The Problem With Long Term Contracts

The Problem With Long Term Contracts

The prospect of signing a contract of any kind can make most people nervous – and with good reason. You’re making a commitment, usually for a lengthy period of time, with no certainty about how you’ll feel about this commitment months down the line. With certain kinds of services and arrangements a long-term contract might make sense, but does everything have to involve one?

We don’t think so.

 

When it comes to your software provider for online auctions, you should be wary of being forced into a long-term contract. If it’s the only option the company offers, this could be a red flag.

 

Let’s take a look at some of the reasons these contracts frequently work against the interests of auctioneers, as well as some general language and clauses to be wary of when signing any kind of contract.

There are numerous downfalls to long-term contracts, but they all wrap back around to this central point: you are getting saddled with a commitment that you have no idea you will continue to want to keep. These sorts of contracts are very one-sided. All of the benefits of the contract usually go to the software provider, not to you. There can be exceptions, of course. At SAE we offer auctioneers the option of signing a one year contract, but in return, they receive a discount for our services. They’re perfectly free to go month-to-month if they want, which holds us accountable to uphold our end of the bargain if we want to keep their business.

While ideally there will be clauses within the contract itself that hold the software provider to a certain level of services and expectations, it doesn’t always do its expected job. Sometimes the software provider fails to uphold their full end of the deal.

Take this example from an unhappy auctioneer we’ll call ‘Richard.’ Richard recently described in an online forum how he signed a three-year exclusivity contract with a certain online auction platform, with a clause that specified he would not be subject to a listing fee for those three years.

Turns out the platform changed their mind. Richard says he eventually found that he had been charged this listing fee, after all, amounting to over $50,000 in fees. Upon challenging this charge, the auction platform told Richard that they had “sent a memo” to his email notifying him of the change in policy, and refused to refund him.

This is a very unfortunate scenario that would have been avoided without that lengthy exclusivity contract. Richard will probably be forced to pursue legal action to get his money back.

These failures to uphold the expected arrangement are just one side of the tale. For some, that time commitment alone is enough to make them balk.

 

“I’m happy to date my software provider. If we get along well, we can continue to date. But I will not get married. Divorces are expensive.”

 

As Rick Bauer, auctioneer at Father Time Auctions & Real Estate, says: “I’m happy to date my software provider. If we get along well, we can continue to date, maybe for many years. But I will not get married. Divorces are expensive, and they will sideline you from focusing on your business.”

Rick described his recent experience of negotiating with two auction software providers and his frustration with their insistence on a multi-year exclusivity contract.

“They wanted me to sign a two-year contract at x dollars a month. It wasn’t going to happen. Once you sign a unilateral contract you have no leverage. You’re locked in and committed. It gives the other side less incentive to do their job as promised. I want a professional business relationship with the freedom and flexibility to put my business first. Again, not a marriage. A contract like that makes me feel like they’re the first priority. That’s not a good foot to start off on.”

“I think of it as similar to a mobile phone contract. You used to have to sign a lengthy contract with penalties for opting out. You see less of those today because consumers won’t put up with it anymore. They want a company who will provide for their needs but will also give them the freedom to change services if someone else offers a better value for their hard-earned money. Phone companies are more competitive now because the public wouldn’t put up with the old pricing models, and auctioneers shouldn’t either.”

Of course, signing contracts of some kind is inevitable. While the temptation to scroll past those long walls of text and just hit accept or add your virtual signature can be strong, it’s best not to take the contents of those agreements for granted.

Tricky clauses sometimes slip into those agreements, and they may be signing away more than you realize. Take this phrase, for example, taken from another software company’s User Agreement: “We will collect and use personal information solely with the objective of fulfilling those purposes specified by us and for other compatible purposes.”

It’s easy to pass over something like that, but it’s a potentially major red flag. That broad language can give the software company legal leeway to do all sorts of things with the data they collect from your business. “Those purposes specified by us” could be, well…anything, up to and possibly including turning around and using your data to compete against you. Hopefully, it wouldn’t come to that, but why give them the permission?

If the deal you’re signing involves large amounts of money or major time commitments, it may be worth your while to have a lawyer or attorney give it a glance.

 


 

The Takeaway

 


 

As always, to just pay attention and use your best judgment. Every contract and situation will be different, but be sure to keep an eye out for broad language that grants sweeping permissions to your software provider, and be aware of the risks that come with long-term contracts to companies you don’t already have experience with. No one wants to pay for a year’s worth of a service only to find out within a month that they’re not the right fit for their business. Alternatives always exist.

 

 


 

We don’t do contracts… but we DO offer a free 30-day trial.

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