By Dave Weidenfeld
Every contract has some version of a remedy for non-performance. We negotiate long and hard for each remedy that we get and we tend to be dissatisfied with them anyway.
Why is that?
The real failing point of remedies seems to be that they don't really make up for the damage. Dollars are nice but don't actually undo what happened—and they aren't really the motivators that we think they are. Your contract may provide for earnback provisions, so the dollars that are paid to you may not be permanent.
Termination—especially where a termination fee gets waived due to the breach—does seem to have a greater effect, but who really wants to go to that extreme? If you do, then you have to go through the whole contracting process again, which costs you even more money.
So, here are a couple of thoughts remedies that may motivate your provider to perform better.
- Let's say that you have a five-year deal. The vendor's profits tend to be somewhat back-loaded, so what if you were allowed to take time off the term in this situation? You could, say, reduce the term to three or four years at no additional cost. That would cause severe pain to your provider since a large chunk of the profits will have gone away.
- Think about a requirement for a root-cause analysis of the problem—and consider having that analysis done by a third party. That's guaranteed to get massive pushback. You want to see changes as a result of the analysis, regardless of who does it, and you don't want to pay for those changes (after all, the provider agreed to provide the services for a certain price in the first place).
- After a certain number of breaches, require the provider to subcontract, at no cost to you, to the subcontractor of your choice. This one is a little trickier to manage.
- You definitely want escalation way up the food chain at the provider and you want it quickly. We're talking weeks, not months, with a fixed end-date for resolution. If this doesn’t work, then provide for one of the other remedies to kick in.
- For repeated breaches, think about remedies that allow you to raise the limitation of liability. That will definitely get the provider's attention. I’ve already dealt with one provider who sought to limit their liability for, of all things, fraud. Think about that one for a minute.
- Get the right to hire any and all provider employees who deliver any terminated services. That makes termination much easier and less risky for you, and it moves the risk meter a little closer to the provider.
- Require the provider to transfer any necessary assets (or be obligated to obtain for you any assets that can't be transferred—for example, certain software licenses that can't be transferred and for which you would pay a hideous price) to operate the services on your own.
These are just some preliminary thoughts. They're mostly aimed at motivating change by the local provider team because its management will have to be involved in the remedies, which will not be pleasant for the local team. You also have to be ready to invest the time and be involved yourself. If you can get any of these things into the deal, you have to remember that you’ve given yourself some better solutions.
Much to his surprise Dave Weidenfeld found himself with a law degree and has been doing technology deals for 25 years. He's represented both sides of transactions, although he's a procurement guy at heart. Dave can be reached at dave.weidenfeld@att.net.
