Keep your head out of the cloud when acquiring or renewing martech software
Whether you're acquiring or renewing your martech cloud software, watch out for frequently used contract provisions that aren't in your company's best interest. Third Door Media CEO Chris Elwell shares important lessons for contract renewal season.
Disclaimer: This article does not provide legal advice. Consult an attorney regarding all legal matters.
Contract season just ended here at Third Door Media (the publisher of this site). We try to sign/renew contracts for our martech cloud software at the end of the year for the subsequent year. That makes tracking renewals easy and gives us the most leverage with vendors who are eager to conclude agreements (and book the revenue) before the end of the year.
Renewing more than a dozen contracts in a couple of weeks is demanding since most contain provisions that even Gerry Gallo, I mean Callo, would recognize as inequitable. It helps when everyone within the organization — no matter their role — takes responsibility for identifying and addressing those inequities. When you do so before passing contracts on to your management, that saves time and money and also demonstrates your business maturity.
In all but the largest organizations with dedicated procurement departments, people like you are likely responsible for conducting the first review of contracts. This article addresses contract provisions that a business person should look out for to fulfill her responsibility to the company; it doesn’t cover things that are the purview of the attorneys, e.g., warranties, jurisdictions and indemnities. See the disclaimer above if you’re unclear what to do in those cases.
You can’t make it up
Be alert for genuinely outrageous clauses that should never reach your boss’s or attorney’s desk. This gem won the top prize for me last year:
[blockquote] Right to Change Pricing or Services. You acknowledge and agree that shall have the right to change.: (A) any and all prices, and fees at any time, including, without limitation, during any term commitment to which you have agreed; (B) services, features and functionality at any time and from time to time, including, without limitation, during any term commitment to which you have agreed. [/blockquote]
Why bother to have a contract if (a) the vendor can change the price at any time, for any reason and to any level; and (b) the vendor can change the features and functionality of the software you’ve purchased without limitation? Taken to the extreme, the vendor could raise their price 10x and change the marketing automation platform you bought to a project management system. And you’d have no recourse.
Setting the price of a product or service is an essential component of an agreement. Common sense dictates that the price be fixed for the duration of the term. And any CFO worth his salt will demand fixed pricing so that the expense can be included in the annual budget.
Read it all
You’re not fulfilling your responsibility to the company if you recommend accepting an agreement without reading the whole thing. Sounds obvious, but it isn’t so easy when agreements comprise several documents.
Typically, agreements will comprise a Statement of Work (SOW) which contains the description of service to be provided, the parties to the agreement, rate and term. This document is customized for each client. Several other documents are frequently incorporated by reference and not sent with the SOW, commonly including:
- A Terms of Service (ToS) agreement.
Don’t take their word for it
As a manager, you should know that the SOW and other documents that make up the contract are the complete agreement between your company and the vendor. Nothing promised by your account representative matters because virtually all contracts contain an “Entire Agreement” provision. These provisions say that what’s in the agreement — and only what’s in the agreement — counts. Nothing agreed to in email, in writing or verbally matters.
During this year’s contract renewal cycle, we noted that one vendor’s SOW included a steep price increase for each item purchased above the contracted amount. I asked one of my team members to email the vendor about additional items that we might need to buy above and beyond the terms of our annual agreement. This staffer came back to me after the exchange to say: “Our account manager [at the vendor] has stated that we won’t be paying more for additional [items]. I’m inclined to take him at his word, but we can discuss.”
When it comes to matters like these, never take the account manager’s word. His assurance means nothing, given that the written contract included an “Entire Agreement” provision. We ended up revising the agreement to cover the price of items purchased that exceeded the number in the contract.
The takeaway: If it’s not in the agreement, it doesn’t exist.
Auto-renewal, annual rate increases & free trials
It’s common for contracts to include auto-renewal language which says, “If you don’t cancel our agreement before it expires, you’ve renewed for another year.” Here’s an example I came across late last year:
[blockquote] Unless canceled, your Service subscription will be automatically renewed at the end of your subscription period. We will bill the subscription fee plus any applicable tax to you. Your membership will automatically renew for successive subscriptions, without prior notice to you, unless and until you cancel your membership, or we terminate it. You must cancel your membership before it renews in order to avoid billing of the next period’s subscription fees to your payment method.[/blockquote]
There’s nothing in it for you to accept auto-renewal terms; they are included solely for the benefit of the vendor. You should insist on renewing annually to get the best rates and any additional services required.
You should also insist on capping rate increases. Once cloud software becomes integral to your company’s operations, it’s very painful to switch. That means your relationship is likely to be long-term. But the vendor’s ability to raise rates is rarely addressed in their agreements, so it is up to you to insist upon a cap. Not securing a rate increase cap means that you’re at the mercy of the vendor at renewal time.
A consequence of following this advice (no auto-renew and getting a cap on increases) is that agreements must be re-signed every year. The vendor is likely to begin that process with all their standard and one-sided-in-their-favor language, so you need to make certain both conditions are included in every renewal.
Finally, never provide your credit card for a “free trial.” You can bet that somewhere in the agreement, you’ve said the vendor can charge you a much higher amount based on an auto-renew clause. If the trial’s really free, there’s no need for a credit card number.
It’s a shared responsibility
I’ve probably lost a few readers who’ve concluded that reviewing contracts isn’t their responsibility. That may be true in the largest organizations with dedicated procurement departments, but not for most businesses.
Eliminating friction when onboarding or renewing cloud software is a win for everyone and your company, and being proactive in the contract negotiation demonstrates your business acumen and fiscal responsibility. Those qualities will be rewarded when raises, bonuses and promotions are considered.