In this month of February, thoughts turn to love and relationships. Every good relationship, both personal and professional, is built on trust and a general agreement on how the relationship works. What do we do when the terms of that agreement are changed unexpectedly?
Dear Kevin,
Our parking management system vendor has just notified us that there is a “small” update to their system agreement that we need to accept. Should I be worried about this change, and what, if anything, should we do now?
Skeptical in South Carolina
Hello, Skeptical in South Carolina,
Thank you for your question this month, it is a good one. First, without knowing your agreement’s details, I cannot answer your question specifically, but I should be able to help overall. While many system agreement changes are not necessarily bad, they can open up new issues that were not previously agreed upon or advantageous to you as a customer. Either way, you should deal with the situation with caution and take it as an opportunity to review what was agreed upon before and possibly update a few things that might need to be changed based on the current situation. Before we get started, I am not a lawyer, so the information below does not constitute legal advice in any way; please consult with your legal experts. With that out of the way, here are a few things to keep in mind.
Depending on your product and provider, there can be one or more agreements in place. These can come with various names, Master Services Agreement, Software License Agreement, Customer Purchase Agreement, Software Subscription Agreement, etc. Each defines the relationship between you and your provider. Typically, there is one main agreement between your organization and the vendor, which defines terms, effective dates, and payment. At the same time, many consumer-facing systems such as websites, payment systems, or apps will have another agreement for your customer, as well. This agreement typically outlines data usage, customer privacy rights, and limitations to company liability.
The main agreement is usually negotiated and signed by someone in your organization with signature authority when they originally completed your deal. Simultaneously, the user agreement is typically approved by your users if they use the system. This agreement is usually standard across all users and locations. Some systems will have an opening screen to display this agreement, which requires acknowledgment before use, while others have it available on their website. If you have ever used the internet, you have accepted at least one of these very long agreements. They are so widely used and rarely read that a documentary, Terms and Conditions May Apply, was made about the crazy terms in these user agreements.
When you are looking at changes to your existing agreement or reviewing a new contract, there are a few high-level concepts to look out for in your agreement. The first item to look out for is data ownership. It is essential to understand who owns the data, what they can do with it, and how you can get it back if you leave the vendor. Additionally, if data is lost or breached, what protections do you have, and what responsibility does the vendor have to correct the situation, both operationally and legally. Many states have laws around data privacy that you want to ensure your vendor complies with for your solution.
In most cases, you want to own your data (not just have rights to use it), be able to move all of it to a new vendor, and ensure your vendor protects it. Additionally, if your data is being monetized (used to generate revenue), you should get some form of compensation for that use. This data has value, and most parking organizations give the use of the data away for free.
Next, I would look at your ability to leave a vendor and on what terms. If the vendor stops performing at clearly defined service levels or raises the price above the set level, you should have the ability to exit the agreement without financial penalty. While you never plan to move to a new vendor, you want to ensure that if you do, the transition is smooth and there is not a gap in services. This transition can include your new vendor receiving an export of your data in a standard format and ensuring that the old system is still available until the new system is up and running. Additionally, you want to ensure that once a contract is ended for customer-facing systems, the provider can no longer continue providing those services to your customers without your explicit approval.
The last item to consider is contract assignment or change of control clauses. If your vendor is sold or merged, this section addresses how your agreement is transferred to the new company. These transitions have occurred many times in the parking industry. Some of them have positive impacts, but often they have adverse effects on the customer. My prediction is that this trend of company acquisition and mergers will continue in the parking industry for the foreseeable future. Most default contracts have automatic assignments built into them, ensuring the new company immediately owns the agreement. Removing this automatic approval allows you to consider if you want to have the new company as your vendor and provides for an easy exit or the leverage for negotiated terms to stay.
Once you have received notice about the new agreement, I would recommend taking a few key steps. First, notify the vendor in writing that no changes will be approved without review and written approval. Next, ask the vendor for a detailed description of the changes, including old and new text, explaining the difference in straightforward language and how it will affect you and your customers. I would then send this change description document and the old and new agreements to your legal team for review. Ask the legal team if the vendor’s explanations sound correct and any other impacts of the changes from their legal point of view.
During this time, reach out to other customers to see if they received the same changes and ask what feedback they received from their legal and operational teams. Once you get this feedback and the legal review, discuss the operational impacts, potential customer feedback, and current vendor performance with the parking leadership team. Since the vendor is asking for changes to an executed document, you can request changes as well. This time could be an excellent opportunity to add new details about support expectations, exit clauses, pricing changes, or other requests. Keep in mind, most requested agreement changes positively impact the vendor much more so than they positively impact you. As such, you can use this as leverage in new negotiations with the company. Even if nothing important is changed, take the opportunity to read the fine print, ask questions, and understand what is being proposed. You would be amazed at what people agree to without reading the document.
Happy Reading,
Kevin
Thanks for everyone’s feedback on the previous columns. appreciate the input and look forward to your new questions.
