An inconvenient truth?

The growing prevalence of convenience clauses, which can terminate a contract at any point, is threatening to undermine goodwill within the channel, reports Jack Gilbert

For the channel's labyrinth of companies to work together successfully, trust is crucial. When vendors enter into agreements with resellers, distributors start working with partners, or resellers sign up customers, a tacit assumption that each party will behave as they are expected to is always there.

But a written clause, which is increasingly prevalent in the channel, can undermine this unwritten rule of trust in the channel, according to certain players. A termination for convenience clause means a party can exit a contractual agreement, even if there is no breach of contract, at any given point and without the consent of the other party.

Convenience clauses were around long before the advent of the IT channel and exist in a range of industries, but Justin Harling (pictured below), managing director of reseller CAE, expressed unease at their increasing prevalence within contracts resellers hold with vendors and customers.

"We see it across the board now with vendors," Harling said. "From a manufacturer point of view, it is not something that keeps me awake at night thinking ‘oh my god, at any given moment someone is going to use the clause,' because there is no history of anyone using it maliciously. But the simple fact is they exist."

It is not just vendors who are adopting this clause, with end customers also increasingly asking for them in their reseller contracts, Harling said.

"From a customer perspective, we are much more resistant to it," he said. "What you don't want is a scenario where a customer puts together a three-year deal, with all the price incentives, and then inserts a convenience clause which could terminate it, even if the performance was reasonable."

While losing a contract with a customer is not an insurmountable blow to a reseller, Harling said the clause could one day lead to partners even being pushed out by the vendors, if the dynamics of the channel changed dramatically.

"Would we expect it to happen? No we wouldn't, so it's not a risk we would address. But having said that, as the channel changes, then we should be under no illusion that there is no protection there. If the manufacturer wanted to change a route to market and the way it operates, then they could do that. There is no amount of certification and history of sales that will protect against a clause like this; it's there, and it's real."

The divine right of resellers?

Although they may be rarely exercised, convenience clauses are another example of how vendors have the ultimate say in the channel, Harling added.

"As resellers we need to be conscious of the fact that no one has a divine right to be a reseller for anyone's products or services," he said. "As the channel changes, the power here is with the manufacturer and I can understand it from their point of view; they have a brand to protect."

But not everyone in the channel believes clauses that let customers give resellers the boot are a bad thing. Howard Hall, founder of reseller DTP, offers customers "one minute walkaway" clauses, which he believes demonstrate his company's confidence in its services. "The customers have to continue with the hardware, but if they want to get rid of us as a service provider, then they can give us 30 days' notice. Let's take managed print for example; they can get rid of us as the one providing the services," he said.

"The reason we did that was as a differentiator. Because in the copier industry, you are usually tied in for the duration of the lease period, so if someone was giving you terrible service, you had to grin and bear it for the duration of the contract. But for us, we are saying if we do a bad job, you can get rid of us and bring in someone else, [so] it's really subliminal selling," he said.

Harling also said convenience clauses can provide resellers with reassurance, as it gives them the chance to terminate a customer contract if it becomes unprofitable. But for Harling, this is no way to do business. "From a point of view of relying on a convenience clause it [is] weak. We should be grown up about it and work it out properly. You can't rely on good faith with the clause; it will always take precedence over that. All the talk about building a trusted model is brilliant, but will be completely undermined if every contract is going to have a convenience clause."