[This is the fifth (and last) in a series of posts by Bob Butler on the Fine Art of Telecom Transactions. In the first installment, he cautioned about the needs to plan early and to understand the structure ad interrelationships of the deal documents. In this and the other installments, he identifies more factors to watch out for in the drafting process.]
Tip No. 9 – Limit Your Liability Exposure
The standard carrier agreement almost invariably contains very one-sided risk allocations. Clauses limiting liability under the contract and requiring indemnification for third party actions are frequently drafted solely in favor of the carrier. You need as a minimum to make these provisions mutual and ensure that liability caps (a) are not so low as to be meaningless, and (b) do not apply to indemnification obligations. In particular, in this era of increasing litigation by patent trolls, a comprehensive indemnification from your vendor for all costs, not just finally awarded damages, for infringement of a third party’s intellectual property is a must.
Tip No. 10 – Secure Your Migration and Exit Strategies
The flip side of early planning (see the first installment of this series) is ensuring that you have a sound migration and exit strategy. This means that your contract should permit you to: (a) terminate without liability for material vendor breach and extended force majeure events (watch out for obligations to pay vendor’s third party costs); and (b) continue to receive service on the same terms and conditions for at least six months after expiration or termination of the agreement for any reason in order to permit you to transition in an orderly fashion to a new provider. (Important: The vendor should be obligated to cooperate in this transition.) You also need to be aware of your vendor’s plans for service obsolescence and the concomitant risk that you will be forced to migrate to a new service or technology. Carriers uniformly insist upon the right to discontinue aging services they no longer wish to support, often with only 12 months or less notice.
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The issues I’ve addressed in this series are not meant to be exhaustive or definitive. Individual situations may entail additional factors or may warrant a reordering of priorities. Issues of confidentiality, network security, service provisioning, software and equipment use, account support and staffing, and other important topics may assume a greater importance to you. But it will still be advisable to pay heed to the top ten issues I have identified in order to secure the benefit of your bargain and avoid exposure to unacceptable liabilities in contracting for telecommunications and related services.