Contracts 101 – Do You Know What is in Your Vendor Contracts?
Agents, are you noticing a rise in the one-sided nature of many Vendor contracts? I am constantly surprised when looking at new Vendors that we want to bring into our portfolio of offerings. I go through the process of working with an Agent Manager, being introduced to the Vendors services and getting excited about the service knowing I can sell the crap out of it, only to be disappointed when I receive the Vendors contracts. More often than not these contracts are one sided in favor of the Vendor, have all kinds of hidden clauses allowing the Vendor to stop paying commissions, don’t include solid evergreens and generally look like the contract was created by a dozen different attorneys playing a game of ‘complete this story’. In almost every case, when I bring these issues up with the Agent Manager they act surprised, like they thought their contract was great??? Is this because there are Agents out there that are signing Vendor contracts without reviewing the language in detail? How are contracts like this surviving? Our job as Agents is to first protect our customers, but a close second is to protect our revenue stream and ensure that our sub-agents revenue stream is also protected. If the majority of Agents out there are signing Vendor contracts without reviewing and negotiating terms, we as a community are setting an expectation with the Vendors that they can control our life’s blood on a whim. We all need to work together to ensure that we take Vendors to task and ensure that fair and equitable contracts are the norm rather than the exception!
As an example, my agency (Motivity) was interested in a new Vendor as they had a great service offering at a great price and with a great commission schedule (everything seemed great…). However, once they sent over the contract, it was obvious that either prior Agents hadn’t been reading the contract, or the Vendor was intentionally trying to slip one past the goalie, so to speak. We ended up going back and forth for over a month trying to get the language correct. This included multiple review, redlines, conference calls and emails. In the end, our company had to make the hard decision NOT to do business with that Vendor, simply because the Vendor wouldn’t remove language that would allow them to stop paying commissions at their sole discretion. How they have any Agents is amazing to us. The Vendors response was “We never enforce that part of the contract, so don’t worry about it.” Really? Does that work on other Agents? Our response will always be, “If you don’t enforce that clause, and never will, then it needs to be taken out of the contract.” Another common Vendor phrase during these negotiations is “Well the ‘spirit’ of that clause is for blah blah blah” – again our response is, “If that is the spirit of the clause, then the clause needs to be amended to state the specific spirit/intent”.
As another example, Motivity has been negotiating with another Vendor that we see as a very nice niche player in the VoIP marketplace. It was one of the worst contracts that Shawn Drimmel (my business partner and contract reviewer) had ever seen, which made his response basically be “this is not worth my time to redline the entire contract, tell them we are happy to sign when they have a real contract for us to consider”. So, I met with the Vendor, gave them the top 10 punch list of the things that Shawn had mentioned. After about a week they came back to us and let us know that even their attorneys agreed that the contract was a mess and that they were having Ben Bronston (http://www.telecomlawyer.net/) completely re-write it with both parties’ interests in mind. As an aside, if you don’t know Ben Bronston, he is by far the best legal resource I have seen in our industry. If you have any legal contract concerns related to the Telecommunications Industry, I highly recommend reaching out to Ben. The money he will cost will be paid back tenfold if you ever have an issue. That being said, I know we will see a contract that will be good for both parties when Ben is finished.
Back to my point…In this age of mergers and acquisitions, the contract is the only protection Agents have when companies are bought and sold. It is our responsibility to protect our revenue stream as well as our sub-agents revenue streams for when such things happen. In our negotiations with the Vendor in the first example, they told my business partner Shawn Drimmel things like, “No one else ever brought that up.” Or, “Wow, I didn’t even know that was in there.” When I found out that hundreds of agents had signed an electronic version of the document without red-lining anything, I was dumbfounded. People: you have to look at what you are signing. The only time you can negotiate a contract is before you sign it.
Another trick Vendors like to use is to say “Agent, please write what you want the clause to say and send it to us”. If a Vendor ever requests this you should NOT do it. You can send them very basic description of the intent that you desire for the clause, but should not try and write the legal clause yourself. The reason for this is, if ever brought into legal proceedings, the party that writes that clause is held responsible for that clause. So if said clause has any ambiguity, the judgment is almost always awarded against the ‘authoring’ party, regardless of whose contract it originally was.
I personally know of multiple different cases of Vendors stopping paying Agents for reasons that have nothing to do with a breach, I am guessing many of you reading this have either experienced this or know someone that has. Often times these situations are handled in court, wasting valuable time and resources for the Agent. Sure, the Agent community has won some of these cases, but more often has lost, as the contract is ultimately the definition of the relationship. That, and even in the cases where the Agent wins, if the lawsuit drags on for 6 months to a year, and it was a significant portion of the Agents revenue stream, the Agent can be set back for years or even forced out of business entirely.
In the beginning Motivity started out making sure our customers always got the best price from the best possible provider. While that is still a major focus, contract negotiations have become just as high of a priority. Motivity will always try to stay one step ahead of what is going on in the industry to make sure our customers receive the best price, the best Vendor, and that our sub-agents can feel totally safe bringing their business through us.
