Order forms and renewal order forms often get treated like they’re not real contracts.
Initial order forms are usually reviewed at the same time as the corresponding terms and conditions (or master agreement). The relationship is being formed, so the contract reviewer is diligent with their review of all initial contracting documents. But a year or a few years later, when the renewal order form comes through, it is often given no more than a cursory glance before execution. Why?
Because we wrongly presume that the renewal order form will be exactly the same as the initial order form, aside from new commercial terms like quantity, duration, and pricing. For sellers or service providers, the renewal order form is the perfect mechanism to introduce changes to the legal terms. Especially when the relationship has been in place for many years. What better time to make updates to an old or unfavorable master agreement than at the start of a renewal period?
That’s why it’s important to perform a thorough contract review of renewal order forms. You don’t want to miss a new or revised term that you did not intend on agreeing to.
This article outlines three important considerations to keep in mind when reviewing a renewal order form.
1. Does the renewal order form reference the correct terms and conditions?
Many commercial deals involve more than one contract. The best way to understand how each of the contracts relate to one another is to organize them in a parent-child hierarchy. The initial order form is a child contract to a set of parent terms and conditions. The renewal order form is the grandchild.
Theoretically, the renewal order form should be exactly the same as the initial order form except for the brand-new commercial terms that were just negotiated, such as quantity, duration, and pricing. In addition, the renewal order form should defer all legal terms to the parent contract. After all, the whole purpose of negotiating master terms is so that the parties won’t have to renegotiate the legal terms every time the relationship is up for a renewal.
Somewhere at the bottom of every order form there is a reference to a set of legal terms and conditions. Template order forms may contain a link to a set of online terms or some other generic reference. If you have an enterprise-level deal with a customized master agreement, then you need to make sure the renewal order form references that exact master agreement.
This Order Form between ABC, Inc. (“ABC”) and XYZ Corp. (“Customer”) is governed by the terms and conditions found at https://abcinc.com/termsandconditions.
But if you already have an existing set of terms and conditions in place, then that agreement should be referenced using the name of the contract, contracting parties, and effective date. Like this:
This Order Form between ABC, Inc. (“ABC”) and XYZ Corp. (“Customer”) is governed by the Master Services Agreement entered into by the same parties on June 27, 2021.
Always make sure the renewal order form references the correct set of terms and conditions to avoid an unintended change to the underlying terms and conditions.
2. What happens at the end of the renewal term?
Renewal terms can end in one of three ways: naturally upon expiration, early upon exercise of a termination right, or with another renewal (either through an option to renew or an autorenewal). While the parent contract should contain the termination rights and obligations, it can sometimes default those rights and obligations to the operative order form. For example, “Neither party shall have a right to terminate for convenience unless otherwise stated in an order form.”
If the renewal order form is silent on what happens at the end of the renewal term, then those terms will automatically default to the parent terms and conditions. As it should in most cases. If the renewal order mentions expiration, termination, or an additional renewal, then you should cross-check those terms against the initial order form and the parent agreement. Is it simply restating the terms already agreed upon, or changing them?
Termination rights and obligations have commercial implications. Make sure they aren’t changed in a renewal order form without proper consideration and negotiation.
Check out these tips to help you decide whether to include an autorenewal clause in a software-as-a-service agreement and these tips about using autorenewal clauses in other types of contracts.
Which terms will govern if there is an inconsistency?
Anytime a deal consists of more than one contract, there’s a risk that the contracts will handle the same matter inconsistently or in a way that creates confusion about which set of terms is applicable. In order to mitigate this risk, make sure that the younger children contracts don’t repeat or restate the terms already present in the older contracts. In addition, make sure to include an order of precedence clause in each of the contracts.
For example, in the Master Services Agreement, state:
In the event of conflicting or inconsistent terms between this Master Services Agreement and any other document, including an order form or statement of work, the terms of this Master Services Agreement shall govern. Any such conflicting or inconsistent terms in an order form shall have no effect and be considered null and void.
And in the Order Form state:
In the event of conflicting or inconsistent terms between this Order Form and the Master Services Agreement, the Master Services Agreement shall be the controlling document.
Make sure your order of precedence clauses are not inconsistent with one another. Here are some other examples of order of precedence clauses.
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Renewal order forms are important contracts that contain a dollar value and other important commercial terms. While they may not need to undergo a full-blown legal review, these three points should be reviewed to start with. If you notice major inconsistencies between the renewal order form and the initial order form, then you may want to escalate it for further review.
Nada Alnajafi is the Founder of Contract Nerds, Author of Contract Redlining Etiquette, and a seasoned in-house attorney. She is a contracts expert with 15+ years working in-house counsel for companies of all sizes and across various industries.