At Contract Wrangler we spend a lot of time with department leaders and their team members charged with keeping track of contracts, and more importantly, the terms in those contracts. Affected teams include Finance, Legal / Legal Ops, Procurement, Human Resources, Customer Success, and IT --and the solutions range from nascent to more-advanced depending on variables including company size, culture, regulatory environment and other perceived risks their industry faces.
The continuum of solutions in place is broad, and generally breaks down into four main categories that we're sharing below and as summarized in this Infographic. There's also a risk and cost profile that accompanies each point on the continuum --sometimes understood by their stakeholders -- but often not!
Risks are related to the possibilities that a phenomenon such as the following occurs:
i) a vendor contract auto-renews, when you'd prefer to terminate it
ii) you lose a customer because you didn't enter into renewal discussions soon enough
iii) you fall out of compliance, or fail an audit, because you didn't have a handle on laws or regulations
The more sophisticated your approach to managing contracts and terms, the lower your risk.
Costs on the other hand are related to:
i) the inefficiencies of managing contracts and terms when you don't have a system in place; these costs are offset by:
ii) software licenses and labor costs of maintaining these systems, most of which are fairly unsophisticated themselves, and about which we’ll discuss more below.
Here's how we break it down by category.
Buried in Email:
Most common with smaller companies, but not unheard of in larger organizations. In this scenario there's no formalized program for managing contracts or terms. Contracts are stored in email, and business or department leaders are generally responsible for managing termination or renewal dates and other terms.
Risks are very high -- there's no reliable or scaleable means of knowing about key upcoming dates, requirements you may or may not have met, or other terms that need attention. In a world of winners and losers, companies tracking their contracts and terms in email folders are often on the losing side of the equation.
With respect to costs: software costs are minimal, but costs of keeping up with terms can be high due to the effort required to track a contract down across the organization which can require numerous emails, followed by manually intensive activities of flipping through contracts page by page to locate key terms.
Stored in a Drive:
Companies often adopt an electronic drive-based storage system for contracts once they get to a certain size and level of growth --typically in the 50-person range. Most common drive systems include Google Drive, Box, DropBox, or a proprietary in-house server-- some companies are using e-signing services such as Docusign as their contract repository. Often times a company will have an email alias where employees will send completed contracts, and personnel in Legal or Finance functions will file the documents. Access is usually limited to Legal and Finance personnel unless a request for a certain contract is made.
While unsophisticated, this approach is a big step forward in risk reduction, as the company mitigates its dependency on any individual employee's organizational practices. Risk levels remain high however as the approach still lacks the ability to easily identify terms before it's too late, or without heavy manual involvement.
With respect to costs, software costs of this approach are low, though day-to-day maintenance costs are moderate-to-high as there's significant effort required reviewing contracts for detailed terms such as when there's an audit, revenue recognition or compliance change, or a need to research particular contracts on a one-off basis.
Stored in CRM:
Many companies are storing customer contracts in CRMs such as Salesforce.com or Microsoft Dynamics, attaching the contract as a file to the account record. In some cases companies will track certain terms generated by their CRM's "quote-to-cash" module, which builds terms into the database during the deal process. In some instances companies will have staff members manually enter key terms such as renewal dates or pricing into the CRM, which allows them to create custom reports or alerts. Some companies use CRMs for storing and tracking terms related to vendor contracts, as well, requiring manual entry of terms.
Companies who use CRMs for contract storage, but aren't extracting or tracking terms, are still at high risk, as they're lacking a method for quickly surfacing key dates and other terms. While they can find their contracts, this lack of visibility into terms constrains their ability to proactively manage relationships, be they customer or vendor relationships. Those companies who are tracking terms in their CRMs have substantially lower risk of a contract disaster assuming they've developed reliable mechanisms for reviewing those terms such as through alerts or usable reports.
Costs, however become more of a factor for companies in this category. Software costs can include the CRM software and cost-per-quote software, as well as any manual costs of entering data into the CRM. Offsetting those cost increases, companies making these investments may gain efficiencies when it comes to navigating terms, assuming they've extracted and are tracking the terms that need navigating. This is difficult to do comprehensively and most often companies are just tracking a handful of terms in this manner.
Stored in a Database:
We've seen a trend particularly with larger companies (5,000+ employees) attempting to modernize their contract technology and workflow. Notably, they'll either develop a system in-house that allows them to enter data into a database for signed contracts, or, they'll use the databases that are frequently licensed with "Contract Management Systems" ("CMSs"). CMSs are often helpful for streamlining and formalizing negotiation and pre-contract-signing workflow, helping to ensure proper approvals, tracking of red lines, encouraging use of certain pre-approved. Tracking terms in those databases can help reduce risk as it gives you a method for quickly accessing terms. We often hear that the empty database solution often has no normalized data format which limits the usefulness of the reports.
Costs in this scenario are often high, however. Notably the CMS software itself can cost hundreds of thousands of dollars per year. The costs of maintaining a CMS database can also be high when factoring in the labor costs of paralegals, other staff members, or outsourced firms whose time is required to enter data into these databases. These manual labor costs have been prohibitive to project success as often times companies will forego entering historical contract data, giving them only partial visibility into their universe of contracts.
As we hope this analysis illustrates, there has not been perfect solution for managing risk without prohibitive costs. As such, companies have been excited to learn about new ways that machine learning technology specifically built for post-signing use cases can help them address this dilemma. If you're someone looking for an appropriate balance of risks and costs for your company, think of Contract Wrangler as a resource available to help guide your journey.
During the next twelve weeks, Contract Wrangler will attend exclusive events, meet with Plug and Play's corporate partner network, and collaborate with other companies in the Plug and Play ecosystem. Plug and Play is the leading accelerator at building bridges between startups and large corporations. Since its inception in 2006, Plug and Play has created the ultimate startup ecosystem in many industries, with 280 official corporate partners. Plug and Play provides active investments with 200 leading Silicon Valley VCs, and host more than 700 networking events per year. Companies in the Plug and Play community have raised over $7 billion in funding, with successful portfolio exits including Danger, Dropbox, Lending Club, and PayPal.
Contract Wrangler was handpicked to address the LexisNexis Global Senior Leadership Summit today, featuring the top 130 executives of LexisNexis in Menlo Park, California. We had excellent followup discussions with top Sales, Operations, IT, and Finance executives about the potential for transformative technology to build new bridges between legal documents and business deliverables.
And How the Donut King Prevented a Hole In Its Agreements
As a landlord you may make the occasional exception when your tenant fails to make its payments on time. But if tardy payments are endemic, you might start to wonder whether being a lenient landlord could hurt you later.
If you are allowing your tenant to make untimely payments, you will want to double check to see whether your lease agreement includes an Anti-Waiver provision. An Anti-Waiver provision ensures that you do not lose your ability to enforce your rights simply because you have waived those particular rights in the past. For example, you want to retain your right to evict the tenant if the tenant continues to miss rent payment deadlines in the future.
Dunkin’ Donuts, a leading donut franchisor found an Anti-Waiver clause to be invaluable when dealing with a difficult franchisee and tenant. The Anti-Waiver clause saved Dunkin’ Donuts from a significant financial loss when Dunkin’ Donuts finally decided to take action against the franchisee who consistently failed to make timely payments on rent and various fees. Even after Dunkin’ Donuts had sent numerous demand letters, the franchisee still owed thousands in past-due rent, franchise and advertising fees, and collection costs.
Without the Anti-Waiver provision in the contract, Dunkin’ Donuts’ past practice of overlooking defaults might have meant that the company waived its right to terminate the franchise agreement. Luckily, Dunkin’ Donuts had an anti waiver provision in its agreement:
“No failure of Dunkin’ Donuts to exercise any power reserved to it hereunder, or to insist upon strict compliance by the FRANCHISEE with any obligation or condition hereunder, and no custom or practice of the parties in variance with the terms hereof, shall constitute a waiver of Dunkin’ Donuts right to demand exact compliance with the terms hereof…”
The donut chain filed FOUR lawsuits against the franchisee for monetary damages and sought to terminate the agreement and the lease. The presence of the anti waiver protected Dunkin’ Donuts’ interests by giving it the right to cancel the agreement in the event there was a failure to pay.
So the next time you allow someone to skip a payment deadline you should check that your agreement isn’t missing an Anti-Waiver provision. This is not a clause to glaze over.
f you are an employer, you and an employee may have a dispute and decide to part ways. In exchange for some type of settlement, which could include cash or a non-disclosure or a positive recommendation, the employee will be asked to sign a Release, which absolves the employer of responsibility for allegations against it by the employee.
But will a Severance and Release prevent all future lawsuits from the employee? Not if the Release is worded too narrowly. This is exactly what happened to retailer Target after it executed a workers’ compensation settlement agreement with a former cashier who alleged he was harassed on the job. The employee filed a claim for workers’ compensation benefits saying he suffered from head and neck injuries and digestive and psychological problems as a result of the hostile working conditions. Eventually Target paid the employee $12,000 as part of a Severance and Release Agreement.
Five months after settling the workers’ compensation case, the employee filed a cause of action for discrimination against Target. Target believed that the Release portion of its Severance and Release Agreement with the employee was broad enough to cover such discrimination.
However, when the court analyzed the Severance and Release agreement, it determined that the Agreement did not release Target from potential civil claims that fell outside workers’ compensation system. Target had failed to use “clear and nontechnical language” to indicate that the settlement was a general release of all claims. In addition, the formatting and structure of the release did not emphasize Target’s intent to include non-workers compensation claims. The one reference to a more general release was in fine print that was “not underlined, bolded, or capitalized like other substantive portions of the document that are highlighted through formatting” to suggest it was of any particular significance.
Had the Release been worded more broadly, it would likely have shutdown the ex-employee’s direct civil lawsuit against Target. (However, no Severance and Release Agreement can forbid an employee from filing a discrimination charge with the Equal Employment Opportunity Commission or other agency). The lesson: when you are drafting a Release and parting ways with an employee: Think Big and Broad.
You’ve entered into what seems to be a lucrative deal to distribute a new product. As a distributor you are the middleman between manufacturers and retailers. Your role is essential to getting the product from the factory line into consumers’ hands. However, when customers get a faulty item, the retailers may blame you (the distributor) for lost revenue rather than going directly to the manufacturer.
This was the concern of a New Mexico distributor of “Mini Dumps”, a machine that transforms pickup trucks into dump trucks, when they were delivered damaged goods. The Mini Dumps distributor purchased a number of these machines, but found them to be in faulty condition upon arrival. Accordingly, the distributor rejected the goods and sought to cancel the agreement as they were “no longer interested in selling Mini dumps.” However, the manufacturer refused to pick up the defective goods.
So how can a distributor protect itself when a manufacturer sends damaged goods?
Distributors should take care to inspect shipment delivered from the factory to see if the shipped goods are fit for their intended use. If the goods do not conform with the expectations set out in the distribution agreement, the distributor can seek to recover incidental damages if these are not limited by the supply contract: so check your Limitation of Liability section. Incidental damages might cover costs related to inspection, transportation, and care for the non-conforming goods. These expenses can be substantial in some situations.
Fortunately in the case of the Mini Dumps, the distributor had not agreed to limit its ability to recover incidental damages in the distribution agreement. The court found that the distributor was entitled to recover thousands of dollars in incidental damages for unloading costs, employee expenses, long distance calls, storage fees, and more.
Before a shipment arrives in damaged condition, check your contract’s Limitation of Liability section to make sure it does not restrict your ability to claim incidental damages. Or use Contract Wrangler, and we can warn you automatically if your distribution contracts are waiving this important right for you to recover expenses if your manufacturer fails to deliver as promised.
The dream: Let’s have the blockchain and “Smart Contracts” solve all my corporate contract issues.
The reality: Don’t hold your breath.
So what is a “Smart Contract”? It is essentially like a computer program that triggers one or more events or actions based on the occurrence of a condition. In many high dollar transactions today, such as the purchase of real estate, we have middlemen such as escrow agents who cause payments to be made upon the occurrence of a condition: such as filing a change of title on a property once full payment has been received. A “Smart Contract” could theoretically eliminate the need for the escrow agent: upon receiving a certain dollar amount in a particular account, papers are sent to the county government to record the new property deed.
Forms of Smart Contracts already exist today in the financial world: you can place a Stop-Loss order with one’s stockbroker and the stockbroker’s system will automatically trigger the sale of a stock when it hits a certain price. And when a certain amount of a debt is paid, a billing system can lower the interest rate on the remaining balance automatically.
The vast majority of contracts are not susceptible to having machines verify the satisfaction of a key conditions. For example, a machine is unlikely to know when the painter has satisfactorily completed work on your house. And many contractual provisions are not related to a quid pro quo of payment that can be automatically withheld or granted by a machine. Contracts contain many clauses that explain how future issues will be dealt with by the parties, ranging from service outages to where disputes will be resolved - and we are a long way from being able to have machines setup to assess the occurrence of those future condition and trigger the subsequent events.
Even though we don’t have Smart Contracts, the advent of artificial intelligence can help bring your existing contracts closer to a Smart Contract by reading your contracts and automatically deciphering the key triggers. With Contract Wrangler, for example, you can now have machines help you quickly figure out your options when a supplier fails to deliver or an option deadline is imminent.
One of the highest ranked accelerators in the world, ranked in the Platinum Tier by the Seed Accelerator Ranking Project's review of over 150 accelerators, has selected Contract Wrangler to join its ranks. StartX alumni represent many of Stanford's best entrepreneurs, in fields from clean tech and bio tech to consumer internet and enterprise software. StartXfounders’ companies have been acquired by the likes of Twitter, Dropbox, Intuit, Apple, LinkedIn, Yahoo, Palantir, Salesforce and Instagram. They have raised funding from top firms like Andreessen Horowitz, Benchmark, and Google Ventures. Business Insider reports about StartX: "It's also hard to get into, with about the same acceptance rate as Stanford."
CEO Neil Peretz Is an Invited Speaker at 11th Annual International Legal Alliance Summit & Awards in NYC
The International Legal Alliance Summit & Awards gathered more than 500 senior law firm partners and general counsels from more than 40 countries to discuss, network, debate and reward the key players of the sector. Our CEO, Neil Peretz, was an invited speaker about how artificial intelligence technology is changing corporate law departments and the scope of attorney work. Neil spoke about the industrialization of law brought about by the digital and Internet age and how we need new technology to help us cope with the ever-increasing load of contracts.
Did you know that a failure to exercise your contractual rights could result in you losing them?
Your big danger is a little known legal doctrine called Estoppel. A party to a contract can invoke the doctrine of a estoppel to justify why it failed to perform -- and if you are the other party to that contract, this could cost you dearly. Estoppel is triggered when the action or inaction of one party to a contract induces the other party to rely on it to their detriment or harm.
Let’s set the big legal words aside and give you a real life example of Estoppel that resulted in a freight forwarding company suffering financial costs and losing a significant portion of its business because it failed to enforce its contractual rights.
The freight forwarding company entered into an agreement to provide transportation and consolidation services to a Chicago shipper association. Because railroads charged a flat fee for each 80,000-pound shipment, the forwarding company would combine freight from its various customers to hit the maximum volume and then apportion the total shipping price across the multiple shippers. In its contract with the freight forwarder, the shipper association promised to hit certain shipping volumes.
In practice, the shipper association allegedly breached the contract with the freight forwarder by diverting some of its freight to other service providers. However, the association still sent some of its freight to the forwarding company and took advantage of the low rates in the contract. The court found that the freight forwarder “failed to enforce his rights under the contract and allowed defendants to continue to ship freight in lesser volumes than in the past.”
It’s not uncommon to have many discussions before a contract is signed with a supplier or vendor, with promises about the future. Yet when the written contract arrives, it lacks detail about what one of the people will do or how their product or service will perform.
Can you rely on all the promises of the other side prior to signing the contract? Don’t count on it if the contract has something called an Integration Clause. Essentially, an Integration Clause means that anything not written directly into the contract doesn’t count, even if it was discussed at length beforehand.
Imagine that you hired a general contractor to build a new office for you. Toward the end of the negotiations, you asked for a picket fence around the edge of the lot and the contractor replied, “No Problem! We can take care of the fence.” The picket fence doesn’t require a permit, so you don’t bother to show it on the plans submitted to the Planning Department.
Months later, your contractor declares the work complete. You show up on the site and it looks nice -- except the picket fence is missing and the contractor is demanding payment in full. The contractor says the fence is outside the scope of the contract and his earlier email just meant that he “could” do the work, not that he committed to doing so.
You have worked hard to setup your business for a profitable quarter: once you receive the materials from your suppliers, you can deliver to your customers and turn a profit!
But what happens when your key supplier doesn’t deliver? That’s when you need to ensure that your contract enables you to claim Consequential Damages. Many suppliers seek to insert a Limitation of Liability section into their agreements that eliminates claims for Consequential Damages. If you want to hold your supplier responsible for lost profits that could result from your supplier’s failure to deliver, you should make sure that claims for Consequential Damages are not waived or prohibited.
Your would have made a certain profit if your supplier honored the contract and delivered. Thus, your lost profit was a consequence of your supplier’s failure to deliver as promised. Thus, your lost profits may be deemed Consequential Damages.
Did you know that if a certain type of term of your contract is found to be illegal or void, it might wipe out the entire contract? Fortunately, you may be able to save the agreement by adding a severability clause. A severability clause typically states that the rest of your agreement still remains in full force and effect even though some of the terms are unenforceable.
Severability clauses can come in handy in contracts for any sort of business operation. For example, a severability clause was used to strike a provision that might have invalidated an agreement between a customer and the operator of a zip-line course. The customer sued the company for negligence after suffering severe injuries on a zipline course at a ski area in Vermont. While on a self-guided aerial course, the customer mistook a guy wire (which is used to stabilize the course platforms) as a zipline and slid directly into a tree. Prior to ziplining, participants were required to sign a liability waiver agreement that included an arbitration clause, which required those with claims of over $75,000 to submit to a panel of 3 arbitrators: one chosen by each party and a “neutral arbitrator” from the ziplining industry.
We were delighted to present to a wonderful SAP Partner delegation in San Francisco about the future of the distributed enterprise and the contracting challenges it presents.
Thank you to SAP.io for the hosting and Twitter shoutout here.
Do all contracts need to be in writing? No. Often parties can have an oral agreement or show their assent to an agreement by taking certain actions; however that is not a safe strategy in the business world. An automotive parts distributor in New York learned this lesson the hard way.
Auto parts manufacturer Cummings Power Systems had been selling parts to distributor National Gear & Piston on a wholesale basis for more than a decade. The manufacturer sent its standard form of agreement to the distributor for signature nine years into the relationship, but it was never signed and the parties continued to do business.
A couple years later, the manufacturer declared the distribution relationship terminated when the distributor sought to bid on certain types of contracts the manufacturer wanted to pursue directly. The distributor sued, claiming that the unsigned agreement prohibited the termination.
The court sided with the manufacturer and determined that a lack of a signature meant that no contract existed between the parties. Because the unsigned agreement specified that it would become effective “upon the date fully executed” by both parties and neither party had actually signed the agreement, the contract was never valid.
How do you protect your business? It's time to audit all those contracts to make sure they are signed by both parties ASAP. Or it's time to load the contracts into Contract Wrangler, and we'll check all those signatures for you and alert you to which agreements are missing a signature.
How can you keep track of the key data that is in all the contracts you've signed?
#SalesforceAccelarate @mikekreaden talks with @ContractWranglr CEO to find out:
Who knew that a key source of agility is knowing the contents of your business agreements?! Here's a note we just received from Chris, an executive in the Pacific Northwest:
Did I ever tell you about the time we discovered our POS was a POS?
At our family micro-brewery (which grosses over $1M/year), it was important to have the most streamlined processes, both on the production and service side. We received many complaints about our Point-of-Sale system (POS) from our service staff, so we went looking for better options. We discovered that switching to a newer point-of-sale system would serve customers faster, enable customer loyalty programs, save us money on fees, etc.: it was a no-brainer. When we contacted our current vendor, however, they notified us that their contract had an auto-renewal clause and it just auto-renewed for three more years! We didn't know the auto-renewal was impending or we would have acted sooner. The vendor gave us two options: 1.) keep using their service, which was bad for our business or 2.) pay an exorbitant fee to cancel their service. It was a lose-lose offer!
If we had Contract Wrangler during that time, we would have avoided extreme penalty charges from our vendor. I've realized now that Contract Wrangler is not only important for avoiding unnecessary charges, but also as a reminder to ensure our business is using the best vendors possible. As a producer, retailer, and distributor, we have countless vendors to manage and it is crucial to ensure our vendor agreements are sound. Ultimately, we would have saved thousands if we had implemented Contract Wrangler's system sooner and, most importantly, would have maintained an organized and intelligent system of analyzing our vendor agreements to prevent future issues.
Contract Wrangler and our CEO Neil Peretz are proud to support #FOUNDERSFORCHANGE.
We believe in a more diverse and inclusive tech industry!
"While recent news stories have debated whether an unsigned contract is still valid (see here), corporate executives know that unsigned contracts are unlikely to pass muster with auditors, investors, and regulators. That's because these outside experts are worried about a common state law typically known only to attorneys, called the Statute of Frauds.
In California, for example, the state Civil Code incorporates a version of the Statute of Frauds that requires a written agreement for contracts cannot be performed within 1 year, promises to pay the debt of another, leases of real property for more than 1 year, and contracts for the sale of real property. If Ms. Daniels' (aka Peggy Peterson's) contract required her to perform a task that takes longer than a year, such as maintaining indefinite secrecy, then such an agreement would need to be in writing in California.
If those in the news had used Contract Wrangler, this all could have been avoided! At Contract Wrangler, we automatically detect which contracts are missing a signature and trigger alerts. The result is that our clients are always ready for due diligence and defending the rights they bargained so hard for.
We appreciate the fantastic guidance and advice from the leaders of one of the most illustrious enterprise software companies in the world. And we now have the opportunity to help SAP customers bridge the Intention-Action Gap between what their contracts promise and what their company and business partners actually do.
Here's a link to the big announcement by SAP.
So many lessons learned from the leader in business relationship management! We're incredibly proud to be selected for their Accelerate Program and work together to bring new revenue-generating insights to Salesforce users.
I first started tinkering with computers in the age of the Commodore PET, TRS-80, and Apple. The task of developing software meant rolling up one’s sleeves and typing away for months or years.
Thanks to the rise of the Internet, object-oriented programming, and the Open Source movement, the process of software development has been transformed. New software now utilizes a complex web of third party components, frameworks, and SaaS infrastructure. It’s not uncommon for even the most basic software offerings to sit on top of dozens of other SaaS systems: Twilio for communications, Intercom for customer service, Mongo for database, Mixpanel for analytics, Stripe for payments, SendGrid for email, JIRA for trouble-tickets, Tableau for reporting, etc. The result is faster development and richer software because developers can take advantage of specialization and powerful feature sets that would take years to develop on their own.
The pernicious side effect of this great bounty- an incredible proliferation of contracts. Each component and SaaS system that we use comes with its own terms, conditions, restrictions, rights, and promises. What is the escalation procedure when your Single Sign On provider is down? What warranty comes with your cloud storage service? How many seats of that customer service tool are allowed to use?
The important details about each of these critical software systems is buried in their contracts. When a problem arises, most companies need to scramble to find the agreement - and distinguish between the draft version vs. the final signed agreement - and then hunt for a lawyer or paralegal to decipher the hundreds of SLAs, warranties, and license provisions.
We invented Contract Wrangler to enable you to benefit from all these great third party systems without getting tripped up by forgotten contract terms and conditions. Simply drag and drop your SaaS agreements into Contract Wrangler and have your SLA and warranty details, along with expirations and auto-renewals at your fingertips faster than you can say “404 Error.”
Most people think that the key element of a Non-Disclosure Agreement (NDA) is the right to prevent others from using and disclosing their confidential information. However they often pay insufficient attention to another key clause: the right to have your confidential information returned to you or destroyed. The majority of NDAs have a time limit, after which your confidential information is no longer deemed “confidential”.
Imagine you have cutting edge technology that is five years ahead of the market. You sign an NDA with a one year term with a potential business partner. A year passes and you forget to request that your confidential information be returned or destroyed. The result: you may still be ahead of the market but your information is no longer confidential - and it is in someone else’s possession! In some states, you can even lose trade secret protection if you have disclosed the trade secret and let the NDA lapse when the trade secret remains in someone else’s possession?
Fortunately, this pitfall is easily overcome. Make sure any NDA you sign gives you the right to demand the return or destruction of your confidential information. And then set a calendar appointment before the NDA expires to request your material back.
Make sure your accounting department know what's in your contracts.
Many businesses sell their product to clients based on volume - ranging from volumes of bandwidth to volumes of spaghetti sauce to volumes of heating oil. Both suppliers and customers benefit from making certain volume commitments in advance. Customers have a chance to lock-in a certain amount of supply, often at a set price. On the other hand, minimum volume commitments permit suppliers to appropriate resources accordingly.
Volume commitments often tie discounts to per-unit pricing with higher advance volume commitments leading to lower per-unit prices. Salespeople sometimes urge customers to make big volume commitments to get cheaper per-unit pricing with a sotto voce message: “Hey, don’t worry, if you don’t hit a volume commitment, no one will ever find out.”
Shockingly, experience often proves these salespeople correct! Companies that sell by volume typically calculate the total due by multiplying the actual volume by the discounted price to calculate the amount due. Company accounting departments often fail to catch minimum volume commitments buried in customer contracts and statements of work. As a result, companies under bill clients when clients fail to meet their minimum volume commitment.
Tracking Auto-Renewal provisions can save you millions.
Modern businesses specialize in the core products or services they want to sell. To do so, each must depend on the specialization of partners, suppliers, vendors, and contractors to supply necessary products and services for its business to operate. For example, you are probably reading this website using software from one company and Internet access from another.
Specialization creates efficiencies but if we don’t know the secret trick of managing it, costs skyrocket. Increasingly, modern supply contracts last for a defined length of time and then auto-renew. These auto-renewal provisions lock in price increases and eliminate the ability to negotiate a better deal when circumstances change.
When purchasing a particular service, we often spend the time and effort to shop around and identify the ideal pricing plan. Odds are high, however, that the same pricing plan won’t be right for your company’s circumstances forever. Your company may grow or it may shrink; market prices may change; a vendor’s quality may suffer; or you may simply decide to change directions. Buying outsourced services gives you more flexibility but only if you stay on top of Auto-Renewals in your contractual relationships. Many Auto-Renewal provisions require you to notify the supplier by a certain date (the Notice Date) if you want to terminate the agreement before it auto-renews. If you miss that Notice Date, your company will be stuck for another term - which could be a year or a half a decade depending on the contract.