Renewal options should be included in the subscription term only if it’s reasonably certain that the government will exercise them. This determination should be based on factors such as:
- Past practice with similar contracts
- Business needs or operational reliance on the software
- Economic incentives to renew (ex., cost savings, high switching costs)
- Significant penalties or disruptions for not renewing
Similarly, if a contract includes a termination option, it shortens the subscription term only if it’s reasonably certain to be exercised.
What are Renewal Options?
Renewal options are provisions in a SBITA that give the subscribing organization the right to extend the contract beyond its original term. These options may:
- Be exercisable at the government's discretion
- Include additional months or years of access
- Be priced at a fixed or variable rate
- Be automatic unless either party opts out
Not all renewal options need to be exercised or included in the subscription term, only those the government is reasonably certain to exercise.
What's Important Here?
Renewal options are included in the subscription term only when it’s reasonably certain the government will use them. Carefully evaluating these options helps ensure accurate reporting, better planning, and full compliance with GASB 96.
