Why Vendors Sometimes Don't Want Auto-Renewal and Customers DoMay 16, 2023
"Vendors always want auto-renewal." Or do they?
Today's contract market data post is about auto-renewal provisions in IT contracts.
Under automatic renewal provisions, the contract continues for another term if the parties do not take some action to cancel the renewal. There are lots of pros and cons to these approaches.
TermScout's database and analysis of 1,000+ IT contracts showed that 59% of vendor forms start off including an auto-renewal provisions, while only 6% of customer forms do. When you look at the data for final negotiated contracts, auto-renewal is in 48% of them.
The thing that pops out to me is only 59% of vendor forms include auto-renewal.
Now, if these forms were all SaaS contracts, I expect that number would be much higher. But these include other IT contracts too.
The conventional thinking is that vendors always want autorenewal, as they want to keep the customer locked in year after year.
But in my experience, that's not always the case. There are lots of times when IT vendors don't want that provision.
One time is when the signed agreement stinks.
Vendors sign not-so-great deals all the time. The vendor is forced to use customer paper, negotiates the best they can, but it still misses the mark on many key risk issues.
In those cases, the vendor may be better off letting it not renew and then trying to renegotiate as a condition for renewal.
This approach can really work if the customer is stuck due to an upfront investment. (On this last point, I'm not saying that's the best way to go into the relationship, but it is a reality in many relationships.)
Yes, the vendor could keep the auto-renewal and mark its tracking calendar to give notice of nonrenewal, but I've seen that approach fail more times than I'd expect.
People and systems are fallible and they end up stuck in a bad deal because no one gave the notice.
For more contract data, head over to TermScout."
This was originally published on Laura Frederick's LinkedIn page. If you want to get more of Laura's tips, join over 33k lawyers and professionals following her on LinkedIn.