How to Manage Contract Negotiations and Renewals Like a Pro
Over the past year, many organizations found themselves examining existing vendor contracts and technology provider agreements to evaluate what changes needed to be made based on the uncertainty COVID-19 brought to the business landscape. Is the tool or service still needed? Did the pandemic qualify as a force majeure event? Is usage higher or lower? Too many licenses? Not enough? Pay upfront or monthly? These are all items for consideration when it comes to contract negotiations or renewal terms.
If you have a contract renewal or planned negotiation on the horizon, then this post is for you. We’ll focus on how to best position your business to negotiate the most lucrative renewals, what payment terms to push for, and more.
Table of Contents
Contract Renewal Preparation
Prior to your renewal or negotiation, it is critical that you familiarize yourself with the existing contract. Be sure to understand the current service-level agreement (SLA) and use case within your organization. You may find that license needs have sky-rocketed with more employees remote, or that your usage has decreased. In-office printing or copy needs is a prime example of an area where contract negotiations may be necessary due to decreased usage.
We recommend speaking with relevant stakeholders across your organization, the buying committee, if you will. This likely will include application owners to understand what is going well and areas where the vendor could improve functionality or service, super users, as well as procurement to discuss possible amendments to the master service agreement (MSA).
Know What You’re Paying for and When
This may seem like a no-brainer, but it’s important to know how much the service will cost, when payments are due, and to get the components in writing. Be sure to ask about ancillary charges such as tax or surcharges, if there are customer support or professional services fees, and if there is a price change, how far in advance you will be notified.
If the service includes user licenses or units, often vendors will often offer bulk discounts. For instance, if you know you’ll need 30 licenses by next quarter, but only need 15 currently, it might make sense to purchase 30 up-front to save money in the long run.
What Payment Terms Should You Push For?
When it comes to payment terms, you’ll either be paying in advance of receiving the service or product, or you’ll pay after. Prior to entering into contract negotiations, check with your finance team to see what is ideal for your organization from a cash flow perspective. If your clients all pay on the last day of the month, it would likely be better for the payment to your vendors to be due after the first when the coffers are full.
Further, be sure to have an understanding of their late payment policy. Although being in arrears pay is never ideal, times are uncertain, or there could simply be a clerical error by finance.
Whatever the reason, if a late payment situation should arise, what is your vendor’s policy? Will you have to pay a late fee? Do they stop service or is there a grace period until you get caught-up? All things to consider and negotiate into your contract.
Include Pandemic-Specific Addendum
“In today’s uncertain times” seems to be a catch-all these days; however, it’s the truth. To protect your business, consider an addendum to the contract that includes a pandemic-specific force majeure, or sorts. This could include language surrounding supply chain issues, the need to scale back usage or licenses, and even a business continuity plan if you need to shut down. An expert notes, “The business continuity plan should account for a reduction in personnel, resources in view of business disruptions, and fundamental adverse changes to the relevant market caused by COVID-19. The agreement should call for the parties’ plans to be periodically updated as circumstances warrant.”
Business Positioning and the Importance of Relationships
Many factors lend to positioning your business for the best possible outcome during a contract negotiation or vendor renewal. It’s all in the details and preparation is key. Knowing the best pay dates, current and future usage requirements, bundling in professional services hours, change orders, or even pushing for bulk discounts all come into play.
Vendors want your business and rely on annual recurring revenue to keep the doors open. It is in their best interest to maintain a positive relationship with your company and provide mutually agreeable service terms.
Keep in mind that it is a two-way street. If you are a difficult client or have a team lead that makes their job a nightmare, they may be less willing to negotiate in terms of fees, flexible payment dates, and service options.
Be prepared and concise with your needs and renegotiation should be a breeze.