Standard Contracts: No Laughing Matter

How often do you sign a contract without reading it? Believe it or not, people do this all the time. Here are six common excuses they give for doing it:

1. If I delay to read and negotiate contracts, the deal might go away—and with it the big discount they gave me.
2. We’ve been doing business with them for years. They’ve always done what they say they’ll do.
3. They indicated that the contract is non-negotiable.
4. Lawyers cost too much.
5. The contract is two pages long; how bad can it be?
6. It looks standard to me.

If you’ve got money to burn, go ahead and sign a contract without reading it thoroughly and negotiating it aggressively. If you don’t care what might happen in the future with the agreements you commit to, sure sign the papers.

But first, you might want to read the rest of this article. I’ll start by giving you samples of only four contract clauses commonly found in equipment service and finance contracts. Each contract phrase will be followed by the questions to ask and the changes you should request.

Clauses to Watch For

You may purchase the equipment for a “mutually-agreed-to fair-market value.”

• Who determines the fair market value?
• What process is involved to reach a “mutual agreement?”
• What happens if we don’t agree with the fair market value price?
• How much time do we have to decide if we want to purchase the equipment?
• If we do not reach an agreement on the purchase price, may we still return the equipment without penalty payments or fees?

We guarantee that our equipment will operate with an average uptime of 95 percent.

• What is the definition of uptime?
• When does the service call clock begin?
• Is the equipment still counted as out of service once the technician arrives to repair it? The answer to this may surprise you. It did me.
• Is the time the equipment is down for preventative maintenance included in the 95 percent uptime statistics?
• If we place the service call in the morning and the technician does not arrive until the end of the regular business day, will we be charged extra for an after-hours service call?

Not less than 120 days prior to the end of the term, you must give us written notice of your intention to purchase or return the equipment. If we do not receive the written notification, the lease will automatically renew for 12 months.

• If we miss giving timely notice, what happens?
• Will you remind us before the 120-days notice is due?
• Will an email serve as written notice?
• What happens if we change our mind and decide to return the equipment instead of buy it?
• What will the payment be on the automatic renewal? It seems like it should go down because the equipment is used and is not worth as much.

You are solely responsible for removing any data that may reside in the equipment you may return, including but not limited to hard drives, disk drives or any other form of memory.

• If we don’t take care of cleaning the hard drive and all memory storage drives, how much will you charge us to provide that service?
• Where does this equipment end up after we return it?
• You mean this new software does not wipe the drives clean on a regular basis?
• Is the cost for training us how to wipe all drives clean included in our initial training?
• How can we be sure all drives are clean without destroying them?

After the Honeymoon

A written agreement remains long after the honeymoon glow of new equipment wears off. Even top-of-the-line equipment breaks and service falters or may become inconsistent. Sometimes the equipment doesn’t do what the sales people promised it would do.

From time-to-time, service companies and financial institutions sell their contracts to another provider of the same service. The familiar service and sales folks are no longer involved. New relationships must be established.

If the working relationship sours or is strained between the supplier, the service organization or the finance company and the customer, the only thing that remains in place is the legal contract.

Contracts are written by attorneys to protect their clients, not you. Written agreements are one-sided, and the balance on this teeter-totter is never equal. What can you do if you are in a contract that contains “Gotchas?”

Play Worst Case

Assess the potential damages if the deal blows up in the first year. Be sure to add in the cost of paying the other guy’s legal fees, assumed damages, fines, late payment fees and penalties. If the case goes to court, there will be an expense to hire your attorney, pay court costs, filing fees, tax penalties and the list goes on. This expense is to defend you from the “unprincipled scoundrel” who used to be your trusted vendor/partner.

Penalties usually include paying all remaining payments for the full term plus an amount to make up for lost profits the supplier experienced during the legal battle. And you still need to locate and pay for replacement service providers or equipment.

Next time, before agreeing to a new contract without reading it, consider your options and weigh the consequences. Options include:

1. Read the agreement yourself. Consider how often you read this type of contract. How familiar are you with the legal and contractual terms contained in the agreement? How familiar are you with the laws in the state in which the case might be litigated. Seldom is the case litigated in the customer’s home state.
2. Hire an attorney. You can save the attorney a little review time by highlighting what you are most concerned about after you’ve read the contract. Ask for a flat rate to review and negotiate the agreement.
3. Retain a contract specialist with expertise in these types of contracts. That individual may or may not be an attorney. Propose that they work under a gain share agreement. Some agree to a flat rate (lower than that of an attorney) and a percent of the savings they achieve for you through their review and negotiation process. Many managers view this approach as a win-win arrangement.

Whatever option is selected, the key is to review thoroughly and negotiate aggressively. I operate under two philosophies: “Everything is negotiable if you ask.” On the other hand, “If you don’t ask, you don’t get.”