What Fine Print Did You Ignore, Today?

contract glass How often do you read a Software Agreement before accepting the terms and conditions? I bet  few of us stop to read any Terms of Service before we download a new AP and agree to the  terms and conditions, without ever wondering what they say. We are an impatient world and  we want what we want, when we want it, which is NOW!

I’m talking about the software to operate any free or paid online service or piece of technology  equipment. There are even software agreements and/or Terms of Service Agreement with common communication tools as Facebook, LinkedIn, a mobile device or for cloud software services.

With Facebook, I didn’t read the Statement of Rights and Responsibilities before I set up my Facebook account. Today, I found that I’d agreed to allow the following Contract Terms:

  1. “Permit a business or other entity to pay us (Facebook) to display your name and/or profile picture with your content or information, without any compensation to you.”
  2. “You understand that we may not always identify paid services and communications as such.”

Mary’s translation (MT): I agreed to become a spokesperson for a product or service that I mention on Facebook. In addition, the product’s manufacturer or distributor may pay Facebook for turning over my name, photo and comment. I’ve agreed to do this free. One more surprise is that Facebook does not have to identify their site content as a paid advertisement. 

Six (6) Contract Examples

Recently I was prepared to download some “Free Software” for my Android phone. I decided to heed my own advice,

“Always Read before You Sign on the Dotted Line or Be Prepared to Pay the Consequences.”

The following are a few statements I accepted in a single Software Terms of Service contract. The portions of the agreement are underlined. My translation follows.

The Terms of Service (TOS)

  1. Sometimes, our products have additional rules. You have to follow these too.

MT: (Even if you don’t know what those rules are and we don’t tell you about them, you have to follow our rules.)

  1. Sometimes, we have to change our products. For example, new legal or technological developments might force us to alter certain product features. If we do and if it’s important, we’ll let you know.

MT: (Trust us. We will take care of you. Furthermore, we will decide what you need to know.)

  1. Please don’t break our stuff or compromise our security.

MT: (We will get mad at you, if you mess with our stuff or us.)

  1. We make our living creating cool products. Please don’t steal or copy them.

MT: (If you steal, we will make you pay.)

  1. If you do things, like break the law or our rules, or don’t pay us, or never use your account, we might terminate or suspend your account. However, if we do, we’ll try to let you know first.

MT: (We know where you live and we can bill you, however, for some unknown reason, we might not be able to reach you to tell you we are upset and cutting off your service.)

  1. Some parts of these Terms of Service, like the parts that limit our responsibility in legal cases, are so important that they will remain binding even if this agreement is terminated.

MT: (You only think this contract is complete, we may not be done with you. You might have to die to get out of the deal.)

I am not saying we must read every software agreement for our phone aps. What I am saying is IF the dollars involved that can be made or lost are big, read  the agreement. Your business success and survival depend upon it.  

Read all Software Agreement or Terms of Service contracts. If You Don’t Be Prepared to Pay a Price.

Standard Contracts: No Laughing Matter

How often do you sign a contract without reading it?  You do that for hundreds of reasons. Six Common Excuses:

  1. If I delay to allow time to negotiate the contracts, the deal might go away.
  2. Been doing business with them for years. They’ve always done what they say they’ll do.
  3. They said the contract is non-negotiable.
  4. Lawyer cost too much.
  5. Contract is 2 pages long, how bad can it be?
  6. “It looks standard to me.”

If you’ve money to burn, sign a contract without reading it thoroughly and negotiating it aggressively. If you don’t ask for help, be prepared for a bumpy ride. Why? A written agreement remains long after the honeymoon glow wears off. Equipment breaks. Service falters or is inconsistent. The equipment doesn’t do what they promised it would do. Supplier and financial companies’ plus their contracts are frequently sold to competitors. You have new relationships to build. When times get rocky, neither old nor new relationships may carry much weight. Contracts are written by attorneys to protect their client, not you. Written agreements are one-sided and the balance on this teeter-totter is never equal. What can you do?

Play Worst Case

Assess the potential damages if the deal blows up in the first year. Be sure to add in the cost of paying the other guys legal fees, assumed damages, fines, late payment fees and penalties. If the case goes to court, there will be an expense to hire your attorney, pay court costs, filing fees, tax penalties and the list goes on. This expense is to defend you from the “unprincipled scoundrel” who used to be your trusted vendor/buddy.

Penalties usually include paying all remaining payments for the full term plus an amount to make up for lost profits the supplier experienced during the legal battle. And you still need to locate and pay for replacement service providers or equipment.

Weigh the Options

1. Read the agreement yourself. Consider how often you read contracts. What is your familiarity with the legal and contractual terms contained in the agreement? Do you know the laws in your state and how they apply to this contract? How familiar are with the laws in the state in which the case might be litigated. Seldom is the matter handled in your home state.

2. Hire an attorney. You can save the attorney a little review time by highlighting what you are most concerned about after you’re read the contract. Ask for a flat rate to review the agreement.

3. Hire a contract expert who is not an attorney. Propose that they work under a gain share agreement. Some agree to a flat rate (lower than that of an attorney) and a percent of the savings they achieve for you through their review and negotiation process.

These experts usually come from within your industry and have specialized knowledge of either the equipment or the service you require. They should also have knowledge of contract terminology and the financial terms and conditions specific to the project or transaction.

Lease Notification: Pay Attention or Pay the Price

Thank goodness, we’re done with that lease negotiation stuff! The equipment is in and working great. “Stick those legal mumbo jumbo contract in a file drawer. Let’s get back to business and make some money.”  That is often the command issued from the bridge by the Captain of the USS Hard Working Company.
There’s a sense of relief when an equipment purchase is complete. Business owners think nothing more needs to be done except make the lease payments. Believe that, and companies find ugly surprises.   Leases require customer vigilance.

Five Lease Notification Requirements

1. Insurance Proof: If the Lessee does not send the Lessor an insurance binder proving that the leased equipment is covered by General Liability and Physical Damage insurance, the leasing company will secure the insurance for the Lessee, at a high price plus a fee.

2. Tax Exempt: Printing equipment lease payments are frequently sales and use tax exempt. State’s offer this exemption to encourage businesses to expand, add equipment and increase their employee headcount. Customers must send the leasing company proof that the equipment qualifies for the tax exemption or the leasing company collects and remits the taxes to the state. Some leasing companies add a processing fee.

3. Relocate Equipment: Request and receive written permission to move equipment across the room or to another town. Remember, the leasing company owns the equipment.

4. Corporate Ownership Changes: Notify the Lessor at least 30-days prior to any change in the company name, headquarters location or company ownership. If this is not done, the customer is in lease default. The default paragraph is the longest and most onerous paragraph in a lease. No company wants to pay the costs of a lease default.

5. End of Lease Notification: Notify the leasing company of your business plans for the equipment. Do not wait until the lease ends to give notice.  This is one of the most costly requirements, If not heeded, the lease Automatically Renews.

WARNING: Lease end options usually include the ability to purchase, return or renew the equipment lease. A Florida printer I know is trapped paying twelve extra payments ($12,000) because they didn’t send the leasing company written notice of their intent to purchase the equipment for $1.00. The lease required them to send written notice no less than 90-days and no more than 120-days before the lease ended. Oops. Now that’s a budget blower.

SUMMARY: On the first day of a new lease, set up a lease management system to track all lease required notifications or be prepared to pay the price.

 

Tools to Use if you Face Ethical Challenges in the Sales Shark Tank?

During December, a commercial printer (“Charles”) called for help. Charles told me about a digital press deal that was too good to refuse. The dealer told him that no one in all of the United States had a deal with pricing this low on such high quality commercial digital copier equipment.

In addition, the Regional Sales Vice President told Charles that due to the nature of this phenomenal offer, he was prohibited from sharing the specifics of the pricing with any of his competitors. He could only discuss the details with his business advisor.

LESSON ONE

When a deal sounds too good, it’s seldom that good. Trust you gut. There’s a catch. The fish on the line was a long-time client and friend.

LESSON TWO

The excitement of new equipment is tantalizing. The bait that lures owners is the “Year-End Special Pricing.” Every year these “never-to-been seen again deals” float in. When the sales representative tells you this pricing will never again be offered, Slow Down. There usually is another reason for dealers to offer another discount at the end of the next quarter.

LESSON THREE

This year, there was a new twist. Charles called to tell me about a $30,000 refund check the dealer promised to send within 2 months after a 60-month digital press lease commenced. The refund would be sent to Charles as long as he financed the equipment for 5-years at the original list price. Never agree to finance more than the selling price for equipment and do not mislead the finance company about the actual selling price of equipment.

LESSON FOUR

No questions asked. If money is going to be sent to you for no reason at all, look out. There would be another $7,000 check sent for no specific reason that I could ascertain.

LESSON FIVE

The sales hook was that Charles could take advantage of the maximum US Government’s tax deduction savings program called Section 179. This deduction was available in 2013 and was not available in 2014. The IRS website’s primary criterions for the 2013 tax deduction were:

  • The asset must be new machinery or equipment.
  • Equipment is for business use.
  • Acquisition is through a purchase.
  • The total new equipment acquired by a company for the 2013 Section 179 deduction was not to exceed $500,000. 

The lease was structured to be for the equipment list price, not the discounted selling price. The discount was approximately $50,000. When an equipment sales representative is providing tax counsel and advice, get your accountant or tax attorney involved before making any decisions.

The dealer touted these sales benefits:

  1. Bigger write-off qualifying for a larger IRS Section 179 tax benefit.
  2. Extra Money to put back into the company bank account (The $30,000 refund).
  3. A little bonus help to make those larger monthly lease payments based upon the manufacturer’s higher list price. (The $7,000 check). 

LESSON SIX

Always ask for an official written explanation and legal documents to explain a deal that seems “too good to be true.”  Especially when there is the possibility that you are asked to misrepresent financial information to a finance company or the IRS. When Charles asked for the documentation to support the special promotional offer, the dealer rescinded the “special program.”

I am neither a tax attorney nor an accountant. I do not give tax or legal advice. It is clear that this deal was not the right thing to do. Fortunately, Charles has a moral compass pointed due north. He decided to do the right thing for his conscience and his company.

He acquired the equipment using regular pricing and the negotiated sales price on a good lease with a bank finance company. He sleeps well every night knowing he made the right ethical choice. What would you do?

Can I get out of this Lease? I don’t need this stuff anymore!

A business owner asked if she could cancel her equipment lease. The leasing company told her that the lease was non-cancellable. She asked for help her understand the term “non-cancellable.”

Of course, you can pay a lease off early. IF and ONLY IF–you are willing to pay all of the amounts detailed below.

One hundred percent of all leases contain a price to terminate the lease early. Leases are meant to run their full length. Do not confuse a lease with a loan.

If a Lessee decides that they no longer need the equipment or that is has become obsolete, they may buy the lease out early—-for a price. Read the contract closely in order to know what you are for.

The usual Lessee early payoff quote often includes:

  1. All payments then due or past-due as of the date of the early termination.
  2. Any late fees that are then due.
  3. All remaining payments through the end of the lease term.
  4. Some leases require an early termination penalty fee or a restocking fee. of as much as 10% of the remaining payments.
  5. The current fair market value purchase price of the equipment assuming that the Lessee wants to own the equipment.
  6. Sales tax on the equipment fair market value purchase price.
  7. Property taxes due on the equipment.
  8. If the Lessee does not want to own the equipment, they owe the price to pack and ship the equipment back to a location designated by the leasing company, anywhere within the Continental United States.
  9. The Lessee must insure the equipment during the return shipping period.
  10. In addition, if there is a service contract associated with the lease, the Lessee owes a penalty on that as well.

In reviewing a digital copier lease and service contract, it was discovered that the penalty for early cancellation was costly. The early cancellation on a 36-month lease contained a 12-month penalty if the service contract was terminated within the first 12-months. If termination occurred in the first 24-months, the Lessee owed a 9-month penalty. And if the contract was cancelled in the final 12-months, the penalty was 6-months of service charges.

After adding up this long list of expenses, do you still want to end the lease early or just bite the bullet? Weigh your choices. Assess the costs involved. There may not be an upside.

The bottom line is always NEGOTIATE! “Everything is negotiable if only you ask.”

Why waste time doing a RFP when Your Business Needs Money

RFP’s: Just a Waste of Time?

If you are like supply chain and purchasing professionals, the addition of new or used equipment begins with a telephone call to the usual suppliers. Whenever there is a plan to buy equipment, the process begins with a request for price quotes. The quotes arrive and you shove on your negotiation hard hat and prepare for the battle of wills. Who wins? Usually the victor is the one with the most patience and perseverance.

Why waste time writing out equipment specs and financing options for the next equipment addition? Everyone knows that writing a Request for Proposal (“RFP”) is something the billion dollar companies do when spending several million dollars. Why take the time to write a complicated RFP when a phone call will get you what you want? The price is all that you don’t know.

Procurement professionals begin the buying process full of optimism and then find themselves stuck in the beginning phases of negotiations far too long. How can you avoid the getting stuck?

When current equipment is broken or has become undependable, an immediate replacement seems like the best solution. However using the RFP process can save your operation money and time if you have the basic steps established.

Large and Small Companies: All Save Big Money with the Lease RFP

Kevin, a North Carolina Printer Tries It
Big and small manufacturers, accounting and law firms, distribution organizations and most county, state and local governments use the RFP method for acquiring goods and services. Using a modified RFP or Term Sheet is sufficient when buying equipment less than $100,000.

The owner of a small commercial printing company in North Carolina used, a Lease RFP when purchasing a $100,000 digital copier for his business. The owner, we’ll call Kevin, used the services of a lease review expert who helped him draft the RFP. When Kevin initially began to acquire the new equipment, he had one lease proposal from the equipment supplier’s primary resource. Kevin decided to invite four additional lease companies to present finance proposals in response to his RFP Term Sheet. He was surprised to find that the best pricing came from his bank’s leasing company. He reduced spending by 14% using the lease RFP process.

Do Law firms Ask for HELP?
One Midwestern based law firm in the top 100 law firms in the United States, used the Lease RFP process when they prepared to move into their new corporate headquarters. They chose to lease $25 million dollars of high-tech telephones, office furniture, computers including laptops, desktops, servers and technology infrastructure their video conferencing equipment.

The firm’s Chief Operating Officer, we’ll call Audrey, knew what managers and business owner everywhere know; leasing equipment makes good business sense. According to the U.S. Department of Commerce, 80% of U.S businesses, large and small, lease rather than pay cash when adding or upgrading equipment and needed assets.

Both Kevin, the business owner and Audrey, the chief operating officer, agreed that the best leasing deal does not always come from the equipment dealer. Thirteen leasing companies and financial institutions responded to the law firm RFP. After a full review of all proposals and lease contracts, four leasing companies were invited to advance to the next phase.

Leverage: Simultaneous Negotiations

The firm conducted negotiations with all four leasing companies simultaneously. During the negotiations, one leasing company resisted making changes that Audrey required. Because she had three other leasing companies to meet her terms, Audrey could shift lease volume to any one of the other three leasing companies up until final equipment funding was required.

Using the RFP process leveled the playing field. It was easier for Audrey and her operations team to spot the differences in various financial solutions and the equipment benefits. Dealer presentations changed from glitzy sales sizzle into firm offers and contracts. Once the selling price and lease terms are on paper in a proposal, negotiation can begin.

Could You Save a Million Dollars?

The result of following the process shaved more than a million off the total lease cost for the law firm. For big or small companies, the process worked for both. In times of financial restraint, consider investing time in creating and managing a lease RFP.