For any IT agreement, whether for software-as-a-service, managed IT services, or a software implementation project, contract signing is just the beginning. Maintaining a successful relationship between the customer and the service provider depends on how the IT agreement is managed throughout its lifecycle.
Mastering IT Contract Management: A Five-Part Series outlines how organizations can ensure they realize the value anticipated from their IT agreements—and avoid the many pitfalls along the way.
IT agreement renewals and terminations are often treated as administrative tasks—but mishandling them can lock parties into outdated agreements, trigger unnecessary fees, or create service disruptions. Some of the most common pitfalls include:
- Lack of Visibility into Agreement Terms: When pieces of an agreement are scattered across different email chains, spreadsheets, storage locations, or isolated databases, it makes it difficult for the parties to track things like renewal dates or termination terms. Where agreements have auto-renewal terms, the risk increases for parties, as missing a non-renewal deadline may trap them into outdated terms, uncompetitive pricing and disadvantageous conditions.
- Starting Negotiations Late: Waiting until the final days of a term to begin renewal discussions compresses timelines, leaving little room for performance review, pricing renegotiation, or legal input, and reduces a customer's negotiation leverage.
- Not Involving Important Stakeholders: Leaving the negotiation of renewals solely to legal or procurement can result in terms that are misaligned with operational, financial or current market realities. For example, a contract might be extended without input from IT, missing an opportunity to drop unused features or renegotiate SLAs, which can lead to suboptimal decisions—like continuing with a service provider who is consistently missing delivery targets.
- Failure to Plan for Transition: Typically there will be some degree of tension between a customer and service provider if a termination right is exercised, so leaving a discussion about the nature of support that a customer may require to transition the services or products to another service provider or in house to that point can be risky.
These pitfalls can be addressed by implementing various tools, procedures, and best practices. Some of these include:
- Using Contract Management Tools: Use some of the contract management tools described in Part 1: Setting Up Appropriate Contract Management Processes to help plan for and manage a contract's renewal, expiration, and termination terms in an organized manner.
- Using a Cross-Functional Review Process: Include legal, finance, IT, and business leads in the renewal process to ensure the renewed agreement reflects actual usage, desired improvements, and any new business priorities.
- Developing Exit and Transition Plans in Advance: Well before a contract expires or is terminated, parties should begin planning for a transition. This may involve access to data, knowledge transfer, or staggered handovers to new vendors—especially in IT environments where service continuity is critical. In particular, if you are the customer, you will want to understand how long it will take to procure replacement products or services or add internal resources to provide such products or services in-house and ensure that any contractually required transition period is sufficiently long to cover this. If the vendor is hosting your data, you will also want to consider the process and how long it might take to transfer data from the vendor back in-house or to another service provider. If you plan to terminate an agreement early, consider what rights should be exercised before notice of termination is provided to mitigate transition risks.
The next part in Mastering IT Contract Management: A Five-Part Series will cover how to design responsive dispute resolution processes and remedies in IT agreements.
McCarthy's Technology Group has extensive regional and national experience advising and representing both customers and service providers in the IT space.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
