When is it right to renew a contract, and when should you opt for
a tender?

Renewal might seem like the easy option

Many organisations opt for renewal because they simply haven’t left themselves time or they don’t have enough resources to take any other course of action. In any event, if the service you receive already is reasonable or good, or you need continuity of service for some other business reason, you may go for the easy option and simply renew. However, don’t let shortage of time be the driver.

Different strategies for different services

It’s true that competitive contract tenders can take time, although how long depends on the technology in question and how an enterprise resources and manages the activity.

For example, you could tender a contract for mobile services with around six months to go before the renewal date, as these types of services are undergoing less technological change at present and there are fewer aspects to consider. In fact, a straight forward renewal once suitable SLAs and pricing have been determined might work if the current mobile estate is working for you.

However, tendering something more complex like a WAN network may take anything up to a year or 18 months as it will take time to gather information about system requirements and consider different options. Often, changing supplier for this type of service also prompts a reconsideration of the entire network and whether a different arrangement could work better for you. Likewise, if you plan to change the underlying structure of your WAN network then it makes sense to put this contract to tender to find out what different contractors propose and how prices differ.

Where services are bundled with one provider, it usually makes sense to go to tender if any one part of the package is seeing major technological change. A simple renewal could mean that you miss out on opportunities to take advantage of technological advances that could improve a key service.

If the contract for your complete service package is coming to an end, you need to leave plenty of time to offer these for tender. Around one year to 18 months should be appropriate for most businesses.

Advantages and disadvantages
of tender

There are two main advantages to using a tender process: market visibility and competition.

Firstly, if you only talk to your incumbent supplier in a renewal process, it is hard to understand whether the service truly offers good value for money. The tender process involves having conversations with multiple providers about pricing options and the products that are available. You will be in a much better position to judge which package is a good deal and offers an innovative approach. However, there are organisations, such as TNC, which can provide detailed market analysis to allow you to validate where you sit commercially against current market pricing and which provide independent and professional decision support collateral.

Secondly, the competitive nature of the tendering process helps to increase the likelihood of a positive commercial outcome. You can compare the offer put forward by different suppliers and use that leverage to negotiate the best possible deal, with lower prices and better SLAs. Make sure that your contractual terms include strong incentives for the supplier to meet their obligations.

In addition to the time involved in the tender process itself, if it involves migration to a new service provider, this also takes additional planning and resource to manage is also where using an external independent consultancy can assist in ensuring focus and commitment to a business demanding timeline.

Advantages and disadvantages
of renewal

The main advantage of contract renewal is that it is quick and easy. There is much less information to process and consider as you do not have to decide between competing vendors; you simply speak to the existing vendor about what they could offer in a new contract. The process can take as little as three months to complete; often the paperwork is also less onerous, as you can just agree an addendum to extend the existing contract.

Renewal is also less risky than a competitive tender, which is likely to involve a new relationship with an untested supplier. A company might come across as highly professional and impressive during the tendering process, but prove disappointing once the actual service provision is underway.

On the negative side, renewal means that you award a contract on a less informed basis than if you used a competitive tender. You may be satisfied with your existing supplier, but it is possible that another contractor could have offered a better service, more challenging SLAs and lower prices. If you have been with your supplier for some time, it’s also hard to judge whether they have fallen behind innovation within the marketplace.

The right and wrong reasons for making
your decision

A key driver in deciding to renew is that you are satisfied with your supplier and believe they are providing a quality, competitively-priced service. However, shortage of time should never be a driver in deciding to opt for renewal. Many organisations decide they do not have enough time before a contract terminates or auto-renews to run a full tender process, so they simply renew. Sometimes it just seems like the easiest thing to do, especially if the current vendor pitches a deal that offers savings. However, it is always best to plan ahead and make an informed decision about whether tender or renewal is right for you.

Organisations also sometimes decide to offer a contract for competitive tender for the wrong reasons. If the relationship with the incumbent provider has not been ideal and there are some tensions, a company will sometimes decide to punish them by going to tender when other factors mean this is not in the organisation’s best interests. Procurement and IT Managers should try to be cool-headed about choosing a course that is best from a business perspective, rather than a personal one. If a supplier has made mistakes, this can be a powerful leveraging tool in renewal negotiations.

How to seek
the best deal

Whether you choose to offer a contract to competitive tender or go for renewal, the more time you can allow, the better your options are likely to be. The tendering process can help you assess the market, seek out innovative new approaches and get competitive price deals. The process takes time, but repays this investment by ensuring you can make an informed choice and find a good deal.

Renewals are best approached without a sense of hurry. Contractors sometimes admit that they are much more relaxed about a renewal process than a tender, because they know they will be challenged more through a rigorous tender.

Renewals might be more relaxed, but you can still push the vendor by allowing time for negotiation and carrying out research into market conditions. It is important to ask whether the systems in place are still the most appropriate and effective. Developments in technology mean that within the lifetime of a contract, better ways of arranging networks and structures are discovered. Simply accepting the first offer on the table, based on extending your current provision, is unlikely to secure the best value.

How will you handle your next telecoms contract negotiation? Ask TNC to help you seek better value for your organisation...

Disclaimer

Other than matters relating to The Network Collective, this research is based on current public information that we consider reliable. Opinions expressed may change without notice and may differ from views set out in other documents created by The Network Collective. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made.

This research does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice.

No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of The Network Collective Limited © 2018

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