Contract renewals best practices for 2024

Contract renewals are more than just events to keep track of. Depending on how you manage them they could create cost savings - or they could cause a revenue leak. 

Gatekeeper gives us excellent control and visibility of spend, which we have never had before. We have been able to terminate contracts that no longer serve us with a total value of circa £1m. ” - 

Krupa Patel, Head of Procurement UK & US (Global).

Contract renewals should be treated as a strategic opportunity to drive greater outcomes via better terms, more competitive service or consolidation.  

In this article, we'll explore:

What is a contract renewal?
What causes missed contract renewals? 
Risks caused by missed renewals
Contract renewal best practices for 2024

What is a Contract Renewal?

Contract renewal is the process by which parties to an existing contract undergo a review and discussion regarding the continuation of their current contractual arrangement. This usually occurs when the initial term of the contract approaches its expiration date.

During the contract renewal process, both parties have the opportunity to reach an agreement on extending the contract for a subsequent period, either through active negotiation or automatic renewal clauses within the original contract terms.

It represents a chance for parties to potentially amend or renegotiate the terms and conditions of the existing contract, allowing for adjustments to the commercial relationship before entering into the new contractual period.

Contract renewal ensures that the contractual obligations and rights established in the original agreement remain in effect for the upcoming term, while also affording the flexibility to make adjustments based on changing circumstances or preferences of the parties involved.

What Causes Missed Contract Renewals?

Missed contract renewals can significantly impact a business, leading to service disruptions, legal issues, and financial losses. Common causes include:

• A Lack of Visibility: Often, contracts are scattered across various inboxes, files, and databases, making it difficult to track renewal dates. This disorganisation can lead to missing critical renewal deadlines. 

• Unwanted auto-renewals: you must know what clauses and terminology are included in the contracts you agree to. A lack of knowledge can cause failure to serve written notice to the other party stating your decision not to renew, trapping you into unfavourable terms or unnecessary services.
  
  

• A Lack of Control: Poor renewal management processes, such as leaving contract reviews until the last minute, can create bottlenecks. These bottlenecks may result in missed renewal dates, as there isn't enough time to adequately review and negotiate contract terms

Risks caused by poor contract renewal management 

Missed contract renewals can pose various risks depending on the nature of the contract and its importance to the parties involved.

Here are some common risks associated with missed contract renewals:

• Legal repercussions: Failure to renew a contract can lead to legal issues, especially if the contract governs critical aspects of a business relationship or includes clauses regarding penalties for non-renewal.
• Financial losses: If a contract renewal is missed, it could result in financial losses for one or both parties. For example, a supplier might lose a valuable customer, or a client might have to pay higher rates for services without the benefit of a renewed contract.
• Disruption of services: If a contract involves the provision of services, failure to renew could lead to disruptions in service delivery, impacting operations and potentially damaging business relationships.
• Loss of competitive advantage: In industries where contracts provide a competitive advantage, failing to renew a contract could result in losing that advantage to competitors who secure similar agreements.
• Reputation damage: Missed contract renewals can reflect poorly on your company's reliability and professionalism, potentially damaging its reputation among clients, partners, and stakeholders.
• Uncertainty and instability: Without a renewed contract in place, parties may face uncertainty about the future of their relationship, leading to instability in business planning and decision-making.
• Missed opportunities: Renewing contracts often presents opportunities for renegotiation, improvement, or expansion of terms. Missing the renewal window means missing out on these opportunities for mutual benefit.

Contract Renewal Best Practices for 2024

Implementing contract renewal best practices, supported by a vendor and contract lifecycle management (VCLM) platform, can help to minimise these risks. 

1. Record renewal dates centrally

Many businesses that do capture the key dates of their contracts end up storing them in a variety of locations. They might be in a spreadsheet, in an inbox or captured in a shared drive.

But these silos can mean that not every stakeholder across the business has visibility of the upcoming renewal.

A best practice for businesses that want to manage contract renewals more effectively is to restore visibility by storing all key dates in a centralised repository.

All relevant users should be able to securely access the information they need from a central repository - saving hours of administration often involved with locating agreements. 

2. Build in time for a contract review

Contract renewal best practices involve giving your business enough time to complete the relevant activities.

When planning your internal processes, add in a further date to your system to kick off a contract renewal workflow to create this opportunity. 

To make an informed decision as to whether to review the contract, you’ll need to first:

• Assess the ongoing value of the contract
• Determine if there are any more cost-effective alternatives in the market
• Review contract service levels and any disputes that may have happened during the contract period
• Speak to key contacts within the business to see how the relationship is going

It’s up to you to determine how long that is for your business. It might vary by contract value, business area or even time of year.

Learn more about implementing and automating contract review workflows in our webinar below.

3. Implement automated reminders about contract renewals

Once you have the explicit end date of the contract recorded, you’ve derived the renewal date and then added in a date to commence a contract review, you’ll have the framework in place to build your contract renewal strategy. 

One key thing to point out is that having the dates recorded is only the first part, you need to have a system in place that will prompt you to take action on the necessary dates.

This system might be as simple as checking an Excel sheet regularly and reviewing the dates in it.

Alternatively, you may wish to invest in a dedicated contract reminder software that not only records key dates but will also trigger reminders to relevant parties and then follow prescribed contract workflows.

4. Automate contract renewal workflows 

Your  contract renewal procedures might currently rely on manual processes, which can be prone to errors and challenging to replicate consistently.

Transitioning to an automated workflow can improve contract renewal management by streamlining operations and ensuring precision and promptness.

Gatekeeper provides a specialised workflow engine tailored to optimise and automate your contract renewal practices. This solution not only reduces the administrative burden of keeping on top of dates but also enhances efficiency, accuracy, and timeliness throughout the renewal process.

5. Negotiate from a position of strength

Understanding the state of the current contract, its value to the business, your supplier’s pricing and capabilities relative to comparable products in the market and the shared history of issues and disputes, gives you a full picture at the right time so you can decide whether you would like to renew it or not.

Assuming you want to renew, you can engage your supplier with contract negotiation best practices and an understanding of what you’d like to update (if anything) in the contract.

However, by having all the relevant information to hand, in good time, you put yourself in the best position to get what you want from the renewal.

If you’re time-constrained then it makes sense to prioritise conducting all these activities only for the highest value contracts that your business has."

For lower value contracts, or contracts where there are many alternative solutions, you may settle for simply understanding when all the key dates are to begin with and working on the assumption that these are low-risk relationships.

By following these contract renewal best practices, you significantly reduce the risk of being underprepared or even missing the date completely.

Conclusion

The legal risk was high – the risk that we were locked into contracts we didn’t want, key negotiation timeframes being missed, contracts existed that we didn’t know about. We wanted to move to a system which would ensure we could maintain the usual high levels of professionalism with our counterparties.” - Jacqui Ward, Senior Legal Counsel, Melbourne Racing Club

If you're ready to implement contract renewal best practices and want to know how Gatekeeper can help, book a demo today.