Over the last 10+ years I reviewed and negotiated all sorts of vendor agreements for technical operations. Companies that are starting to build out their production environments occasionally contact me looking for advice. Being on vacation (and having time to write), I decided to share some of the more common problems I see in vendor agreements.
In almost all cases you can (and should) get better terms on what are presented as these “standard” clauses.
The Service Level Agreement (SLA) is probably the most critical to the availability of your business. For vendors providing services like DNS or bandwidth, any vendor failure can result in failure of your business. In other words, your uptime is no better than their uptime. The SLA is typically expressed and a percentage of availability. If the SLA is 99.9% uptime, you are accepting 45 minutes of downtime per month. Failure to meet the SLA usually means reimbursement for the cost of the service, not for the cost of your lost revenue resulting from the failure. For example, if you pay a DNS service $31 per month and they are down for a full day, your reimbursement would be $1, not the revenue you lost during that full day. Also, when the failure begins is usually defined as your notification to the vendor, not by the actual beginning of the failure. In other words, if you didn’t report it, the problem never happened.
The availability percentages for an SLA are usually difficult to alter but there are a few things in that you can change to limit your liability. Most (all) services have occasional failures, but it’s how they fail that become problematic for your business. An occasional failure might be okay but if this is a pattern you want the option of moving to a new vendor. You can usually add a clause that allow a termination of the agreement if the vendor fails to provide service more than N times in a 1-month period. Also, you can usually require that SLA failure begin at the time of the actual failure (when it is detected by either party) rather than your notification to the vendor.
Term and Renewal
Automatic renewals are also common in agreements, in which the duration of the agreement is automatically extended by the length of the initial term. Typically these require you to opt-out of the renewal by providing written notice within a narrow window of time. For example, your initial duration is a 1-year after which the contract will automatically renews under the same terms for an additional year unless notice is provided in writing 30 – 45 days prior to the automatic renewal. Vendors generally don’t contact you to remind you that your opt-out window is approaching and that you might want to negotiate a better deal while you can.
In most cases you want to avoid this simply because the prices for the service are almost always cheaper at the end of the initial term. This is especially true for things like CDN and bandwidth. If you’re not good at remembering to do things 11 months in the future, you may find yourself stuck in an agreement with the least favorable pricing.
The initial duration of the agreement is usually a requirement, or at least a requirement for favorable pricing. However, you should be able to change the automatic renewal to transition into a month-to-month agreement instead of the initial term. This will provide a better negotiation position when the agreement is up for renewal and will allow you flexibility in the timing.
Change of Terms
It is not uncommon to have a clause in the agreement that sates something to the effect of, “these terms are subject to change” with a link to the vendor website with the current terms. In effect, this says “you agree to whatever we decide to publish on our website”. I find these clauses ridiculous… I would love to respond with a clause stating, “our payment terms are subject to change subject to the amount I decide to write on the check”.
In these cases I find it useful to add a clause that requires notification (in writing) of any changes with a short period allowing an opt-out if the changes are seen as a material change. If you are unable to get a clause to allow termination of the agreement you should be able to get the option to stick with the original terms.
It’s worth noting that with any change to an agreement, a vendor may not have systems helping them enforce or react to the change. For example, if you are the only customer requiring written notice of changes, this may require manual work that they forgot shortly after signing the contract. You should consider this and word your changes in a way where a failure on the part of the vendor does not put you at a disadvantage.