As the end of the year approaches, now is the time to prioritize and work on vendor strategic sourcing projects. There are a variety of types of exit language that protect a business from being trapped in a deal if things change down the road. It’s easy to get comfortable with initial agreements as relationships develop and value is exchanged. Reaching the milestone of a renewal is usually a sign of a healthy engagement. This does not mean things should not be objectively evaluated for improvement though. In time, things change – often creating opportunity.
Before performing a technical evaluation of whether or not to negotiate a renewal, it’s important to identify the business reasons why (or why not). Uncovering the business reasons why you and your team may want to negotiate a renewal ensures a clear purpose. Some reasons why include:
- The organization is struggling financially and needs to improve the P and L.
- The business requires additional functionality not currently included.
- New leadership has a different philosophy for engaging vendor partners.
Some reasons why not include:
- Things are simply too good to disrupt the relationship.
- The cost to change is too high for the organization.
Depending on your organization, you may have many more reasons why or why not. The point is to identify the reasons, prioritize them, and agree that they merit triggering a negotiation. Next, apply the following checklist for further qualifying your renewal for negotiation…or not.
Understand the end date.
When evergreen, auto-renewal language is included, the team is subject to the risk of indifference. Out-of-sight-out-of-mind is a slippery slope – especially when vendor contracts are involved. In there or not, you need to be clear on the end date!
Identify notice requirements.
Many agreements require notice of intent to renew or terminate. This may seem less important with an agreement that ends at a specified time. However, without proper notice to renew (as required by the agreement), the agreement may trigger arrangements not in your favor. On the other hand, risk is elevated when the agreement “ends” completely when the intent to renew is real. Why? If it ends, it will open up the agreement for renegotiation and, now that the vendor has history and is embedded in the organization, leverage favors them.
Review contract management insights.
To manage an agreement properly, the oversight and maintenance should happen within a formal contract management system. If there is anything in contract management that delivers intel about missed SLAs or other “flags of offense” committed by the vendor, those things can serve as leverage in a negotiation.
Evaluate the outcome.
Is the outcome of the first term consistent with what the stakeholders expected going into it? This will take some digging, phone calls, and emails. But it’s worth the exercise to achieve the best outcome.
Identify fee increases.
If any increase in fees is allowed within the master agreement:
- Do you have an interest in extending for a longer term in order to drive the price down?
- Are there any new players in the space to offer a competitive bidding process?
Let SCS Guide You
If the business whys and the technical evaluation lead you and your team to conclude a renewal is worth the pursuit, activate the same best practice applicable in strategically sourcing an initial engagement. The investment in SCS can deliver an ROI exceeding 10x in the first year. With no vendor partnerships, we are completely free from any conflict of interest, allowing us to focus 100% on our client’s success. In addition, your organization will tangibly reduce risk and improve profitability. We can help! Contact us today!