This can be a daunting task. Especially for service professionals who have a lot of education under their belts, it may seem frustrating to not be able to do a simple action. Why can’t I fire my vendor?
You no longer like your bookkeeper. You are dissatisfied with your marketing company. You are ticked off at your landlord. You are wanting to try a new accountant.
So you go to fire your current vendor by terminating their contract and find out there’s some complications. This happens often. Why is this so hard to do?
As service companies, we need to hire others to provide us with services. I’m going to call them all “vendors” because they are selling us a service and we are their client. There are all types of services that we need depending on our business. I’m going to divide them into two categories: ongoing services and one-time services.
Ongoing service vendors are those who provide you services on a regular basis and you have an arrangement with them for a period of time – it could be a year or even more. You may make payments to them over time (monthly is common) or you may have made a one-time payment for the entire period. Either way, these are the vendors who do things for you over and over again. Examples are bookkeepers, marketing companies, website hosting companies, IT services, document shredding companies, commercial cleaning companies, business consultants, human resources advisors and so on.
One-time service vendors are those you hire for a project that has a beginning and an end. You define the project, what they are going to provide to you, the time period involved and the payment to be made. Examples are photographers, graphic designers, interior designers, valuation experts, staffing companies and movers. Some vendors can go in either category depending on the relationship, like attorneys, accountants and website developers – these can have ongoing services or just a one-time service.
Relationships with both categories of vendors are important but they are defined differently. You should have a contract with every vendor no matter the type. The contract will define your relationship – and how you can end it. It also sets out what they are supposed to provide to you (in as much detail as possible) and what you are to pay in exchange (and when).
For this article, I’m going to mostly deal with on-going service vendor issues. For one-time service vendors, if you have a problem with them, you just don’t hire them again. No need to fire them. If a one-time service vendor has a bigger project that spans a longer period of time, then the discussion below applies.
For on-going service vendor issues, there are some obstacles in defining the relationship, i.e. negotiating the contract. Here are just a few:
1. Since the services are ongoing, it’s hard to predict what services will be needed far out into the future – that may be weeks, months or sometimes years. That means the services may be hard to define in a contract. Since defining the services is a critical part of determining whether the vendor is performing well enough, that can become a major problem. No benchmark, no way to measure can mean no way to fire them.
2. Sometimes payment is spread out over time but the majority of the services are delivered in the first part of the term. For instance, the development of a website is heavy work in the beginning. After it’s created there would just be upkeep, troubleshooting and maintenance. But you may be paying a set monthly fee over a period of time. That means that sometimes you’re paying for services already rendered. If you want to cancel the service, your payments may be accelerated to pay for the services already done. That creates a big cost to cancel.
3. Often there are auto-renewal clauses in ongoing service contracts that require you to terminate the contract during a specific period of time. If you don’t catch it during that period, you’ve signed up for a new term. For example, a yearly contract could have an auto-renewal provision that says the contract renews for another year unless you notify them sixty days prior to the end of the year. If you aren’t keeping track, you lose the window to cancel without penalty.
4. If you terminate the ongoing services before the completion of a particular project, sometimes you don’t get ownership of what had been created to date. In other words, to get ownership of the project (creation) you have to let the vendor finish the contract. This is more common in creative services, but it can depend on the terms of the contract. Just because you’re hiring someone to create for you doesn’t mean you own the creation. Be careful of intellectual property right issues.
There are many more issues when it comes to defining the relationship with an ongoing service provider, but you get the point. The contract defines it all – everything. Even your ability to fire them if you don’t like what they are providing to you. So while you may be excited to get started, be careful to take the time to read how your relationship is going to work – and you’ll find that in the contract.
If you sign it without taking it seriously, it’s too late. You can’t go back and rewrite the relationship once a problem arises. If you’re on great terms and you both agree, you can rewrite your relationship as many times as you want to. But once you disagree, it’s impossible and you’re stuck with the relationship you signed.
Don’t fall into the trap of thinking that the contract is “just a technically” – it’s more than that. It’s your relationship. And if you don’t feel comfortable with what the contract says, you can always ask them to add or change some language so that you are willing to enter into the relationship. If you’re not sure whether or not you’re comfortable, talk to an attorney and ask them to explain the terms to you. A good business attorney can help you create a good business relationship with that contract – before you sign.
Elevate Business Law helps small professional service firms with their business relationships (contracts!). Whether it’s relationships between business partners, relationships with clients, relationships with workers, or relationships with vendors, we help you increase the best chances of a successful relationship through well-defined and straight-forward contracts.