Sanity clauses for contracts

IT managers hard at work negotiating next year’s telephone company contracts should make sure they include ‘sanity clauses’ to ensure your company gets the telco’s undivided attention.

The best protection is to craft clauses that let a company terminate the contract without being assessed a fee, under as many circumstances as possible. This is your sanity clause.

Most telcos don’t want to offer these kinds of outs. They’d prefer to provide refund credits worth a few thousand dollars. Unfortunately, these aren’t substantive enough to force a telco to make major operational changes. Only the threat of losing customers can do that. So to ensure the right to leave, your contract should include out clauses addressing the following situations:

Chronic or acute violations of the service-level agreement. Most service providers will happily provide refund credits if a customer can prove the SLA was violated. But that’s not good enough. If the service provider grossly violates the SLAs (for example, latency, packet loss or availability exceeds 250 per cent of the agreed-upon limits) or regularly does so (say, three or more SLA violations in a month), you should have the right to terminate the contract.

Mergers, acquisitions or divestitures. Let’s face it: your company could acquire another company with better telco rates. Or it could be bought. And so could the service provider. In any case, you should have the unilateral right to terminate the contract — again, with no financial penalty. Technology refresh. Let’s say another provider offers you a service (like Secure Sockets Layer-based VPNs) that you’d like to have. And let’s say your current provider doesn’t offer this service. You should give them the option to offer this service within a reasonable time (say, 90 days) or have the right to switch to a provider that meets your needs.

Chronic billing errors. Most telcos don’t have the infrastructure in place to offer timely, accurate bills. That’s their problem. If they try to saddle you with the additional costs of ensuring billing accuracy, you should have the right to walk. Either the telco should fix its billing support system or cut you some slack.

As noted, most telcos won’t like these contracts. Too bad. Your business is what keeps them in business — so either they should sign up or expect to lose your business to someone who’s willing to negotiate.

Johna Till Johnson is president and chief research officer at Nemertes Research

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