Finance News & Insights

Before you renew that service contract …

Auto-renewing or “evergreen” contracts can save some facilities a lot of time and hassles. 

But there’s a potential downside: You could be missing out on savings by letting a vendor deal renew year after year.

Sure you’re saving time and headaches by not haggling over contract terms, seeking out offers from other vendors, etc.

But a study done by the Aberdeen Groups found companies lose out on savings of 3% to 5% of the total contract by auto-renewing.

So how can you leverage more savings from your vendors, particularly housekeeping? Here are two questions you should ask before letting it renew:

1. ‘Are we getting anything back?’

One way you can make sure you’re not paying a vendor too much money: Get the price break you deserve.

For example: Vendors reduce administrative and on-site visit hassles with evergreen contracts. They also make more money over the long haul because they know most companies prefer not to switch, as long as the goods and services being provided are OK to good.

Why shouldn’t you be compensated a bit for their convenience? After all, you’re taking a risk by agreeing to do business this way.

Who know, you may be able to negotiate a price cut, an improvement in service or something else that sweetens the deal a bit for your firm.

2. ‘How do we get out of this?

Insist that any evergreen contracts include a termination clause and/or a 30-day window of notice.

Of course, you can fire a vendor any time you like. But depending on the contract, you may be on the hook for the remainder of the deal, even as you’re paying a new supplier.

Inserting a termination clause allows you to break off the deal without encountering any “gotchas.”

The 30-day window also allows for flexibility on your part. The vendor also knows a slip-up in quality could cost it the deal sooner than expected.

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