Find answers below to frequently asked questions about extending and renewing contracts.
Table of contents
What is the difference between a contract extension and a contract renewal?
Contract extension: an existing contract is continued for a period of time. Often, this will occur via the extension options in the contract. At the time a contract is extended, other terms might also be varied (such as pricing).
Contract renewal: an existing contract ends—by, for example, expiring—and the parties agree to enter into a new contract (usually for the same or very similar services).
What do I need to demonstrate before extending or renewing a contract?
To manage a contract efficiently, you need to plan for contract expiry. This includes determining how to get the best value for money: extending or renewing the contract, or re-approaching the market under a new procurement process. You must be able to demonstrate that:
- your decision to extend or renew a contract will deliver value for money
- your decision is supported by business needs and supply market analysis (672KB)
- the supplier(s) performance is satisfactory.
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 Queensland Contracts Directory to identify whether other agencies are going to market around the same time, so you can leverage volume and reduce duplication?
As part of the review process you should get feedback from customers and suppliers to identify opportunities to improve value. You should incorporate those improvement opportunities in the extended/renewed contract.
How does the depth of analysis required vary depending on value and risk of the contract?
The amount of analysis you must do to demonstrate that value for money will be achieved varies depending on the value and risk of the contract you are reviewing:
Routine contracts (low value, low risk)
A ‘light touch’ approach is acceptable. Complete the Contract extensions/renewals checklist (162KB) with brief supporting comments.
You can use the Contract extensions/renewals checklist if you can adequately explain the reasons for the extension/renewal.
However, if the extension/renewal is of significant value or duration, we recommend that you complete a Contract review report (379KB). Exercise discretion as to which factors will require more detailed analysis.
High value contracts
For high value contracts, ensure you have satisfactorily investigated demand requirements, stakeholder satisfaction, and supplier performance, and benchmarked to confirm that pricing is competitive.
High risk contracts
For high risk contracts, ensure you have satisfactorily identified whether the risk assessment for this procurement has changed—assess risks of changing suppliers, supplier performance, stakeholder satisfaction, and analyse the market/pricing to confirm whether pricing is still competitive.
Seek guidance from your agency procurement team in the first instance.
How many times can I extend or renew a contract before I need to re-test the market?
The number of times you can extend or renew a contract before re-testing the market depends on:
- the category management plan (it might specify how frequently or when the market should be re-tested)
- the nature of the contract (what it covers, and how it is classified using the value/risk matrix)
- the market analysis (is it slow or fast-changing, is technology impacting products and price?)
- any relevant industry standards (for example, it is industry standard that organisations re-test the market for an external auditor at least once every 7 years?).
Can I automatically extend a contract if it contains an extension option?
No. Even if there is an option to extend the contract, you still need to to demonstrate that:
- the extension will deliver value for money
- the extension is supported by business needs and supply market analysis
- the customer is happy and the supplier(s) performance has met expectations. If there are concerns about performance, you need to ensure those concerns are being addressed as a requirement of the extension
- any improvement opportunities identified have been incorporated in supplier arrangements.
Before deciding to extend a contract, you should check whether there are any planned procurement activities that might influence whether to extend the contract, or for how long.
Can I extend a contract for a period that is different to its extension options?
Yes, if agreed by the parties (as a contract variation). In some circumstances, it may be in the government’s best interests to extend a contract for a different period to the options. See the following examples of when this might be appropriate.
- Supplier performance issues
Concerns have been raised about the supplier(s) performance. You might agree to extend for a shorter period than the extension option (for example, extend for 6 months instead of the 2-year extension option), and then reassess whether to extend for the remaining option period, subject to a performance improvement.
- Alignment with planned procurement activities
You have identified that there is a category management strategy to re-test the market in the next 3 months for goods/services that are the same as those delivered under the contract you are reviewing. You might extend the contract for 6 months (to align with the category strategy), rather than for the longer option period.
- Change in business needs
The contract might have an extension option of 3 years. You have identified that there is an intention to phase out the use of the goods/services under the contract within the next 12 months (for example, strategies are in place to reduce demand or a decision has been made to switch to an alternative product/service). You may wish to extend the contract for only 12 months to align with the business strategy.
- Emergency situation (insufficient planning for contract expiry)
You might not have enough time to thoroughly investigate whether it is appropriate to extend a contract. An emergency situation might arise where allowing the contract to lapse would result in an unacceptable risk to the business. It may be necessary to temporarily extend the contract to allow the proper analysis before committing to the full extension period.
Can I extend a contract that does not contain extension periods?
In some circumstances, it may be in the government’s best interests to extend a contract even if it does not contain an extension option. The extension would need to be agreed by the parties (as a contract variation), and you must be able to demonstrate that the:
- extension/variation will deliver value for money
- extension/variation is supported by business needs and supply market analysis
- supplier(s) performance has met expectations.
If you need to renew a contract seek advice from your procurement team.
In circumstances where a new, unrelated scope of work arises, we recommend letting the current contract lapse. You will then need to consider whether it is appropriate to go to market for the new scope, or renew a contract with the supplier for a new scope—where you can demonstrate that a renewal is justified.
When is it appropriate to renew a contract?
Renewing a contract (without going to market) is virtually the same as deciding that a sole source procurement will obtain the best value for money. Similar considerations apply—you must be able to demonstrate that:
- the contract renewal will deliver value for money
- the contract renewal is supported by business needs and supply market analysis (price is reasonable and competitive)
- the supplier(s) has met expectations and the customer is satisfied
- better value for money would not be obtained by re-approaching the market (there are no other procurement strategies likely to deliver better value for money).
Who should approve a contract extension or renewal?
You should get approvals for contract extensions or renewals in accordance with your organisation’s delegations and authorities.
It is important to remember that when seeking extensions, the total value of the contract is considered, not just the value of the extension.
What records/evidence do I need to keep to comply with recordkeeping obligations?
All employees are responsible for ensuring they keep full and accurate records of activities associated with contract extensions and renewals in accordance with relevant policies, standards and guidelines. These include the Public Records Act 2002 (435KB) and relevant principles contained in the Records Governance Policy.
We recommend you:
- keep the completed Contract extensions/renewals checklist (162KB) and any supporting materials, such as the Contract review report (379KB) as the record of your analysis and the approval to extend or renew a contract
- store a copy of the completed Contract extensions/renewals checklist and/or Contract review report with the contract records (for example, a copy is uploaded to the Contract Management Lifecycle System so that it can be easily located for future reference).
What tools can help me determine whether to extend or renew a contract?
Routine contracts (low value, low risk)
We recommend you use the Contract extensions/renewals checklist (162KB).
All other contracts
You will need to complete a more detailed Contract review report (379KB). You may wish to use the Contract extensions/renewals checklist as a summary of key information in the Contract review report, and a record of the endorsement and approval of the extension or renewal.
Who can I ask for help?
If you need help determining whether a contract extension or renewal is justified, you should contact the following people for assistance:
- procurement representatives/advisors in your organisation
- the category manager or category management team responsible for the goods/services supplied under the contract.
If you have any general queries about this information, please email firstname.lastname@example.org.