Written by: Phil Sealy – The Pro Forum Community of Practice
A contract renewal and an extension both involve the continuation of a contract beyond its original term, but there are some key differences between them:
“Extension” normally refers to a lengthening of time for an existing contract. “Renewal” normally contemplates an entirely new contract. This can be a distinction without a difference in some situations, but in complicated contracts it can have legal consequences.
Definition: A contract renewal involves the creation of a new contract, while an extension simply continues the existing contract for a set period.
Timing: A renewal typically occurs after the original contract has expired, while an extension happens before the original contract expires.
Terms: In a renewal, the terms of the contract may change, whereas in an extension, the terms of the original contract usually remain the same.
Negotiation: Renewals may require renegotiation of terms, whereas extensions usually do not involve significant negotiations.
Duration: Renewals can be for any length of time, while extensions are typically for a shorter period than the original contract.
When deciding whether to exercise an extension option or extend a contract by variation, you should consider the costs and benefits in continuing with the current contract, including:
- whether extending the contract would continue to provide value for money;
- whether reapproaching the market would result in a better outcome, having regard to potential costs involved;
- the performance of the current provider(s);
- whether there will be sufficient time to run a new procurement process;
- the current market conditions; and
- the changing needs/requirements of entities.
To inform your decision you should check the following.
- Supplier performance
- Has the supplier met expectations and performed well against KPIs?
- Is the customer satisfied with the supplier’s service?
- Demand requirements
- Does the customer still need the goods/services?
- Have their requirements changed?
- Market analysis (research current market conditions)
- Are there new suppliers for the goods and services?
- Can you obtain better products for a better price?
- Has there been any innovation which means that other goods/services are now available that better meet your needs?
- Are conditions favourable for going back to the market?
- Could you obtain a more competitive price or better result if you delay going back to market?
- Coordinated procurement arrangements
- Are there any procurement arrangements or activities planned or in place (for example, common use arrangements) that might impact on the extension or renewal?
- Have you checked the relevant electronic notice facility to identify whether other agencies are going to market around the same time, so you can leverage volume and reduce duplication?
In summary, a contract renewal involves creating a new contract with potentially different terms, while an extension simply continues the existing contract for a limited time with the same terms.
NOTE: The content of this article is intended to provide a general guide to the subject matter, and specialist advice should be sought about your specific circumstances. The content must not be relied upon as legal, technical, financial or other professional advice.