What is a Contract Renewal Letter?
A contact renewal letter is a written notice sent to a provider (individual or company) outlining the intention to renew the terms and conditions of a contract. The purpose of a contact renewal letter is to extend an ongoing business relationship. It is a powerful tool for communicating when it is time to renew an existing contract , recall the current terms of the contract, and to outline the details of what the terms of renewal will be. In the case that any new terms and conditions be added to a contract, a contract renewal letter serves as an opportunity to recall these terms and conditions to ensure that both the client and provider are aware of all stipulations.
Essential Elements of a Contract Renewal Letter
A comprehensive and well-structured contract renewal letter contains several essential components that leave no room for confusion on either party’s part. Let’s take a look at the most important components of a contract renewal letter:
Contract details: The renewal letter should include the details of the original contract, including the names of the parties and the specific goods or services authorized by the original contract.
Renewal terms: The letter should explicitly states the terms of the renewal, including what has changed as a result of the renewal. If the letter is similar to a new contract, the new primary terms of the renewal should be clearly spelled out so as to avoid future ambiguity over the terms of the agreement.
Changes to the existing agreement: If the letter includes any changes to the existing agreement, those amendments should be clearly delineated in a separate section to make it easy for both parties to identify where the new terms are and what is new.
Additional relevant provisions: Depending on the contract, there may be other provisions included in the letter. Consider what was previously outlined in the agreement and whether there are any additional details that are necessary overall to fully identify the terms of the renewal.
Tips for Composing an Effective Contract Renewal Letter
When writing a contract renewal letter, there are some tips and strategies that can help you to compose an effective letter that covers all of your interests while also encouraging a positive response from the other party. While every situation is unique and should be addressed accordingly, the following information can give you a general framework to manipulate to best fit your needs.
Be Polite – One of the best ways to guarantee a quick and positive reply to your contract renewal letter is to ensure that you are always polite in your correspondence. Avoid placing blame on either side, even if you feel that they are partly at fault. Focus on the fact that the contract is set to expire soon, and that you would like to have the document extended immediately to avoid any service interruption. This is likely to result in a speedy reply, while maintaining a professional tone.
Be Specific – If you are requesting specific changes to the current contract, be sure to list them out plainly in the contract renewal letter. For example, if you would like to have the document updated to reflect a price change, make sure that you have thoroughly outlined the updated pricing plan so that the other party doesn’t need to follow up to get an updated quote from you.
Ultimately, the goal of a renewal letter is to provide an early warning to the corresponding contractors or suppliers that the contract will soon be up for renewal, and thereby properly give them ample time to respond to your notice, adjust their own business plans if necessary, and keep the dialogue open between the both of you.
No matter what type of contract you are reviewing and renewing, it’s important to be aware of how to best protect your business interests while also prompting a prompt and favorable reply from the contractor or supplier in question through the use of proper language and a well-organized letter.
Common Pitfalls to Avoid
Common mistakes to avoid when drafting a contract renewal letter
When renewing a contract, the renewal letter itself may become subject to negotiation. When you ask for changes or agree to changes, that creates new terms that will govern the next version of the contract. The most common mistake in that respect is simply not being careful about how the letter is worded. You may think you are just repeating terms to keep them fresh in both parties’ minds, but it doesn’t always work. For example, when you ask for a price increase, you may say "We have agreed that the new price will be $___". You mean that the price will be $___ as of a certain date. What you wrote was a new contract term: "the new price will be $___." Now you have a change in the contract price that may be disadvantaging or benefiting you, depending on which side you are on the renewal . Other pitfalls occur at this stage, not necessarily related to contract language. Treating this relationship as simply a contract process could cost you the work. Your counterparty should be treated with respect, not as a means to an end. If you routinely set your renewal with a 90-day timeframe, that might effectively choke off their other choices. Practically, they may feel pressure just from the timing; even when terminated, everyone needs to move on even if you didn’t set the deadline arbitrarily. Additionally, don’t underestimate the value of a handshake. It may seem dated, but a real handshake still creates the personal relationship that will last through the next term, even to the end of the contract. Don’t let the paperwork get in the way of the relationship you worked so hard to create and maintain.
Template for a Contract Renewal Letter
[Date]
[Name of Supplier of Services / Product]
[Mailing Address of Supplier of Services / Product]
[City, State ZIP Code of Supplier of Services / Product]
Dear [Name of Supplier of Services / Product]:
Re: Renewal of Service / Supply Contract
I am writing to inform you that [repeat the specific language cited in the current agreement, if it is a service or supply agreement, as described above] and that the term of our agreement is due to be renewed on [indicate the last day the current agreement can be terminated by either party, if any, as described above]. As your [indicate the role of the person to whom you are writing for your company or government agency, i.e., "purchasing agent"] I believe I would be remiss if I failed to advise you of this crucial development concerning a contract that could have significant consequences for [your company / your government agency or agency department]. Please note that, under our agreement, we have the following options:
• We may, without penalty, terminate our contract; and [add the language about price increases in the agreement, if applicable; otherwise, delete this line]
• Our contract will be renewed with [Insert any modifications as described in the agreement such as any modifications in quantity, price changes, license renewals and the like, if applicable], unless either party gives [insert the number of days specified in the agreement] days written notice of its intent to terminate the current contract or take advantage of either of the above options.
Accordingly, I invite you to contact me immediately concerning the terms of the renewed contract. If you wish to take advantage of the option to terminate our contract, please submit your notice of intent to do so so that it is received no later than [insert the last day the current agreement can be terminated by either party as described above, if applicable] either by U.S. Postal Service or facsimile (fax).
or I trust that you agree that our contractual relationship has been beneficial to both [your company / your government agency or agency department] and to you. Please confirm by fax that you intend to continue our mutually beneficial relationship by renewing our contract, without modification to its terms, conditions and pricing.
Sincerely, [Name of Person Who Signed the Original Agreement] [Position or Title of Person Who Signed the Original Agreement] [Name of Company or Name of Government Agency or Agency Department]
Legal Aspects of Contract Renewal
When it comes to renegotiating a contract, there are several legal considerations you need to keep in mind. There are a number of laws at both the state and federal levels that can affect the contract renewal process.
At the federal level, be aware of the Federal Arbitration Act (FAA). If your company signs contracts with the same people repeatedly, the FAA may deem your relationship a "business relationship," rather than a series of separate business transactions. This distinction means the FAA prevents any civil litigation related to breach of contract even if there is a state law that otherwise would apply. This is essentially a possible immunity for your customer or client from nondisclosure of confidential information.
At the state level , there are various laws you need to be aware of. If you fly in the United States and do business via internet, be aware of the Electronic Communication Privacy Act. If either you or your recipient is located in one of the following states, the time frame for renewal should be aware of the following clauses: It is critical that you are familiar with these laws and all applicable consumer protection and antitrust statutes in your state and around the country. While some of them may seem minor, it is exceedingly easy for your company to get involved in a heavy litigation if at a later date there appears to be a violation of one of these statutes. Even if it seems minor, you will need to place a monetary value on any damages sustained due to a violation of the statute.