Joe Priestley is IT director for Corn Belt Energy, the largest energy distribution cooperative in Illinois. He’s also a founding member of CompTIA’s End User Commission. Here he shares his thoughts on service provider contracts; specifically what can undo them.
I have been purchasing and implementing IT hardware, software, solutions and services for over 15 years, which means I have read a lot of contracts. These days, it is rare that I sign a contract without going through the process of markup and discussion with legal departments. Surprisingly enough, this is something that many decision makers don’t even realize they can do.
On multiple occasions, I have sent red-lined documents back to the seller and have been told, “I’m just going to send you the version of our contract that legal has approved after another customer marked it up with many of your same concerns.” If these people recognize the problems with their contract terms, why don’t they simply adjust their standard contract accordingly? If they only provide fair terms when challenged, this gives me pause and significantly damages their credibility.
In fairness, we also receive contracts that fairly share the risks and extend the same rights to both parties. While I might still red-line their contracts, I’m also more inclined to accept minor variations if I wish to preserve the relationship and the overall contract is honorable.
But regardless of your industry, be aware that your contract terms are a tangible reflection of your company’s reputation. I encourage all account managers to re-read their contracts from the perspective of a prospect. Would you, yourself sign it? If not, something is wrong.
Based on my past experience and resulting viewpoints, I’ve assembled five often-used contract clauses that will bring our sales engagement to an unsuccessful conclusion:
1. “By signing this purchase agreement, you agree to the terms and conditions on our website, which are subject to change at any time.”
This clause clearly states that the service provider can do whatever they want, whenever they want, and my company, as the customer, has no recourse. They could do almost anything regarding the stability, reliability, performance, term cost, or availability of the product or service and I am legally bound to accept it for the term of my agreement. In these situations, in the interest of time, I address this issue first because, if they insist on its inclusion, the remainder of the discussion is brief. I realize this clause enables the provider to more easily manage changes, but it places unmanageable risk on the customer, and is simply an insult.
2. “This contract will automatically renew after X years from the date signed for a period of one year unless cancelled at least 30 days prior to the end of term.”
Though I recognize this clause works well for the sales organization, which can now expend less energy and fewer resources to maintain the customer, these restrictions are bad for the customer, who can easily lose track of the cancellation period. In the last 15 years, I’ve had one provider that refused to budge. Since my company clearly needed this particular software, I did sign the contract, but I also included a binding cancellation dated for the end of the term. Even though I found a work-around, the customer relationship was badly damaged, and we signed a contract with their competitor three years later.
3. “We reserve the right to enter your business and audit all of your systems to ensure compliance with our licensing terms.”
With all due respect to intellectual property rights, this clause requires us to forfeit our own rights in order to protect theirs. I deleted the whole document and took my business elsewhere.
4. “Customer may not declare breach for any of the reasons documented here. Vendor may terminate agreement at any time without cause.”
Whenever such a one-sided clause appears in your contract, you can be pretty certain that a number of similar issues are also buried within. Providers interested in equitable terms that strengthen the customer relationship will know better than this.
5. “As a cloud-based services provider, you agree that Internet-based connectivity, speed or reliability issues are beyond our control. Performance and reliability issues shall not constitute any reason for breach of contract.”
I began working with a cloud-based service provider that required high-speed real-time connectivity to their data center. When performance issues began to appear, I was informed by their help desk that the round trip for data was taking too long and that I needed to contact my Internet service provider. We demonstrated that my ISP took seven milliseconds to get data to their data center, and that the next hop across the Internet, routed by the provider’s ISP, added 50 milliseconds. Their engineer reluctantly acknowledged the source of the problem, but then declined to do anything about it. Since I had previously refused to accept this clause, I had options. But I wonder how many other customers are locked into a five-year contract because they did not recognize this red flag.
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