The Amazing Morphing Contract

It used to be that a contract consisted of a base agreement (i.e., the terms and conditions) and one or more exhibits.  Sadly, those days are long gone.  Today, more and more agreements are comprised of some brief general terms and conditions that reference various online terms provided through URLs, which can change at any time.  The trend started in the telecom industry and quickly spread to almost every form of vendor agreement.  While this phenomenon is most frequently seen with regard to support terms, service level agreements, and service descriptions, some vendors are attempt to put their entire contract online, with only the specifics of the order reduced to a document that is signed by the parties.

• The challenges of these types of contracts are numerous:
  
  


• They are presented on a more or less as-is basis, suggesting they are not susceptible to negotiation.
  
  


• Key terms (support obligations, service levels, service descriptions, performance standards, etc.) can change at any time, generally without affirmative notice.
  
  


• Contractual protections, including service levels, generally provide only very basic protection, affording the customer little real protection.  
  
  


• The customer has little ability to terminate the agreement, even if key terms change to their disadvantage.
  
  
  

  The trend is alarming.  Unless businesses are vigilant and aggressively push-back on these types of agreements, they will be placing themselves at considerable risk.  Negotiating these agreements can be extremely difficult.  If material protections cannot be negotiated, then the customer must focus on clear termination rights for, at minimum, the following:
  
  
  
  

  
  
  
  
  • Objective failure to achieve service levels.  Since service level credits will likely be minimal and virtually impossible to get, the approach should be to limit risk by negotiating objective termination rights (e.g., failure to achieve required service levels twice in any four month period or having availability in any month of less than 98%).
  
  
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  • If the overall terms of the engagement change because the content of one or more of the online portions of the agreement changes, the customer should have a clear termination right.
    
    
  
  
  • Changes in the vendor’s financial wherewithal or ownership.
    
    
  
  
  • Changes in applicable law or regulation (e.g., a new data security law requires vendors to maintain certain minimum security levels, but the vendor is unable to do so).
    
    
  
  
  
  

  Long term contracts should also be avoided.  Rather, the use of shorter initial terms with the right to renew for additional one year periods are generally preferred.
  
  

  
  

  The point is to be cautious.  We frequently refer to these types of engagements as “career enders” for the business or technical manager who champions the contract only to find out services are largely as-is and can change at any time.