Top 3 ‘Gotchas’ in a ServiceNow Contract
Published on 10 Mar 2021
Contract terms are important
ServiceNow uses company re-brands and product changes to increase their revenue. Through these changes, the company enforces new contract terms and conditions. These new contract terms force companies to agree to incremental price increases. ClearEdge has identified the main 'gotcha' terms that appear in ServiceNow contracts and are used to drive up costs when making a deal. The three main areas of exposure that business should be aware of are:
- Product changes
- Renewal caps
Businesses that do not guard against these terms by including competitive language in their contracts will find themselves dealing with unforeseen cost increases and license lock-ins.
See Also: Top 3 ‘Gotchas’ in a Salesforce Contract
1. ServiceNow upgrades - What you need to know:
ServiceNow introduces new features by releasing upgrades. These upgrades are rolled out via ServiceNow "Release Families". If a release includes new product functionality it may come with an increase in license fees. Support is only given to customers that are on the current and prior release family. Thus creating pressure for businesses to upgrade to the latest release or risk losing support. Typically ServiceNow releases two upgrades each year: one in the spring and one in the fall. As they are on a "n-1" support model, businesses have to upgrade at least once a year in order to continue receiving support. This means that ServiceNow has the ability to increase the price for their licenses once a year baked into their agreements.
2. Product Changes - How ServiceNow forces re-negotiations
ServiceNow routinely changes product functionalities and solution offerings. Under the guise of product changes, ServiceNow can reprice customer contracts and change product rights. This allows them to force re-negotiation on licenses even though customers will end up with essentially the same functionality after making the new deal.
3. Renewal Caps - How they can lead to a cost increase
Renewals are typically subject to a 10% increase in cost. The language in the contract will state that the volume of products that businesses purchase must be equal to or greater in the renewed contract. The caps are generally only applicable on products that were part of the original deal, any new products purchased will not be included in the terms outlined for renewal. Once this language is agreed upon it is very difficult to remove from the contract and will lock in price increases over time. ServiceNow will have the right to increase the cost by any amount they choose if you decide to reduce the volume or decommission licenses.
In this white paper, ClearEdge provides advice on what businesses need to do in order to get more favorable terms in their ServiceNow contracts. Download this WhitePaper to learn more.
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