Avoid contract traps

Other readers reported learning the hard way that they must adopt similar tactics. "As a new IT manager back in 1998, I was burned to the tune of $24,000 because our contract database incorrectly documented a 60-day termination notification, when in reality the contract stated 90 days," wrote another reader. "The vendor was right; our documentation was wrong. Our legal department response was that a contract was a contract, and we needed to cough up the $24K. I was not very popular with my boss to say the least. Immediately after this unpleasant experience, I proceeded to write cancellation letters for every contract we had, regardless of termination date or whether or not we intended to sign up for another year. Any new contracts in which the vendor refused to remove autorenew clauses were not argued over, but simply signed, sealed, and delivered along with a cancellation letter living up to the autorenew and termination section of the contract. Believe me, it will not prevent the vendor from invoicing for a maintenance renewal when the time comes. All IT managers with contract responsibilities should review any and all contracts, with or without legal assistance, specifically for termination clauses."

Experts say that evergreen clauses are among the terms software companies are usually most willing to make concessions on. "It all depends on your negotiation power, but if there are multiple vendors in the mix who want to do business with you, I have never failed to get a termination for convenience clause into the contract," says Randy Roth, partner at Corporate Consultants ( www.corporateconsultants.com ). "A termination for convenience clause in a contract allows the customer or both parties to terminate the contract without cause given a certain notice period. The notice period would generally be 30 days for the customer but should be a minimum period of 60 days for the vendor, with the maximum being the length of time that it would take the customer to replace the existing service. In the case of a complex outsourcing agreement, that could be a year or more."

Along with IT negotiating expertise, it also helps to have a lawyer who knows the state law governing the contract. "At least one state, New York, has a specific rule with respect to evergreen maintenance contracts," wrote Robert Schrager, business attorney at the law firm of Bondy & Schloss ( www.bschloss.com ). "New York law provides that no contract for service, maintenance, or repair shall be deemed renewed pursuant to an automatic renewal clause unless the person furnishing such maintenance gives notice (15 to 30 days) prior to the time specified for serving notice of cancellation. The notice must be served personally or by certified mail and must call attention to the automatic renewal clause. I constantly see invalid evergreen clauses in the computer maintenance and leasing contracts that I review."

Many readers also pointed out ruefully that IT managers didn't used to need law degrees for their job. Maintenance agreements in particular were seen as a partnership and a way for customers to help keep their vendors in business. Unfortunately, that's not the way the software industry chooses to work anymore.

Correction

In this column, we misreported Randy Roth's company information. He is a partner at Corporate Contracts (www.corporatecontracts.com).