Negotiating Agency Contracts: 3 Ways to Ensure Today’s Deal Won’t Be Tomorrow’s Problem

Jay Schwartz

By Jay Schwartz, COO and General Counsel, StrataCore

Taking calculated risks is part of any business. Executives must be able to gauge the potential reward against the downside and exposure should things go awry. Typically, taking a leap of faith pans out — at least for a while. However, agents can avoid a lot of pain by taking a few disciplined steps when negotiating their provider agreements.

 1. Use your own paper. Agreements are like puzzles. There are many pieces that must work together, and a contract that you’ve developed after trial and error will mesh very well with your requirements. Although working from a provider’s form can be viable – and is at times unavoidable – the fit will never be as tight.

 2. Include a clear definitions section. The language of technology and business is changing at a fast pace, and not everyone agrees on the meaning of terms, including acronyms. Definitions specify the key terms that flow through an entire contract and will vary depending on the type of service. Having a section dedicated to defining exactly what is meant by all terms that could possibly generate confusion or disagreement does two things: First, it avoids having to define terms within the agreement, and second, it offers a single, easy-to-find destination so all parties can review exactly what each term means.

3. Agree on key commercial points. This is a biggie! You probably have limited time to negotiate contracts, and wasting that time is non-productive and expensive. It is vitally important that an agent gain conceptual agreement on the key commercial points below prior to starting a negotiation. If you cannot arrive at conceptual common ground, walk away and find other options. We have also found that there is a high correlation between the negotiating experience agents and clients each have with providers and the success of customer outcomes — and we are quite vocal about sharing this outlook.

Simply, the commercial points that are of the utmost importance to agents are:

• Commissions: An agent should earn commissions on all services sold to the clients it introduced to a provider. Why? It’s probable that the provider would not have earned any of the revenue from the client had the agent not introduced them, and therefore the agent should earn commissions on all services sold to those clients.
• Commissions after termination: If the provider terminates the agreement for its convenience, then the agent will continue to be paid on all services sold to clients that it introduced to the provider. Inclusion of this point in the agreement eliminates the economic incentive for the provider to terminate for convenience. A commission “tail” after termination (for example, commission payment for 24 months) lessens the termination incentive, but if a client is large enough, the provider still might avail itself of the option.
• Non-circumvention: The provider states it will not circumvent the agent by selling services directly, or through another agent, to clients brought to the provider by the agent. Well, if you have point (a), then, from an economic perspective, this point becomes …