December 1, 2010

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Question

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Ken,

As a fire alarm contractor we put a much larger value often to cover a  higher monthly monitoring.  Sometimes as much as $ 2000.  Is there any danger here of pissing off a judge by doing this or is it relative to the size of the job?

Ed

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Answer:

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    Hard to say what sets a judge off in one direction or another.  The sanctity of a contract is usually challenged by terms or conditions that render the contract unconscionable.  Unconscionable is defined in different ways, but for laymen terms we can reduce it to "a contract that no sane person would sign and no reasonable person would expect someone to sign".  Alarm terms found in the alarm contracts, particulary the "contracting away liability for negligence" are no unconscionable.  What may fit that description is the length of a term, if notably and unjustifiable long, or pricing or increases that make no sense.

    So getting back on topic, how can you use valuation with no rhyme or reason?  Well you can't, but you can use numbers that you can justify in a number of ways.

    First of all the contracts call for the value of "installed" equipment.  It's not better defined, but does not seem to suggest either a wholesale, cost or retail price for the equipment.  Installed equipment has a greater value then equipment in the box.  One justification then is the cost of the equipment plus the installation.  In a default situation where you are suing the subscriber for breach and adding on the value of the "installed" equipment, you may be able to argue in equipment cost, installation, the equipment's integration with the system and removal cost.  Another would be what you would have charged for the installed equipment if you were doing an outright sale; where you calculate substantial profit on the job.

    In some courts you won't have to justify the number because the Judge will accept the "agreed value".  The issue shouldn't come up if there is a default by the subscriber in the lawsuit, which happens often, so the "agreed value" will be accepted by the court clerk as liquidated damages [which means a fixed amount, as opposed to unliquidated damages, which requires a judge to fix the amount].

    Of course if you pick some off the wall number you may have some problems in some courts.  What comes to mind is a client I had who installed large systems, on lease, who put in very large numbers on the "agreed value".  These values were often $100,000 or more [where perhaps equipment components were $5000 to $10,000].  In contested judges accepted and enforced the "agreed value" with not much explanation, because the subscribers were always sophisticated commercial businesses and the Judge held them to the contract they signed.

    In other cases, more likely consumer cases, judges are likely to permit a challenge to the valuations, particularly where the valuation is beyond justification or reason.

    Bulls and bears make money; pigs don't.

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cut throat competition - offering retail subscribers wholesale monitoring charges

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Comment:

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Ken,

    Your newsletters are great! Thank you for facilitating these discussions.

    I had some input for everyone concerned about the $4.95 direct alarm. We are an alarm company out of GA and one of my employees did some research on that company about a year ago. The contract is 5 years. You pay for all 5 years up front. If you have an existing system you pay a $200 activation. To get a system installed is full price with a healthy markup most of us don't. BUT the real key is the signal charges. If your alarm goes off for any reason false alarm or real there is a charge of $20+. If you don't like it cancel (you've already paid for 5 years up front)! Most people make their money somewhere. They just don't make it on the monitoring. It isn't how I would run my business, but I guess it works for them. Either way, once you understand the real business model, you realize there is not that much to be afraid of.

Thanks!

Josh Nickell