Johna Till Johnson: Sanity clauses save headaches

It’s September and many telecom managers are hard at work negotiating next year’s telephone company contracts.

Herewith, some ways to ensure those contracts are more resilient than the North American energy infrastructure was this summer. The best protection is to craft clauses that let a company terminate the contract without being assessed a fee, under as many circumstances as possible. Why? Because such “sanity clauses” are the only way to ensure that your company will get the telco’s undivided attention. Usually a service provider will notice if it’s about to lose millions of dollars in revenue per year. (If nothing else, that’s a healthy chunk of an account rep’s commission.)

Most telcos don’t want to offer these kinds of outs. If anything, they’d prefer to provide refund credits worth a few thousand dollars. Unfortunately, these aren’t substantive enough to force a telco to make major operational changes. Only the threat of losing customers can do that. So to ensure the right to leave, your contract should include out clauses addressing the following situations:

Chronic or acute violations of the service-level agreement. Most service providers are happy to provide refund credits if a customer can prove the SLA was violated. But that’s not good enough. If the service provider grossly violates the SLAs (for example, latency, packet loss or availability exceeds 250 per cent of the agreed-upon limits) or regularly does so (such as three or more SLA violations in a month), you should have the right to terminate the contract.

Mergers, acquisitions or divestitures. Let’s face it: Your company could acquire another company with better telco rates. Or it could be bought. And so could the service provider. In any case, you should have the unilateral right to terminate the contract – again, with no financial penalty.

Technology refresh. Let’s say another provider offers you a service (such as Secure Sockets Layer-based VPNs) that you’d like to have. And let’s say your current provider doesn’t offer this service. You should provide them the option to offer this service within a reasonable time (say, 90 days) or have the right to switch to a provider that meets your needs.

Chronic billing errors. Most telcos don’t have the infrastructure in place to offer timely, accurate bills. That’s their problem. If they try to saddle you with the additional costs of ensuring billing accuracy, you should have the right to walk. Either the telco should fix its billing support system or cut you some slack.

As noted, most telcos won’t like these contracts. Too bad. Your business is what keeps them in business. So either they should sign up or expect to lose your business to someone who’s willing to negotiate.

Johnson is president and chief research officer at Nemertes Research, an independent technology research firm. She can be reached at [email protected].

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