Tuesday, November 2, 2010

Contract clauses

A few posts ago I mentioned some clauses we add to our contracts to frankly make life easier. I mentioned one of them and agreed to post a few more.

If the sales team changes you have 90 days to decide if you want to stay

When it comes to contracts and vendors, the most important thing is the relationship. If it’s really that important, and I believe it is, why not emphasize that by putting language in the contract to give you a way out if you get a sales team that is below expectations.

 A good sales team is worth their weight in gold, even with the crazy high gold prices we have now. With a bad team, you are fighting a losing battle for any issue. You need someone at the vendor on your side and the people making commission off of you are the ones to be there for you.

We recently had a disagreement with a telecom vendor on a fraud charge. Our sales team went to bat for us and got the charge credited back. Arguably we never should have even seen the charge, and I have to wonder if I will have to fight every time, but without them getting the right people engaged I would have been stuck with the charges.

Billing needs to be correct or the vendor has penalties

If I underpay or miss an invoice I get hit with interest penalties, shouldn’t the same be true if the vendor overcharges me and had to credit me later? Maybe a little pressure on vendors to get their billing systems working properly will reduce all of our costs.

In the 10 years I have been working with telecom companies, I don’t think I’ve gotten more than a handful of bills that have been correct. Even worse is when you finally, after months of time, resolve an issue, it frequently magically re-appears.

I think billing needs to be correct out of the gate. In fact I think if billing mistakes keep showing up, the penalties should increase. Start at 1% and add a percent to the bill each month it is wrong. If you have a good sales team, they will start reviewing your bill for you, and a really good sales team will then find ways to reduce your costs even more in hopes that you will give them more business.


Chance to renegotiate pricing if market prices decrease

Telecom and networking changes fast; the technology changes and pricing drops every day. To protect yourself and your company, any multi-year contract should be able to be adjusted to cover market pricing drops and new technology.
I inherited a contract with a large telecom company right about the time that VPN started taking off. The performance was better and the costs were much better and it just made sense to change our frame relay links over to this. Unfortunately our contract didn’t allow us to do that and we ended up having to wait to take advantage of this change. We had planned to upgrade the bandwidth of our links, so the monthly recurring charge to the vendor would have been the same. We ended up switching vendors when the contract was up. A vendor with no flexibility isn’t one I want to do business with.


With the current economy many companies are merging or getting acquired. It’s important to have language in any contract that allows it to be transferred.
If you think there is a chance a competitor will buy the vendor you are working with, add a clause that lets you transfer out of that as well.

Business downturn

As companies enter and exit markets, ensure that your contracts allow this to happen. For example if you close an office in Brazil, make sure you can cancel the circuits without getting penalized for this. If you simply don’t like the vendor and want to change vendors, this won’t apply.

Terminate for convenience

It’s hard to tell what is going to happen in the future, so put in a termination for convenience clause. These usually include a pretty hefty termination fee along with them, but if you just need to get out of the contract for whatever reason, these are invaluable.
Often times these will not be a lot cheaper than paying the contract’s monthly fee, but even a 50% penalty is better than being stuck with a contract that you just can’t use.


  1. Great insights for those of us that have to work through and negotiate contracts.