Avoid long term contracts at all costs - HR Future helps people prepare for the Future of Work and is South Africa's leading print, digital and online Human Resources magazine.

Avoid long term contracts at all costs

Building and managing a successful business in today's challenging economic environment is an art. Whilst companies have no option but to embrace technology,
to take advantage of the efficiencies and cost savings it has to offer, they need to avoid long term contracts at all costs.

Companies must ensure their technology service providers are contractually committed to delivering good customer service on a consistent basis.

Month to month contracts should definitely be the first option. However, a one year contract followed by month to month could also suffice in certain situations. This gives businesses the control and flexibility to take on new and better systems as they become available.

In today's fast paced business environment, one cannot predict business requirements over a three to five year period. The biggest problem with a long term contract is that there is no way out. They generally come with either no exit clause or a heavy exit clause and zero discounted settlement terms. This could result in a settlement of hundreds or thousands of Rands.

One should not be misled by rental contracts. These are essentially the same as long term contracts, often even more costly and harder to exit. Sometimes these rental contracts expire and your business does not even own the equipment at the end of the contract term.

In some cases, it does make sense to finance or rent the asset purchase, but definitely not the services. The benefit is, should the service provider not deliver on their promise, one could continue paying off the hardware but move to another service provider. This is another reason why it is critical to use universally complaint hardware.

Customer Service

Sales pitches can be extremely misleading, one of the biggest dangers of long term contracts is the lack of accountability and for service providers to honour the agreement. Another danger of long term contracts or being tied to a service provider for more than one year is whether the relationship will work or not.

It is actually healthier to have a flexible financial relationship with your service provider, this ensures that they are committed to delivering excellent customer service and a product that actually works as promised.

The option of walking away from a service provider when they no longer service one's business needs, greatly improves the quality of service. In this case, it is more likely that a service provider will work closely together to ensure that problems are not persistent and are resolved quickly.

Backup and support almost becomes a myth when tied into a long term contract. Contracts do not enforce consistent or quality service. A service provider that is committed to delivering great customer service consistently will not require long term contracts, as they are not afraid of losing business.

There is no guarantee once you have signed off on a long term contract, that your service provider will actually deliver on contractual promises. If they don't, you are left with very little but to put up with poor service, an incompetent system or a system that is unable to fulfil your business needs.

Beware of costly on-site equipment

Companies should be careful when service providers require investment in costly on-site equipment like ERP, mail and PBX servers. Expensive equipment is not necessarily more innovative or better, simply because it costs more. In contrast, on-site systems usually offer less than modern cloud-based systems.

The biggest problem with expensive on-site equipment is the cost of maintenance and the limitations of the hardware itself. More importantly, these systems also require specialised and trained experts for maintenance and upgrades.

These resources are scarce and it is an unnecessary cost to one's business. One of our clients had a turnaround time of two weeks as a specialist had to fly to South Africa to get their phones up and running. There should be no need for specialised staff to get your systems to work. In fact, it should be so simple that your own internal IT staff should be able to configure and maintain the system.

Companies should never opt for proprietary locked down hardware that only works with a specific brand. While the equipment might look appealing and have branding, often it is tied to the system and a useless piece of equipment if one choses to move to another service provider. Always choose freely transferable hardware that one could use with any other system. The hardware should also adhere to an International Standard.

A recent example was a customer who signed a 60 month contract and after 7 months they could not deal with the additional costs. They wanted to move to Euphoria Cloud PBX with 19 phone extensions but their settlement on the current contract was R230 000.

Initially, they decided to stay with their existing provider until they were quoted a ludicrous R90 000 for three additional extensions and a VoIP Card. This put them over the edge and they opted to pay the R230 000 and move to Euphoria's Cloud PBX.

George Golding is the CEO at Euphoria Telecom.


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