What Do You Know About Vendor Contracts? – Part 2

Guest Blog Author: Martha Buyer & Contributing Editor Larry Treas

The following Part 2 of “What do you know about Vendor Contracts” comes from Martha Buyer, whom I got to know through a professional organization over 20 years ago. She is a lawyer who specializes in regulatory matters and contract negotiation.  Our mutual respect for each other has kept us in touch and doing business together. I was thinking there is no better way to provide Part 2, than with a person that has negotiated many different vendor contracts, and a friend.

Communications contracts are not what they appear to be. When the account exec brings in a contract or short addendum form to sign, NEVER, NEVER, NEVER just sign it.  While not everything on the short form may be correct to begin with, you need to know what other terms are buried (dare I say “hidden?”)  somewhere in the netherworld of the Internet contain how those terms could affect your enterprise. Because even though you might not see them, these critical terms can wreak havoc when the relationship goes South.  I have two particular pet peeves in this arena that I’ll highlight here. The first is taxes, surcharges and fees, and the second is Force Majeure provisions. The first issue is obvious, but the second is more subtle. Specifically, under many Force Majeure provisions, the enterprise may find itself obligated for things it never imagined when an unlikely–but nonetheless devastating–storm or other natural disaster barrels through your facility.

1) Taxes, Surcharges and Fees

First, it’s absolutely essential that you understand that surcharges and fees are not taxes. You know this because these line items, which are often just plain revenue masquerading as government-imposed levies, are subject to sales tax. These taxes and surcharges are revenue in one way or another, and are subject to tax.  So when the terms of your agreement allow taxes, surcharges and fees to change without notice, it’s critical that as the enterprise manager or individual or entity performing this task for your enterprise, you need to understand that these charges, while likely not negotiable, may be tools to be leveraged during negotiation time.  As we covered in Part 1, “What Do You Know About Vendor Contracts,” you may not get all you want but as the customer, you to be prepared to ask lots of questions that could lead to some movement in different areas of any proposed agreement or hidden–but applicable–terms. You might ask questions like “How many times over the past 3 years have these rates increased and by how much?”  Or “Is the provider/vendor willing to provide wording that restricts this increase to a certain percentage per year or a maximum of ‘Y’ over ‘X’ years?” Specifically, every carrier should be able to provide advance notice (and NOT via billing insert) of changes in these lines. Secondly, not all of these charges, which sound official and government-imposed, are. As an example, anything that says something like “property tax allocation” is just plain revenue dressed up as the evil government mandate. In fact, it’s a great idea to get a copy of a mocked-up bill (or that from another customer so that these lines can be easily identified before it’s too late to do anything about them.) Given that taxes, surcharges and fees can add more than 30% to quoted prices, the bottom line is that it’s critical that you be able to distinguish which of these billing lines are which so that they can be managed before they become an unpleasant and costly surprise.

2) Force Majeure

With respect to Force Majeure provisions, they’re usually buried at the back of the terms (and not on the 3 pager you’re given to sign, but rather in that buried text that can be found somewhere on the web). At first read, the provisions usually sound decent. Something like “in the event of a Force Majeure event, both parties are relieved of most obligations to one another.”  Sounds ok, right?  But what’s not included is the customer’s non-obligation to pay for services even though it’s not receiving them. That is, for many of the largest providers, if because of an event beyond its control, it can’t provide contracted services to the enterprise customer, the enterprise customer remains “on the hook” for bill payment even though no services are being delivered.  I can think of several high-profile situations (most notably Hurricane Sandy that hit the New York metropolitan area) where this is precisely what happened. We would all say, for sure but what if it was ever so slight like a major water line breaking and this water break caused carrier service to your offices to fail? We might expect the hurricanes, but we would not even think of something ever so slight. While the big providers seem to be loathe to negotiate these terms, they can be used to leverage other concessions at the time the agreement is signed.

It’s not fair to scream at the account executive about the horrible terms. Truthfully, you’ll be lucky if the account exec can even point you to where those important terms on the web. There are those who would argue in fact, that the carriers do not want the account executive to have this information so they cannot help you resolve these issues. Even if that’s possible (a long shot at best), it is less likely that the exec will have any knowledge about the language and provisions of these terms. Do your homework and be prepared to educate the sales team.  You’re both likely to benefit from the conversation.

THAT’S THE POINT


About the Author, Martha Buyer & Contributing Editor, Larry Treas

Author Martha Buyer: Martha Buyer is an attorney whose practice is limited to the practice of telecommunications law. In this capacity, she has negotiated a broad array of agreements between providers and both corporate and government end users. She also provides a wide range of telecommunications consulting and legal services, primarily geared to support corporate end-users’ work with telecommunications carriers and equipment providers. In addition, she works extensively with end users to enable them to navigate international, federal, state and local regulatory issues, with particular attention to emergency calling, along with issues related to corporate telecommunications transactions among and between carriers, vendors and end-users.

Ms. Buyer, who is an adjunct faculty member of the Graduate School at Regis University in Denver, is a graduate of Colgate University, the University of Colorado’s Interdisciplinary Telecommunications Program, and the Law School at the State University of New York at Buffalo.  She has received Business First’s “40 Under Forty” award for community leadership.

Click here to learn more about Martha Buyer or her resume may be downloaded here.

Contributing Editor Larry Treas: My name is Larry Treas and I am the CEO and Head of New Thinking at Dagger Guild. I have 35 years of witnessing the madness that blows through companies around the world, and it’s a foul breeze. I created the Dagger Guild to forge peer discussions, mentoring sessions, and specific information pipeline deliverables to address, solve and alleviate the standard issue nothingness you go through daily. Dagger has no allegiance, no affiliation, and no ties to carriers, vendors, advertisers or telecom marketers of any kind. As a result, our advice is both untethered and unbiased. You can see from my CV/resume my track record and years of experience. The Dagger Guild is my dream built upon the belief that together, we will create the next generation of heroes.

2019-05-16T11:00:45-06:00