Thomas Crowe and Cheng-yi Liu
The success of agent or wireless retailer business models depends, to a large degree, upon core contracts with wireless providers and master agents. These agreements will define an agent’s or wireless retailer’s financial relationship with the wireless provider or master agent, and also define the rights and responsibilities that are part of that financial relationship. In order to ensure a successful and prosperous relationship, agents and wireless retailers must devote significant effort to carefully negotiating these agreements.
Selected key provisions commonly found in the typical retailer/agent agreement are highlighted below.
Understanding Key Provisions
Commissions/Payments. For obvious reasons, retailers/agents typically consider provisions covering commission structure and payment details to be the most important parts of an agreement. It is critical that these provisions are clear and accurately reflect the commission and payment terms that are being negotiated. Among other things, these provisions should clearly identify how and when commission payments are made; the applicable commission rate or percentage; the basis upon which commissions are calculated (e.g., billed amounts versus collected revenues); and liability for bad debt (i.e., uncollectibles).
Minimum Commitments. Providers and master agents will often include provisions in their template agreements that require the retailer/agent to sell a certain minimum volume of goods or services. If these minimums are met, the retailer/agent is entitled to a commission on the goods or services sold. Retailers/agents should keep a close eye on these provisions, since monetary penalties and other negative consequences (such as termination of the contract) could result from failing to meet minimum commitments.
Evergreen Payments. “Evergreen” clauses provide for continuing, ongoing commissions even after an agreement terminates. These provisions can be structured in a variety of ways; some are open-ended and virtually indefinite while others are more limited in duration. Evergreen provisions often are difficult to obtain, but retailers/agents should seek to have these provisions included in the agreement if possible.
Dispute/Audit Rights. Retailers/agents should also pay close attention to provisions that outline their rights in case of a payment dispute. Commission structures and payment details can sometimes be difficult to determine, especially when wireless providers and master agents have sole possession of records and other data needed to determine payment amounts. Thus, retailers/agents should ensure that they have some recourse to challenge the accuracy of payment amounts, and to audit records upon which commission payments are based.
Modification. Wireless providers and master agents will often include provisions giving them sole discretion to unilaterally modify the terms of an agreement, including provisions governing commission structure, rates, and/or payment obligations. Unexpected changes to these key provisions could be detrimental to the retailer/agent business model. Retailers/agents should seek to ensure that their agreements a) restrict commission payment adjustments and modification of terms if possible; b) require that the provider or master agent give adequate prior written notice if commission or payment terms are modified; and/or c) require that modifications to any key contract terms be agreed upon in writing by all parties to the agreement.
Penalties. Many wireless provider and master agent template agreements contain provisions that impose financial penalties if the retailer/agent terminates the agreement prior to the end of the contract term. Retailers/agents must understand the implications of early termination, whether the termination is willful or results from breach of contract. Careful consideration must be given to the term of a contract, and retailers/agents should ensure that they are capable of fulfilling the term obligations prior to entering an agreement.
Breach. Template agreements drafted by wireless providers and master agents often allow the drafting party to terminate the agreement at will if the retailer/agent breaches any provision of the contract. In order to avoid the risk of having a contract terminated for minor violations, retailers/agents should insist on being allowed an opportunity to cure any alleged breaches of the agreement before the wireless provider or master agent can impose penalties or terminate the agreement.
Sale/Assignment. Sale of a business and assignment of contract rights are distant and rare considerations for retailers/agents during initial contract negotiations. However, template agreements will often have restrictions on the ability to assign the contract when a sale of the company or its assets is involved. These restrictions should be carefully considered, since they could be potential stumbling blocks when future transactions are contemplated.
Diligent Review
The core agreements that retailers/agents must enter into, whether it be with a wireless provider or a master agent, will have an enormous impact on the ultimate financial success of their businesses. The issues and contract provisions highlighted above represent only the tip of the iceberg. Many other issues will also typically exist when negotiating an agreement.
Major wireless providers and master agents understand the importance of these agreements, and they often have teams of attorneys who spend considerable amounts of time crafting every provision in their favor. Consequently, it is critical that retailers/agents approach the formation of these core agreements with diligence, including working with expert communications counsel throughout the drafting and negotiating process. Qualified counsel can help to ensure that retailers/agents take into account all of these key considerations and avoid pitfalls associated with the typical retailer/agent agreement.
March 3, 2009
This article is provided for informational purposes only, and is intended neither to provide nor to substitute for legal advice.
| This article was authored by the Law Offices of Thomas K. Crowe, P.C., a Washington D.C.-based specialty law firm serving the communications industry. Specialty services cover agreements with distributors and providers, FCC licenses, USF reporting and disputes, FCC Enforcement Bureau matters, CPNI, CALEA, state licensing, and more. Contact the firm by phone at 202-263-3640, by email at .(JavaScript must be enabled to view this email address), or via the firm’s website, www.tkcrowe.com. |