One of the great things about using a contract management solution is that it reduces the potential for nasty surprises when it comes to contract renewals. That doesn’t mean, however, you should lower your guard.
Sometimes it can be the most mundane of contracts that get automatically renewed year after year that can cause the most headaches.
Consider a minor error in billing that reflects a “fat finger” kind of mistake on a per-unit cost for an item. What if an item originally meant to cost $.01 per item got changed on the vendor’s invoice (accidentally) to $.10? That’s a ten-fold increase in the per-unit cost, but it may not be an obvious error.
Until, that is, a future audit uncovers three years of overpayments on this item, and your company bought 200,000 units. Now instead of spending $2,000 on those items, your organization shelled out $20,000.
That is just one reason why contract renewals should not be taken lightly. Another is to ensure that mistakes don’t get compounded via an auto-renewal clause. Auto-renewal clauses state that if the vendor does not hear from the client or the contract isn’t renegotiated within a certain time frame (30-60 days, for example), then the contract automatically renews.
This is not some nefarious tactic, but a legitimate time-saver for both parties when things are going smoothly. The tricky part, of course, is: how do you know things are going smoothly if you haven’t reviewed the contract performance?
A checklist for contract managers
To ensure that contract renewals are handled smoothly, contract managers should use the tools they have at hand in a solution such as Contract Assistant. Using the tools you have available plus following a simple checklist can go a long way to making sure there are no nasty surprises in renewed contracts.
1. Ensure that mid-contract reviews were conducted. Were any changes recorded at that time to the contract information? If so, you’ll want the stakeholders/decision-makers to be sure to pay attention to these items in a renewal review.
2. Be sure to set alarms long before the start of an auto-renewal period to give your organization time to conduct a pre-renewal review. For instance, if an auto-renewal period starts 30 days before the contract expires, set your alarm for an end-of-contract review 30 days prior to that. Or set the alarm further out if you think your organization needs the time.
3. Forward financial summaries and reports to key stakeholders. Of special attention: Are the costs/prices reflected in the contract actually reflected in what is being paid out?
4. Is the key contact information still accurate? This may seem like a minor point, but over the course of a year, titles and positions can easily change. Having the wrong contacts will indeed matter when emergencies arise – so keep these records accurate.
5. After key stakeholders have conducted their review, is there any information that affects the existing record’s “Key Elements/Clauses” portion of your contract record? In the attempt to nail all the details, don’t forget the big picture. Be sure if key contract terms are changed they get recorded.
6. Do you need to update the “Overview” section? Make sure this information stays up-to-date after reviews and that “Overviews” accurately record how long the contract has been in effect and even record when the contract has been renewed. Remember, if you don’t record this … who will?
7. Were meeting notes taken during the renewal review? If so, you may want to record those notes for future reference. For users of Contract Assistant, those who have the PRO and Enterprise editions can simply store and associate these documents with each record for easy retrieval; for those with the Standard edition, users can link to these documents (stored elsewhere).
8. And finally – be sure to update your contract record with new contract review dates. Remember, even the simplest of contracts deserve to be periodically reviewed.