Exposing the Two Most Hostile Contract Clauses I've Encountered!
I'm Max Clark. I'm gonna talk about 2 of the most hostile contract clauses I've ever seen and what you should be aware of. Actually, I might throw on a 3rd bonus. We'll see if I get there. The first one in IT and telecom, when you have a contract with a term, usually, you'll have a contract that'll have a 36 month term.
Speaker 1:And at the end of this 36 month term, you have an auto renewal for 12 months. You maybe even negotiated or you're getting a different type of service. You're getting a 12 month term or you're getting a 24 month term or maybe, you know, for the type of you know, you're doing a data center deal and you want a 60 month term or you want a 120 month term. You want a 5 or 10 year term. But typically, what happens in these scenarios is you have initial term, and then you have renewal terms.
Speaker 1:And those renewal terms could be maybe they're crazy, and they're auto renewal for the same length as the initial term. So if you had a 3 year term, it's gonna auto renew for 3 year terms. That's pretty hostile. It's kinda like hostile, you know, 0.25. But usually you have a 3 year contract with an auto renewal term of 12 months after the initial term.
Speaker 1:And then there's a notice period that says you have to tell us within, you know, before 90 days before your renewal in order to cancel the term. Maybe, you know, in the case of data centers or any sort of real estate, you're gonna see a 10 year term with options where you can give notice and execute an option. So you have a 10 year initial term with 25 year options. That's pretty normal. And in those situations, really what we're negotiating is, you know, do you want it to be auto renewed at 1 year?
Speaker 1:Does it make sense for it to auto renew at 1 year? Does it make sense for the notice period? You know, they've they've told you it's a 180 day notice period. That doesn't make sense for anybody. Right?
Speaker 1:Depending on the type of service, maybe it's a 3 year initial term with month to month terms after that. So now here's the hostel. Here's the crazy contract term. You sign a 1 year contract and at the end of the term there's no renewal. There's no renewal period.
Speaker 1:No renewal term. No notice. There's no option. There's no renewal term. The business development team at this company is a client of ours.
Speaker 1:When they negotiated this, they thought that they had pulled out like they had done something amazing. You know, pull the rabbit out of the hat when they negotiate this term. The problem with it became when the client was approaching the end of their term. They weren't really sure what they were going to do and what they needed to do going forward. They actually wanted to switch providers.
Speaker 1:Let's actually put it out there on the table. They wanted to switch because they weren't really happy with their service provider. They wanted to go to another service provider. Migrations take a lot of time. They had to take planning.
Speaker 1:They take support. The losing provider has to provide you. Even if they provide you actually no support, they have to provide you some support because you're gonna have to get into their data and do their systems, move things from point a to point b, whatever it is. And the incredible thing that happened with this company, with this client was, you know, when they're about 4 or 5 months out. So at a reasonable time, they started actually looking at this contract really seriously and having internal conversations about whether or not they wanted to stick with their incumbent provider if they actually didn't wanna switch.
Speaker 1:And they were having performance issues. They were having service and support issues, and they were having a cost issue. So, you know, it's like the trifecta on the Venn diagram. All all circles intersect with the point that says, hey, you know, it's time to go. It's time to go.
Speaker 1:And if you've ever been involved with a larger company procurement, it just takes a while. Even if you already identified your provider, you still have to go through, you know, an RFP or RFI process. You have to competitively bid. You have to validate it. You have to go through legal.
Speaker 1:You know, there is a time to contract. And then after that time to contract, then you have a time to implementation migration. That could be 6 months. It could be actually a lot longer in the 6 months, but let's just say it's 6 months. Now what happened here is our client was going through this process and decided somewhere about the 3 month before their contract end that they wanted to move, wanted to go to a different provider.
Speaker 1:They'd selected the provider. They were in contract negotiations with the other provider, and they went out to their incumbent provider and they said to the incumbent provider, basically, I don't think they told them that they were going to leave, but they weren't saying that they were going to stay. And they said, we need some more time to make a decision. So we're going to just go month to month with you when this contract expires in 3 months. And the provider came back and said, no, the provider said this contract expire.
Speaker 1:It ends on this date and the following day at midnight that date, if there's a new contract in place, we're turning off service and we're deleting the data. They were done. It was host. They were done. The timeline that they had available to them at that point did not give them the ability to even think about completing contract negotiations with their new selected provider.
Speaker 1:There was no way they were gonna be able to get a migration in place before their end date. There was just no way they were done. They were completely done. They spent a couple of weeks trying to get accommodations from the incumbent provider to give them a short extension, you know, 3 months, 6 months while they could negotiate or negotiate their rate, you know, because then they were saying that they were gonna need time to negotiate the renewal. And the provider just said no.
Speaker 1:It was amazing. And not only the provider say no, the provider told a Judge Judy. If you haven't heard about Judge Judy and her negotiations, this woman is an absolute boss. This provider slid the piece of paper across the table and said here's what we're offering sign this or don't 3 year renewal increase in rate mandatory this like the whole thing just absolutely crushed them the provider had them in a vice and knew it and they squeezed them hard and there was nothing they could do the client's option was scramble pray and risk a major outage and disruption to their business which was not available or swallow the new contract and suck it up. And that's what they did.
Speaker 1:They had to sign it and they had to suck it up and they had to agree to it. There was I mean, there was no negotiation. It was just sign this or else sign this or don't. We don't care. Your contract's over.
Speaker 1:You're out. We've already, like, written your revenue off. You want to keep going? Sign this or not. That's the first one.
Speaker 1:2nd most hostile thing I've ever seen happen with a client in their contract was language embedded in their MSA that stipulated that any changes to existing services or any new service orders executed for new services, in services or any new service orders executed for new services. And here's where this got really touch tricky is it didn't even require signed documents anything that was requested within the support system. So if you called in to their not or if you issued a ticket and then requested a change, it triggered this clause. So any changes to an existing service would effectuate a new service term for that service and any new service order that was signed would coterm all previous services with the same dates and terms of the new service order. I mean, just thinking about it makes my skin crawl.
Speaker 1:So the client found out about this because two things they thought they had a series of layered service orders with this provider, and there was different services impacting different systems. And they had this list and they had all their service orders. They had all their terms. They had their expirations or start date, their end dates, and had all their ducts lined up. And what they were going to do is as these services dropped off, they were going to terminate them.
Speaker 1:And in some cases, they were gonna move some to other providers. They were gonna consolidate other ones. I mean, it was basically right. They were gonna let them drop off completely. They were gonna consolidate or they were going to switch to a different service provider.
Speaker 1:And when the first one came up and the first time that they tried to actually do this, they sent their notice, you know, because they knew I would have to give 91 plus days of notice. So they sent in their 92 day notice. And by the way, this was calendar days. They don't want to they don't run the risk of the business day nonsense. So they sent in their notice about this thing.
Speaker 1:And when they were going through the process of terminating the 1st service, they found out that they were still on contract for another two and a half years because they had submitted a service order. It was like 7, 8 months earlier. I'm trying to read exact details. It's a little blurry. There was a service order that was implemented that was then then then created this triggering event for coterminous.
Speaker 1:And then a couple months after that service order went into place, they requested to change that to that service via the ticketing system. I mean, the whole thing was just such a mess. And so they ended up with this thing where they thought they had all these services. By the way, they had budgeted around these things being dropping off or consolidating or moving to other providers. So they had they had done annual budgeting around like this stuff.
Speaker 1:And we're not talking about like, a couple of dollars here. We're talking about, you know, 6, 7 figures or the services that they're gonna realign and budget that they had allocated. And it was it was the same thing. You know, they found this out. And then what do you do?
Speaker 1:The termination clauses were, you know, your normal, just incredible things. And same thing. The director of business development who had been tasked with negotiating all the contracts for this company, they had no idea. They'd never done they'd never negotiated a service provider contract before and had no idea of what the actual real world implication of this language was and looked okay to them. They didn't know.
Speaker 1:They didn't know any better. You know, they know better now, but they didn't know better then. And, you know, as an outsider that was involved with the mess, I mean, it was just spectacular, Just the disaster that this caused me. I guess, again, not only do you have a budgeting cycle, but you have an entire engineering laid out sprint cycles around product development, deployment, and release, and all these different things that were just all poof. The entire product plan for, like, that year just went completely up in smoke because they couldn't do it.
Speaker 1:And the trickle down for it was just next level. It was unbelievable. Okay. So here's my bonus. 3rd one.
Speaker 1:This one was me personally. I'd signed a, a data center contract with a very large data center provider, and we were doing a deployment for one of our clients. You know, it wasn't a 100 servers. You know, I don't remember if it was 2 or 300. It was enough that we had between the servers, between the cabinets, the mounting equipment, the ladder racking, the PDUs, the servers, the switches, everything else.
Speaker 1:We did one delivery ourselves where we went. We got a 40 foot flatbed truck, and the manufacturer we bought the cabinets from was local and drove down. They just drove forklifts on, and we did cabinets ourselves. The server and network equipment, the rest of the stuff came shipped by the manufacturer life rate. You know, if you've seen a semi truck full of servers, it is a lot of packing material.
Speaker 1:1 RU server. Right? So 1.75 inches. Yeah. About that tall.
Speaker 1:So a server is 1.75 inches tall. It's 19 inches wide, and it's some depth. You know, depending on the manufacturer and what you've actually got on to it, it's gonna have some depth to it. It could be anywhere from, like, 18 to 30 some odd inches. Right?
Speaker 1:You know, and that's why they're called pizza boxes. If you've ever heard that term, they're called pizza boxes because, you know, they're roughly the same size as a large pizza box. Maybe that's a better visual for you. If you've never seen one of these things. It basically kind of resembles, you know, roughly dimensions of a pizza box.
Speaker 1:That's the pizza box analogy. That server comes in a box, and that box can be anywhere between 9 18 inches tall. So you've got a server that's this big being packaged in a box. I'm not gonna fit on the screen. Right?
Speaker 1:You know, like, it could be a foot and a half tall. Right? And then, of course, there's space around the sides and all these different things. So it's a lot of volume and there's a lot of stuff in it. Right?
Speaker 1:Your classic like Amazon thing of, like, you've got this, you know, you ordered a box of Kleenex and it came in this giant box and it makes no sense. You know, every server comes with manuals. It comes with a wire management arms, which you shouldn't use, but I'll get into that later. It comes with DVD drives. I mean, basically it's a one size fits all box, you know, and they just throw everything into it with with different packing on the inside of it to make it make sense.
Speaker 1:So after you unpack 300 servers and switches and wiring and PDUs and everything else that you go, what do you have? You have a lot of refuse. You have a lot of cardboard. You have a lot of waste. You have a lot of stuff.
Speaker 1:You gotta do something with. And this was the gotcha. We found out that the data center operator did not provide trash services unless it was specifically negotiated in your contract with them which we did not do because we had never had this problem before which I did not do because I had never had this problem before with any data center provider ever in history of me doing data centers at that point. Why would you think about we need to have access to a dumpster? Right.
Speaker 1:Like this is not a normal, normal thing that exists in the realm of the I. T. Sphere. Right. And of course, the other complexity with this is now you have combustibles on the data center floor because you have the pyramids of cardboard, you know, from all this equipment that's been unpacked.
Speaker 1:It's just stacked, which cannot stand the data center floor because it's a fire hazard. And that's counter to data center facility rules. Right? So the data center operator trying to be like, what the heck are you talking about? Like, I can't use the dumpster to throw this stuff out.
Speaker 1:I can't have my teams go out and take out all this stuff. At the same time, we're dealing with the facilities people who are yelling us that we can't have cardboard on the data center floor because it's a fire hazard. And we're like, we wanna get rid of the cardboard, but we don't have a dumpster. We had to find a dumpster service, one of these giant 40 foot long things. And then you, by the way, now you're gonna get a dumpster.
Speaker 1:And so now you have to coordinate taking over the loading dock because you need space to put the dumpster. You can't park it on the street. It's gotta go in the loading dock. So now we've gotta get a special date. We've gotta get approval.
Speaker 1:Can I be there for so long? We've gotta coordinate it. The truck has to show up at a certain time. It's gotta drop it off in a designated area. We've got to do this mad dash to get rid of the cardboard.
Speaker 1:Truck has to come back and get rid of it. The whole thing is crazy. So probably one experience that one. But I would say this is something that I'm very, very attentive to when we're negotiating data center contracts for our clients. Is trash available when you get this deliveries.
Speaker 1:I mean, there's a bunch of other stuff that we're looking for data center contracts, but I just put this here as a little bonus, a little bonus item of just massive gotcha in a contract that I've dealt with. I'm Max Clark. I'd love to hear your contract gotchas. Comment below. Let us know.
Speaker 1:Love to hear from you.
