Texas had proposed legislation that restricted a contract automatic renewal clause, which I had posted on my web site. That proposed legislation never made it to law; there is no law in Texas restricting the enforcement of an automatic renewal clause [at least that I can find]. States with such laws can be viewed at http://www.kirschenbaumesq.com/autorenewal.htm
A case just decided by a Texas Appellate Court involves automatic renewal and liquidated damages. Here are the facts quoted directly from the decision:
"This is a contract dispute involving the enforceability of a liquidated damages provision."
"On March 26 and April 29, 2003, Data Foundry and Si2 entered into written contracts under which Data Foundry would provide certain internet-related services in exchange for a monthly fee. The initial term of each contract was 36 months. In addition, the contracts provided for an "automatic renewal" for an additional 36-month period unless Si2 gave Data Foundry written notice of termination at least 90 days prior to the end of the term. In the event that Si2 terminated the contracts at any other time, the contracts provided for a "contract termination fee" payable to Data Foundry equal to "the remainder of the balance of the contract term, at the contracted rates."
Si2 [the "subscriber"] obtained a lower rate and canceled the contract, but not until the contract automatically renewed. Date Foundry sued for its liquidated damages, which in this case was the full payments due under the contract - in other words - a full acceleration of the payments through the end of the contract's renewal period.
The automatic renewal clause was not really an issue; the parties basically agreed that the cancellation notice was late and that the contract renewed for an additional term. The Court makes no mention of any legal restriction regarding this clause.
The issue was the enforcement of the liquidation of damages clause. The subscriber claimed that the clause is void and unenforceable as a penalty, no real liquidated damage clause.
"Whether a liquidated damages provision ... is an enforceable contractual provision or an unenforceable penalty is a question of law. ... However, factual issues may need to be resolved before the legal question can be decided."
"To find a liquidated damages provision enforceable, a court must find that (1) the harm caused by the breach is incapable or difficult of estimation, and (2) the amount of liquidated damages called for is a reasonable ... forecast of just compensation.... The difficulty of estimation of harm must have existed at the time the contract was executed...."
You can read the case in its entirety at http://www.kirschenbaumesq.com/texas7.htm
The subscriber had expert testimony that Data Foundry's damages were in fact capable of estimating, so that liquidation damages were not appropriate. Data Foundry did not offer any proof to refute that testimony, instead taking the position that it was entitled to the contract liquidation damages; full acceleration.
The Court found that the liquidation damage provision was an unenforceable penalty. Since Date Foundry relied solely on that clause the lower court's decision granting no damages was affirmed on appeal.
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Couple of lessons to be learned:
First, the Standard Alarm Contracts provide a liquidation damage clause of 80% of the balance due on the contract, a figure far more acceptable to Judges.
Second, in litigation you should not just rely on that provision, but offer testimony that your damages are at least what the liquidated damage clause provides. In alarm cases the cost of providing the service can sometimes be determined, but not always. A dealer providing monitoring and subcontracting that service out would have a fixed expense [the amount paid to the central station and postage to send bills], but a dealer who is also the central station would be able to testify that there is truly little if any expense identifiable to service a single subscriber, maybe a charge from a communication carrier. Offer testimony to establish your damages, don't just rely on the liquidation of damages clause.
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Comments on IQ Certification Program
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Ken;
In response to your recent headline “IQ Certification Program answer to poor workmanship and trunk slammers?”, and Ms Sokol’s comments, the IQ program does not guarantee quality work.
Only if the company and the employee themselves take pride in what they do, and in some states like Florida, understand that they can be held criminally liable for poor workmanship and code violations will the quality of the work improve.
IQ simply indicates a compliance with a training requirement. From my experience in performing training I can state that those who had a desire to do better, paid attention to the nuances and the detail during the training and then went back and implemented what they learned performed better.
I have gathered dozens of photographs from installations from IQ certified companies, and those that aren’t. The deficiencies are evident and evoke laughter during my classes when shown to the attendees. Yet no one ever admits to doing that type of work, but somebody must be.
I believe IQ is a step in the right direction, just as 5 Diamond is, and other certifications. But without follow up and enforcement of the standards, all it is, is a plaque to hang on the wall.
Roy Pollack
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Ken
With regards to any alarm companies customers.
They are only YOUR customers as long as you BOTH have written AND implied agreement in force. If the level of service meets or exceeds that expected, the relationship has a monetary value to both parties. Value vrs performance
Nothing can prevent another alarm company from approaching anyone's customers looking for business. A dissatisfied customer will accept the opportunity to go with another company and I might add not, always at a lower price. The satisfied customer will have no reason to change.
Respectfully,
John W. Yusza, Jr.
President
Monitor Controls, Inc.
Wallingford, CT
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Ken
Just a general reminder to all in the industry... once you sell the panel/camera/widget and get paid for it, it is not "yours" anymore. It is the customers equipment and he/she can use whoever they want to service it and can do whatever they want with it. If you desire to still own it, you could lease it to them and then you would have better control over it.
Edward J Newman
Vice President
Universal Security Systems, Inc.
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Ken
Certification program may not guarantee quality or even worker's behavior on the job site. The company may be certified or the owner or manager passed the test, but rest of the crew doesn't even know there is any certification in place. I doubt there is any precise measure of quality when choosing vendor or contractor. Speak with some locksmith guys or other similar trade workers on the jobsite when you see them installing cameras or alarms. Their boss treats them like slaves, cheats them on salary, setting unrealistic installation time, etc. You can't get any quality under these conditions. Some cable TV, dish, and phone VoIP guys get 8 installation jobs in one day. You can't even drive to 8 locations and find parking in 8-hrs day - never mind drill brick walls. These guys just drop coax from the roof and stick it in through window. Guess what. These big companies are licensed, and have every certification and training under the sun.
Dusan
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Dear Ken,
I enjoy reading your articles and appreciate the effort you put into them. This is in response to Deborah Sokol's suggestion concerning IQ certification. In my humble opinion, IQ certification is one of the bigger scams in the alarm industry. We've been a Brinks (now Broadview) dealer for five or six years now, and have been IQ certified for that entire time because it's always been a Brinks requirement. Meanwhile, during that period, my company was not provided with or even offered any training from IQ. They have never inspected a single one of our installations. How it works is this: we paid a $500 fee the first year and $250 each subsequent year and we're magically IQ certified, with the authorization to use their logo, etc.
Like many small companies, we pride ourselves on quality work. Rather than buying certification, I feel it's better to send your installers to actual training. ESA has affordable, quality training available in most states.
GB
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Hi Ken,
Regarding the IQ Certification Program, this has been around for quite some time now and really hasn't been too successful, in my opinion. I'm sure it's meant to be akin to the " Good house keeping seal of approval" but just doesn't have the dollars behind it to promote it to the public. I believe it's lack of success is because it is perceived by installation companies as just another "good ol boys club" Something like a franchise or dealership program. Which, as we all know, there are some who like to "join" and the majority, who don't like to be "joiners"
When is the last time anyone reading this, making a proposal to a prospective customer and they asked you if you are an IQ certified installation company? And even if you offered it to them that you were IQ certified, does anyone really think that the sale would hinge on that? The general public hasn't got a clue what IQ certification is. And if you are certified, and promote that to the customer, they only have your word that it's really something that has any meaning. If anyone asked me, it would take me about two minutes to dispel any merit the program says they offer. Like, ------ Just because someone belongs to a group that they pay to join, doesn't mean they know what they're doing or that they do, in fact, do better work than anyone else. It just means that they've paid a fee to join a group that will say that they are certified. What ever that means.
In my opinion, installation companies would rather spend their brief window of opportunity trying to sell their services, product knowledge and installation expertise, not the validity of a quality certification program.
Gene
Reliable Alarm