By Kelly Teal

The indirect channel depends on commissions and residual income to thrive. But stuff happens. Provider bankruptcy, M&A and other issues can lead to non-payment. Along the way, contracts can contain loopholes partners might miss on their own. Agents and other partners must protect themselves.

In this edited Q&A, get insight and advice from some of the best in the business: Ben Bronston, principal at Ben Bronston & Associates, who specializes in telecom, IT and cloud law; Greg Praske, co-founder and CEO of master agency ARG; Ted Schuman, CEO of master agency PlanetOne; and Chris Surdenik, CEO of Chicago-based services reseller Call One. And be sure to attend their session, “The Fine Print Matters: Why Partners Need to Craft Their Contracts to Avoid Being Burned,” part of the businesses best practices track, March 11, at the Channel Partners Conference & Expo in Las Vegas. Whether you’re new to the channel or you’ve been around for a while, this can’t-miss panel will bring a minimum of 91 years of collective experience to the contracts discussion.

Channel Partners: What are the most common channel contract issues you tend to see?

Ben Bronston

Ben Bronston: The same issues that have always existed apply today. Evergreen is still the holy grail. Termination for cause is always important. And with consolidations accelerating, assignment clauses are very important.

Greg Praske: The biggest issue I see is that often both sides negotiate a contract from the standpoint that the agreement will guide how we operate together — especially when both sides are excited about engaging together. The reality is that the pace of change in the market requires that our operational cadence will constantly change and be refined. The contract agreement is to define how things work when the relationship is not working. Is your contract clear about what happens when a new management team is in place? Or when a provider is struggling financially?

ARG’s Greg Praske

The agreement needs to be built recognizing the reality that the channel partner will invest upfront in prospecting and marketing services and then will be paid subsequently on a residual basis. Depending on the resources you commit to your clients upfront, it can easily take 20-28 months to earn any return on your investment. We also continue to invest to manage the relationship. Providers are not booking their future liability at the time of the sale. So, it’s really easy to forget that the channel partner is taking the risk upfront and speculating on earning a residual over the long term. The agreement has to respect this construct so that later, if a provider is not performing and you’re not selling new business, you still are deserving your commissions on the accounts you originally sold.

Ted Schuman: Ninety percent of partners negotiate out a couple of the major speed bumps and gloss over the details that can be catastrophic in the event there’s a problem. Evergreen, rights to terminate, how to cure if there is a problem, payments ongoing post termination — most issues are caused by not paying close enough attention to the termination section.

The biggest challenge, frankly, has been my peers agreeing to terms and executing contracts that I will never agree to signing. Usually, it’s followed by, “Ted, nobody has ever had an issue with these terms and all your peers have already signed.”

Chris Surdenik: We are seeing that carriers are requiring annual growth in order to …

… continue paying commissions to subagents. Call One recommends to subagents that they establish relationships with master agents … for protection from that. A subagent can thrive in an ecosystem with a major agent that shares their mutual goal for success.

CP: What issues do you generally have to fix for partners to ensure contracts protect the end-user organization?

BB: Remedies for chronic outages and installation delays are critical. Also make sure to address early termination fees, business downturns, unexpected events.

CP: In general, what are some of the red flags partners should watch for when reviewing any contract with a supplier or agency?

BB: Whether the contract provides for “true” evergreen. Are the covenants mutual or one-sided? Is there sufficient opportunity to cure a breach? Do you have the right to service your customers’ needs?

CP: What anecdote can you share about being burned by a contract (speaking to the session description) and how it can help channel partners avoid a similar experience?

GP: We fortunately haven’t been ‘”burned” but have had to deal with several providers filing bankruptcy. That’s a situation where your contracts are trumped by the bankruptcy laws. One anecdote would be around the common contract provision for disputing commissions. The common provision limits disputes to a fixed period — for example, 180 days. However, the channel partner relies on the provider to share the billing information that dictates commissions. If the provider fails to provide accurate billing/commission info, you should not be limited to disputing commissions.

PlanetOne’s Ted Schuman

TS: Frankly, we’ve done an amazing job of avoiding disasters. Provider bankruptcy is the one that creates the most stress.

CP: As a provider reselling services, how would you advise partners to avoid being burned?

CS: A subagent with a small base of business with a single, particular carrier needs to be careful. If that carrier gets acquired or ends up in bankruptcy, it can become really difficult and often costly for that subagent to fight for commissions. Subagents who are part of a master system have a better chance of avoiding this.

CP: What advice would you impart to partners about their contracts? What do you want to ensure partners take away from the panel?

BB: Never forget — sales are great but there’s no legal obligation to compensate you for those sales unless the contract says so.

GP: Don’t try to negotiate agreements yourself if you’re not a qualified attorney. Spend the money to get the best attorney you can find who thoroughly understands this niche business and will be respected by the providers. Don’t be shortsighted. We’re in an incredible business with massive opportunity. We live off of residual payments over a very long period of time. Protect your business.

CallOne’s Chris Surdenik

TS: Spend money to review all contracts. Sadly, most master agents do a poor job of this process and I hear it all the time from our providers that we are the toughest to get through the contract negotiation. Protect your asset! Cash flow is our only asset and most partners do an abysmal job of locking it down.

CS: Always review any contract you’re given and have a lawyer look it over. When we provide an agent with a contract, we look at that as an opportunity to discuss what will make our relationship a mutual success. Approach your contract negotiation as an opportunity to define what mutual success for you, your partner and your carrier looks like.  If expectations are clearly defined and parties agree, there’s nothing left but a solid foundation for success. We need to be partners in this deal — contracts should not be viewed as a bi-directional, win-or-lose situation. What makes our partners and their agents successful, makes us successful.