Anytime two organizations want to work together, it is important to establish agreement terms, responsibilities, boundaries, and payment conditions. Two parties cannot work together without a contract, which they consider mutually beneficial to the partnership. Managing data contracts is not easy, and there are several pitfalls that folks in our industry commonly fall into. Here are the top three:
1. Believing that the Language is "Standard" and that Terms are Non-Negotiable
Unfortunately, the Energy Software industry is famous for creating ambiguous contracts that leave buyers to make assumptions about their services, terms, and conditions. Often, this leads to misunderstandings or misinterpretations and operational risks for the buyer. To avoid these issues, review the contract with all internal stakeholders (Engineering, Geology, Land, Business Development, Data Science, I.T) and recommend an agreement that specifically fits your organization's needs. Don't let them tell you that it is non-negotiable. It's always negotiable.
2. Auto-Renewal Clauses
Most software and data contracts in our industry come with standard auto-renewal clauses. This can be a highly effective way to help manage the agreement without having to go through the process of renegotiating every cycle. However, a dynamic contract review process should be in place regardless of the organization's size. The review should provide you with the details about the terms of the extension and what is necessary should you wish to terminate the agreement. It is not uncommon for data providers to hold the buyer to a 90-day notice period for cancellation. Miss this deadline by one day, and you are locked in for another year. Make sure to fully understand the "how and when" around the renewal language and your responsibilities should you decide to terminate, including any "data purge" obligations.
3. Forced Price Increases
As stated above, auto-renewals and multi-year contracts are common in the Energy Software industry. These agreements generally come with price incentives for the additional years. However, it is not uncommon for data providers to remain ambiguous on pricing in years two and three. This ambiguity often leads to excessive annual price increases for the buyer, which they are forced to accept under the multi-year agreement. Negotiate a fixed percentage or cap so that both parties enter a new relationship with high visibility on maximum annual spend.
I hope that these tips on potential pitfalls help you navigate the data landscape in the Energy industry. While we will always stop short of giving legal advice, the team at WellDatabase is always open to discussing these and other topics at any time. We are always transparent and will give the best direction to help our industry friends.