It seems like a good idea. You negotiate a service contract for a piece of financial equipment and agree to a clause that will automatically renew. It’s so convenient! No renegotiating terms each year! What could possibly go wrong? A lot, it turns out.
- Increased Potential for Double Coverage. We’ve talked about the issue of double coverage on a piece of equipment and explored how that happens. Evergreen clauses are often at the root of double coverage situations. This scenario plays out when the person agreeing to auto-renewal doesn’t properly communicate in-house and the person who actually requests service uses a different provider, unaware that a contract exists.
- Evergreen Clauses Breed Complacency. Contracts that automatically renew benefit the service provider much more than the recipient since it locks you in as their customer. With an evergreen clause in place, you lose the opportunity to renegotiate terms and make demands on price or response time. In short, your leverage in the relationship is lost when you have an evergreen clause in place.
- Difficulty in Terminating the Contract. Let’s face it, most people don’t read the fine print. The process for termination often depends upon the terms set out in the contract, which are usually buried in the details. If you become dissatisfied with your service provider or find a more economical option you want to try, chances are you will be penalized for terminating your contract outside of the renewal period.
My advice with regards to evergreen clauses is to avoid them. While the convenience might sound appealing, an automatically renewing service contract can create more problems than it solves. Contact us for more advice on how to manager your equipment maintenance contracts.