Renewals are the forgotten stepchild of contracting. They are treated as administrative hassle when they really should be considered negotiations. When we don’t give them the consideration they are due, deals quietly get worse year over year, prices drift up, terms that were already mediocre stay mediocre. Essentially, all the leverage that comes from having lived with a vendor goes unused.
That problem was the focus of a How to Contract webinar hosted by Laura Frederick and featuring Deborah Weisman, Vice President and Deputy General Counsel at HireVue, and Lindsey Sands, Vice President and Associate General Counsel at Vicinity Energy. Both speakers sit on the vendor and customer side of long-term agreements, which made the conversation super practical.
The conversation covered a lot of ground. They explored how early to start working on a renewal (including what criteria to use to figure that out), what data helps you prepare for those discussions, how to renegotiate price and commercial terms, when to reopen the legal terms, how to make and execute the walkaway decision without torching the relationship.
Here are our top ten takeaways from the speakers’ comments during the webinar:
Treat renewals as important negotiations. Renewals deserve as much attention and care as the original negotiation. In fact, in many cases, they deserve more because you now have a year or more of operational data that you didn’t have during the original negotiation. Both parties know what went wrong.
Start the renewal clock based on how long it will take you to build or source a viable alternative. The lead time needed to prepare for a renewal is entirely dependent on what you are replacing. You can’t just say a generic 90 days. Look at the time it would take to put a credible alternative in place from scratch. For example, if you are talking about a complex enterprise system, that may be a year. For a simple SaaS tool with twenty alternatives you could start using tomorrow, 30 days is plenty.
Build credible alternatives before you ask your vendor about pricing. You want to get a lay of the land BEFORE you start talking renewal with your vendor. You can look at pricing of alternatives, do some demos, and ask around about experiences of people you trust. That investigation will help a ton when you are ready to contact the vendor to start the conversation.
Don’t undervalue the benefit of a trusted partner. Walking away from a long relationship can cost a lot more than one-time price savings. Onboarding often consumes a lot of time. Factor the disruption and untested partner with the cost savings.
Use performance data to frame, not to punish. Sure, your SLA reports and ROI data are really helpful in your renewal negotiations. But HOW you present them matters and determines whether you will see concessions or hostility. The best way to navigate this process is to be curious about what caused issues. Don’t accuse. Ask.
Watch out for the jerk tax. Aggressive demands and rude behavior during renewal negotiations set you up for failure later on. We used to call that the “jerk tax,” as vendors sometimes add in a premium, explicit or implicit, for difficult customers. You also have to remember that if you fail to make concessions during negotiations because of your vendor’s past performance, you may face a less flexible vendor when you need them to look the other way.
Evaluate and use in your negotiations all the commercial elements, not just price. Term length, payment terms, volume bundling, expanded scope, and unresolved performance credits are all possible discussion points in a renewal. Your vendor may not be able to concede on price, but can make a payment terms change. Or you may be able to secure a bundled discount across sites or a service credit into next year's pricing. Look at the whole commercial structure, not just the headline number.
Don’t be so scared of auto-renewal. Auto-renewal is a default, not a trap. The customer can always provide notice and opt out. It exists because neither side wants to renegotiate every year when things are working. The real problems with auto-renewal are double-digit price escalators and weak internal calendaring discipline. Both are fixable without killing the clause.
Decouple legal updates from commercial renewal when possible. Reopening the entire MSA for negotiation at renewal creates timeline pressure that hurts both sides and gives the vendor a chance to right-set customer-favorable terms. One strategy is to sign the commercial renewal first and work the legal updates on a separate track. If there are important legal terms that need to be renegotiated at the same time, look at whether you can push them into the service order instead.
Evaluate your walkaway options against the unknown unknowns of hidden costs and risks. If you’ve had the vendor in place for a while or used them for complex or extensive projects, there may be some defaults and damages they could claim. Often contract counterparties ignore some trangressions while the relationship is going well and may decide to pursue them when the relationship is past saving. Make sure you do your own investigation into what’s happened to get comfortable that there are no lurking risks that went unsurfaced. You want to know if there are before you cut ties.
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