Six Best Practices to Modernize Your Contract Renewal Strategy
What is contract renewal?
One of the most important provisions in any contract is the contract period. Some contracts explicitly provide that they will remain in place indefinitely until either party decides to terminate the agreement. Many contracts, however, come with an expiration date.
Each party to the contract must decide whether it wants the business relationship to continue. If there is mutual interest in continuing, then the parties must renew the contract according to its terms. If the parties do not come to an agreement regarding renewal, then an agreement with a set term will expire at the end of the time period indicated in the contract’s term clause. Other contracts, alternatively, provide for auto-renewal unless one of the parties terminates the agreement before the deadline. For an agreement with a one-year term, then, it’s important to assess the business arrangement and the terms in the contract well before the end of the 12 months following execution.
In the event of a contract renewal, the original agreement is terminated, and that version of the contract is invalid with respect to the ongoing business relationship. The new agreement effectively supplants the old one, and the new terms apply until the new contract either expires or is itself renewed.
What’s the difference between renewal and extension of a contract?
There’s some room for interpretation regarding what constitutes “renewing” a contract as opposed to “extending” it. Generally speaking, however, renewing a contract means continuing the business relationship with a new agreement that replaces the prior agreement. A contract extension, by contrast, typically refers to an add-on agreement that extends the terms of the existing contract for a finite, additional period.
Extending the contract might be a better option for an agreement governing a specific, term-limited project that needs more time for completion. The parties can create a separate contract extension agreement that incorporates the original contract by reference and extends its term for a new, specified period.
Contract renewal, on the other hand, is better when the parties are generally satisfied with their working relationship and the terms of the agreement, and want both to continue indefinitely (subject to future renewal or cancellation).
Creating a contract renewal strategy
The contract renewal process entails more than just meeting a deadline. It represents an opportunity to revisit key terms in the agreement and update them to reflect changes in the business climate or in the parties’ business relationship and needs over time.
Contract renewal includes negotiating new terms and renegotiating existing terms, as necessary. Criteria for renegotiation range from legal concerns regarding topics such as liability and consistency of language, to business consideration of the profit or loss generated by the commercial arrangement over time.
Given the constant grind that lawyers and contract managers endure, however, it might seem as though thoroughly reviewing every contract before renewing it is impracticable. It isn’t. With AI-powered contract lifecycle management software making your workflows exponentially faster, reviewing every contract before renewing it is not only possible, but a requirement for anyone who wants to seriously compete in today’s global economy.
Here are six key contract renewal process best practices:
1. Don’t put off contract review until it’s time to renew
It’s understandable that many teams wait until the last minute to review the terms of a contract that’s up for renewal. With the volume of work that in-house legal and procurement teams have to handle, getting ahead of the workload and focusing on strategy and optimization can seem like an elusive, ever-distant dream.
However, with the right contract management system, it doesn’t have to be. An AI-based contract management platform can drastically reduce the time it takes to both draft and review agreements, giving lawyers more time to do what they do best: legal analysis.
What served the business well a year ago might not benefit it today. Counsel needs time to provide sound legal advice based on a thorough review of the terms of the contract in light of the business’s present needs. With less time spent manually drafting and searching for individual contract clauses, your lawyers can do just that.
2. Create a library of preferred terms and templates
What does a perfect contract look like for your team? You might talk about reviewing all of your agreements in order to take the best parts of each and create an ideal master agreement, but have you ever had time?
Imagine a robot that could quickly read every clause throughout every contract your business has in place, and then leverage the power of machine learning to instantly create new, customized templates for your business to use for all new contracts going forward.
You might think that having an AI assistant for your legal practice sounds too good to be true, but it’s not. That’s what AI can do for you today.
3. Never miss a deadline again
How does your team presently track renewal deadlines? It might be a shared spreadsheet, or worse yet, a spreadsheet stored on one person’s hard drive. What will you do if someone fails to add one of hundreds of deadlines to the spreadsheet, or if that hard drive fails?
Teams who are constantly playing catch-up with their contract deadlines might wonder how to get out of an auto-renewal contract. If the agreement renewal clause provides for automatic renewal of the contract, and you miss the deadline to terminate it, then you’re stuck with those contract terms and that vendor by default.
Think of how much easier it would be to review an automated dashboard or report that shows you every upcoming deadline across your entire portfolio of contracts with just one click of a button. In addition to streamlining and speeding up the review process with AI-powered searches, you could prioritize your contract review by deadline and review and renegotiate the terms of each contract well before the end of its term.
So how do you get out of auto-renewing contracts? By staying ahead of cutoff dates and deadlines with automated tools, and leveraging the speed and power of machine learning to complete your review well before each agreement comes up for renewal.
4. Automate data collection and tracking
How do you track other crucial information in your contracts, such as compliance clauses? Are you tracking those terms at all? If you’re constantly rushing to update and sign agreements just before the deadline, then you’re behind. For example, have you confirmed that all of your vendors are compliant with new regulations before you sign the renewals? Or are you just renewing out of convenience, crossing your fingers, and hoping for the best?
If you have to manually search for every piece of information your contracts contain, it’s difficult to act on it. An AI platform with cutting-edge natural language processing algorithms, on the other hand, can quickly complete the otherwise time-consuming, menial task of finding, compiling, and presenting information so that you can focus on the important part: deciding what to do about it.
5. Include all of the right people, and only the right people
When you’re working with hundreds of documents and tight deadlines, you don’t want to waste time tracking down contacts, email addresses, email chains, and more every time you need to get input on a draft or send a document for execution. Best-in-class security features including role-based access and single sign-on make it easy to provide just the right level of access for the right contacts for every agreement you manage. Reduce rote work while resting assured that only the people who are supposed to see the document can actually see it.
6. Eliminate the hassle of manual processes
A centralized contract management platform with integrated e-signatures negates the need to print and reprint signature pages, mail them to the signatories, get “wet” signatures, mail the executed pages back, verify that everything was signed correctly, repeat the process for any missed or incorrect pages, collect all of the pages in one place, and then make copies of the executed agreement to send back out to all of the parties. How much time do you have to waste on menial, repetitive, unnecessary tasks?
With the contract stored in one easily accessible, central location, every party can simply log in to sign the contract as soon as the parties have agreed on the terms. All you need is an internet connection.
From tracking upcoming deadlines to signing renewed contracts, Evisort’s AI and other smart features make every step of contract renewal fast and easy.Ready to learn more about how Evisort’s AI streamlines the contract renewal process and provides you with the insights you need to negotiate contract terms? Schedule a demo today!
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