still running, presumably so you can finish the final season someday.
Those mistakes cost a few dollars a month, but a supplier contract that renews itself plays the same trick with a much bigger invoice.
The trouble starts with timing. Auto-renewal clauses often carry a notice window that closes 30, 60 or even 90 days before the contract ends, which may not be enough time for a proper review. The result is a contract that renews at last year’s terms without anyone having decided to renew it.
The Contract Renewal Checklist
This checklist covers what to review, in an order that tends to save the most grief, so the decision gets made on purpose.
Find the notice window and the date it closes
Read the renewal clause to find the notice period, then count back from the contract’s end date to get your real deadline. If the contract ends on December 31 and requires 60 days’ notice, you need to act by November 1.
Also check how notice has to be delivered, because some contracts want a letter to a named address (an email or call won’t count). Put the date in a calendar that is visible to the right stakeholders.
Check what happens to the price
Renewal pricing only changes if the contract says it can. Look for uplift clauses, indexation to inflation and any wording that ends your discount at renewal and puts you back on the supplier’s standard prices.
Then, compare the renewal price with what the market charges today, because a rate that was competitive three years ago may look generous to the supplier now.
Compare what you pay for with what you use
Pull twelve months of actual usage and set it beside the volumes, seats or minimums written into the contract. Say you pay for 200 software licenses at $50 each per month, but your usage report shows that only 140 people logged in during the past year. Those 60 idle licenses cost you $36,000 a year, and an auto-renewal will sign you up for another year of them.
If you spot the gap before the notice window closes, you have time to renew at 140 seats or use it as a bargaining point.
Review the supplier’s track record
Collect the late deliveries, service credits, incidents and escalations from the past term. If the supplier missed its service levels, you have grounds to ask for improvements. If it met them, you have a fair basis for a longer commitment.
Ask the people who use the service every day what they think of it as well, since they usually know things that may not be recorded in the data.
Look at the term and the exit clause
Check how long the renewal term runs. Is it only for another 12 months? Or are they attempting to renew for three years?
Look at termination rights, early exit fees and any minimum commitments that carry into the next term. Where you can, negotiate a mutual right to prevent renewal with reasonable notice, so the clause doesn’t only work in the supplier’s favor.
Use software to track renewals
A renewal date that lives in one person’s calendar disappears when that person changes jobs. Contract management software keeps the date with the contract instead. It records the key dates for each agreement, including the auto-renewal clause and the notice period, and calculates your opt out deadline from them. Reminders then go to the contract owner at staged intervals beforehand. Enter the owner and the renewal terms on the day the contract is signed, because a system can’t act on information it never received.
Software has limits of its own, because a tool nobody updates is just an expensive calendar. For a small portfolio, a shared calendar with a few well chosen alerts will do the job until the number of contracts outgrows it.
Test the alternatives
Before you accept the renewal terms, find out what else is on offer, whether that’s a quote from a second supplier, a competitive sourcing event or a contract you can join through a GPO like Una. A single credible alternative changes the conversation, which is why it pays to line one up well before the notice window opens. Find out how to build a real BATNA here.
Decide, and write it down
You have four options:
- Renew as is
- Renegotiate
- Replace the supplier
- Let the contract lapse.
Whichever you choose, record the decision, the person who owns it and the date of the next review, so the same contract doesn’t catch you out in a year’s time.
Where a GPO Helps
Una’s contracts give you an alternative that is already negotiated, which makes the comparison at renewal much quicker. Members can start buying on GPO pricing within days or weeks instead of months, and a free cost analysis compares your current spend against Una’s contracts before you commit to anything.
Many of Una’s contracts also lock in pricing and cap increases for years at a time, which takes some of the guesswork out of your following renewal. Membership is free and carries no purchasing requirements or exclusivities, so you can run the comparison without leaving your incumbent.
Good luck with your renewals. Remember, put those notice dates somewhere you’ll see them!
Do you have a renewal coming up and no time to benchmark it? Una can help, sign up for free.
