South Africa: Navigating The Risks And Rewards Of Engaging With ICT Product Resellers

In the rapidly evolving landscape of the Information and Communications Technology (“ICT”) industry, businesses are constantly seeking efficient and cost-effective solutions to meet their technological needs. One avenue many companies explore is engaging with ICT product resellers. While these resellers can offer benefits such as great commercials and access to a wide range of products, it is crucial for companies to be aware of the potential risks and rewards associated with this type of engagement.

Quality and authenticity assurance

One of the primary risks when dealing with ICT product resellers is the potential compromise in product quality and authenticity. Some resellers may source products from unauthorised channels, leading to the distribution of counterfeit or substandard goods. This not only poses a threat to the efficiency and reliability of the ICT infrastructure but also exposes the company to the risk of no manufacturer warranties on the products, bad or lack of after-sales support, third-party IP claims and security vulnerabilities.

However, although the above risks are present, reputable resellers often serve as gatekeepers for high-quality products. Many resellers work closely with original equipment manufacturers (“OEMs”) and are authorised to distribute their products. By carefully choosing a trusted reseller, businesses can gain access to genuine, reliable ICT products that meet their specific needs.

To mitigate risks, businesses should conduct a thorough vetting of resellers during the quotation or bidding process, ensuring that they are authorised by the OEM to resell their products. Requesting certifications and warranties for the products being purchased can provide an added layer of assurance.

• Beware of hidden costs

Engaging with ICT product resellers can provide significant cost savings compared to purchasing directly from OEMs. Resellers often negotiate bulk deals, passing on the discounts to their clients. Additionally, resellers may offer flexible payment terms and financing options, allowing businesses to better manage their budgets. However, some resellers present seemingly attractive deals upfront, only to include hidden costs later in the transaction process. These hidden costs could include shipping fees, licensing fees, or additional charges for support and maintenance.

To reduce the risk of hidden costs, companies should engage in transparent negotiations and clearly define the terms of the agreement, including all associated costs. This proactive approach can help businesses capitalise on cost savings while minimising the risk of unexpected financial implications.

• OEM terms

 An overlooked risk commonly associated with reseller engagements is the possibility of hidden terms within the OEM's End-User License Agreements (“EULAs”). EULAs are legal agreements that outline the terms and conditions under which the end user can use the software or hardware. The OEM's EULA is often incorporated by reference into the reseller agreement (see our point below on hyperlinked terms). While EULAs are standard in the software industry, the complexity and potential impact of these agreements can introduce risks when engaging with resellers.

Businesses may find themselves subject to specific terms, restrictions, or licensing conditions outlined by the OEM, which are not always transparent during the procurement process.

Terms that sometimes raise compliance issues include:

• Restrictions on the number of users,
• Geographic locations, or the transferability of licenses;
• Clauses that trigger additional costs based on factors such as usage metrics,
• Growth in the number of users, or changes in the organisation's structure.

Unlike dealing directly with the OEM, where businesses may have some leverage to negotiate terms or seek modifications to the EULA, engaging with a reseller can limit the business's negotiation power. Resellers typically act as intermediaries and may not have the authority to alter or negotiate the terms set by the OEM.

To mitigate this risk, businesses should proactively seek transparency regarding the OEM's EULAs from the reseller prior to finalising any agreement. Additionally, efforts should be made to negotiate directly with the OEM whenever possible, ensuring that the organisation has a clear understanding of and can comply with all terms associated with the purchased ICT products.

• Keep an eye peeled for hyperlinked terms

A noteworthy risk arises from hyperlinked terms within reseller agreements. Customers often neglect to click on these hyperlinks, potentially missing crucial information regarding obligations, compliance requirements, or unexpected conditions. Businesses should ensure a meticulous examination of hyperlinked terms to mitigate the risk of inadvertently agreeing to terms that could impact the business negatively.

• Expertise vs Accountability

Resellers are often experts in their field, possessing in-depth knowledge of various ICT products and solutions. Businesses can leverage such expertise to receive tailored recommendations based on their specific requirements. Resellers can assist in identifying the most suitable products, configurations, and technologies to optimise the organisation's ICT infrastructure.

However, dealing with a reseller rather than directly with the OEM can sometimes result in a lack of accountability. If issues arise with the purchased products, the reseller may not have the same level of responsibility or capability to address and resolve problems as the OEM would. This can lead to delays in support, troubleshooting, and issue resolution, impacting the company's operations.

Another related risk is ensuring that the OEM's contractual terms are “passed through”, where appropriate. “Passing through” refers to the process of flowing certain contractual terms down to the customer, such as Service Level Agreements (“SLAs”), support policies, and warranty terms. Essentially, it involves ensuring that the commitments and guarantees made by the OEM are effectively conveyed to the customer through the reseller.

Businesses should carefully review the reseller's SLAs and support and warranty policies to confirm that the terms and conditions promised by the OEM are clearly articulated in the reseller's agreements with the customer. It is advisable to choose resellers with a proven track record of customer support and those who are committed to facilitating communication between the customer and the OEM when necessary.

Summary of practical tips:

• VET potential resellers thoroughly to ensure that they are authorised by the OEM to resell their products;
• ENGAGE in transparent negotiations and clearly define the terms of the agreement, including all associated costs;
• REQUEST the OEM's EULAs or other relevant terms or policies from the reseller prior to finalising any agreement;
• CONSIDER the option of negotiating with the OEM directly; and
• REVIEW hyperlinked terms, and the reseller's SLAs and support and warranty policies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.