Most Common Mistakes Partners Make When Signing Contracts

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 …