How to Avoid Getting Crushed by a Contract

If you’re a growing business, the chances are that you’ve signed a contract for the provision of information services. We’ve seen these contracts in all varieties, ranging from database access for real estate listing information to medical research.

Despite the differences in product, all of these contracts follow the same pattern:

  • You’re in it for a multi-year term
  • There are extensive warranty disclaimers
  • There’s either no buy-out provision or an incredibly expensive one
  • You’ll have no right to terminate absent the payment of a significant buy-out

There’s also one more similarity among these contracts:

I’ve been asked with increasing frequency to help my clients get out of them.

My clients’ complaints always boil down to the same thing – the information provided was inaccurate, incomplete, and utterly lacking in value.

Unfortunately, I’m usually compelled to offer the same advice: You can attempt to get out of the contract, but you will lose.

These contracts are written to withstand challenges by dissatisfied customers who want to terminate early. They are not governed by your home state and all litigation will have to take place about half a country away from you.

More importantly, you won’t win your case by proving that the information was inaccurate. You only win by showing a violation of what may be an amorphous “industry standard.”

So what’s the best advice?

My strongest recommendation is to arrange the contract with a preliminary term long enough for you to get a sense of the value provided, but short enough to prevent you from taking too much of a hit if the services are not what you thought they were.

Six months should do it. Maybe less.

After that, I’d sign up for no more than one year unless you already know and trust both the vendor and the services. New vendors get one year, tops – even if you have to pay more for the shorter term.

Ignore these recommendations at your own risk. Because I’ll tell you right now, these contracts can be tough – and expensive – to beat.

Eliot Wagonheim shares business insights that help companies stay on course. Get our latest blog posts sent right to your inbox. Subscribe using the sign up form to the left of this post.


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