3 Legal Tips for Working With Cloud VARs

Kelly TealIf you are like many independent agents and subagents, you may want to sell cloud services while minimizing responsibility for provisioning and support. One way you can do this is to team with a VAR. In this scenario, the VAR holds the contract with the cloud service provider and is obligated to provide first-level support to the customer. Meanwhile, you earn recurring revenue without worrying about such commitments. Unless, that is, the cloud provider stops paying. It can happen — and does.

Say, for instance, the VAR’s sole owner died without leaving a clear strategy for supporting customers, or the VAR shuts down the services side of its business. These are just two real-world scenarios that put one VAR — and, by extension, its agent partners — in breach of contract, jeopardizing their lucrative monthly compensation.

But you can protect yourself, your company and your recurring revenue when selling cloud services through VARs. Here are three tips from two top telecom lawyers:

1. Scrutinize the VAR’s contract with the service provider. Be sure to examine the assignment and termination clauses, said Mark Del Bianco, head of Law Office of Mark C. Del Bianco. And see if the service provider has agreed to differentiate between its recurring revenue and compensation for Tier 1 support in its contract with the service provider, said Del Bianco. If the service provider does this, you should be in the clear. If not, find out if the VAR has joined forces with an organization such as Technology Assurance Group. Such an association would take over support obligations in case of a VAR’s death, disability or some other form of discontinuation, said Ben Bronston, founder and owner of Ben Bronston – Telecom Lawyer. Overall, if any of the terms leaves you uncomfortable, or if your risk would be too great under that contract, then you should probably decline to work for that supplier.

2. Seek “step-in” rights. If you want to team with the VAR, “step-in” rights will let you fill the VAR’s shoes on any joint accounts if the VAR can’t fulfill its duties, Del Bianco said. There are caveats to this. First, your firm would have to be prepared to take over support functions. Second, this is mostly unexplored territory. “These teaming arrangements are mostly new, so the VAR’s agreements probably don’t address the issue,” Del Bianco said. “If the team is being put together at the behest of the service provider, …there may be leverage to include step-in rights in the VAR’s agreement with them.”

3. Choose wisely. “The most practical approach … is for an agent to only partner with a VAR that is large enough and has enough senior management to ensure continuity when the owner dies,” Bronston said. When you’re determined to work with a mom and pop business, though, try to convince that VAR to let you view its succession plan. If there is one, yet the VAR refuses to share it, you may be stuck. You’ll have to decide whether you’re willing to risk a possible gap in business continuity. But if the VAR simply does not have a succession plan, it’s fair to request that one be implemented, Bronston said.

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