How are fees charged? – Time and materials – Fixed fees – Not to exceed When are fees billed? – Monthly, quarterly, milestones – In advance or in arrears Try to avoid payment in advance! Payment Terms – Time periods (net 30, net 45) – Invoicing requirements
Define Term of Agreement – Fixed term contract, or a term that tracks completion of all statements of work – Right to renew or renewal by mutual agreement Caution! Look out for evergreen contracts that automatically renew unless a party gives the other prior written notice to terminate prior to expiration. – If deadline is missed, will commit you to another year under a contract. – Try to revise to renew only “by mutual written agreement.” – If supplier insists on automatic renewal, try to negotiate right to terminate with thirty days’ [or a longer period’s] notice anytime after first year.
To perform the services described in the SOW To meet a standard of care – Professional – Industry standards – In accordance with service level agreements To provide key personnel to a project Caution: Avoid “reasonable efforts” or “endeavor” language
Include independent contractor provision – 2009 Colorado law cracked down on misclassifying contractors ($5,000 fine first offense; $25,000 second offense; liability for back taxes) – Note: other “tests” applicable – contract provision alone won’t save you! Subcontractors – Is supplier allowed to subcontract the services? – Does customer require right of approval of subcontractors.
Compliance with Laws: Make sure supplier is responsible for compliance with all applicable laws and obtaining any necessary licenses or permits to provide the services. Compliance with Policies: Supplier should agree to comply with Customer’s internal policies, including: – Safety and Security – Procurement and Ethics – Expense Reimbursement
What is warranted? What is the warranty period? What triggers the start of the warranty period? What remedies are provided if the product or services does not meet the warranty? Who chooses the remedies (supplier or buyer)? If all other warranties are disclaimed, consider if warranty provided is adequate.
LIMITED WARRANTY. SUPPLIER WARRANTS TO BUYER THAT THE PRODUCT WILL PERFORM SUBSTANTIALLY IN ACCORDANCE WITH THE TECHNICAL SPECIFICATIONS PUBLISHED IN THE MANUALS ACCOMPANYING THE PRODUCT FOR A PERIOD OF NINETY DAYS FROM SHIPPING. FOR ANY PRODUCT THAT DOES NOT MEET THIS WARRANTY, SUPPLIER’S ENTIRE LIABILITY, AND BUYER’S SOLE REMEDY, SHALL BE, AT SUPPLIER’S OPTION, EITHER (I) RETURN OF THE FEE FOR THE AFFECTED PRODUCT, (II) REPAIR OF THE PRODUCT, OR (III) REPLACEMENT OF THE PRODUCT WITH A NEW COPY OF THE PRODUCT. ANY UNAUTHORIZED MODIFICATION BY BUYER OF THE PRODUCT SHALL VOID THIS WARRANTY. except for the limited warranty provided above, the product is provided “as-is” and supplier DISCLAIMS ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND MERCHANTABILITY, IN CONNECTION WITH THE SOFTWARE PRODUCT.
Definition: a property right that can be protected under federal and state law, consisting of creations of the human intellect, such as discoveries, inventions, brand names, formulas, inventions, software, and works of an artistic, literary, or musical nature. Deliverables created by a supplier typically constitute intellectual property.
If a contract does not address the ownership of intellectual property, the law provides that the creator owns the creation. In other words, silence means the supplier owns the IP! Determine whether your company needs ownership of intellectual property created by a supplier in connection with services provided to you. – Is there a competitive advantage to owning the IP? – Do you care if a supplier provides IP created on your project to another customer? Consultants will push hard to retain ownership of all IP. As a fallback: – Retain ownership of all IP created that is specific to your company. – Require a perpetual, fully-paid license for your company to use the IP provided by a consultant.
What is it? Allocation of risk between the parties. Indemnifying party typically agrees to cover all losses incurred by the other party as the result of certain defined risks: – Any losses arising from negligence of indemnifying party – Any loss arising from breach of the contract by the indemnifying party – Any loss arising from the acts or omissions of the indemnifying party – Any loss pertaining to infringement claims (covered below) – Define to include reasonable attorney’s fees and court costs
Intellectual Property infringement means that the intellectual property rights of another party (typically copyrights, trademarks, or patents) have been violated Most frequently a concern in software licensing where litigation has been most prevalent (“Patent Trolls”) Protect your company by requiring a supplier to indemnify you for infringement claims arising from the supplier’s products, services or deliverables.
If the Supplier will have access to your Company’s confidential information, be sure contract includes a requirement that they protect the confidentiality of such information. Privacy laws may apply to certain types of data or information that identifies or provides information about individuals. Make sure the supplier agrees to comply with privacy laws in their handing of data involving your employees, customers, or other individuals.
Provide for your rights and remedies if a supplier breaches the contract. – Be careful if the supplier wants to limit a breach to a “material” breach. – If supplier requests a right to cure a breach, limit the cure right to one time per year.; – Provide for remedies in the event of a breach, such as a right to terminate and the right to hire another supplier to complete the work at the first supplier’s expense.
Almost all Suppliers will require a limitation of liability in the Contract. There are several types of limitations of liability: 1.Limitation for Actions a.Example: “In no event shall Supplier be liable for any damages or loss caused by a defect in the Product” b.Example: “In no event shall Supplier be liable for lost data” 2.Limitation on Damages a.Type of Damages: Direct, indirect, consequential, lost profits, incidental, punitive, special, exemplary, enhanced, trebled b.Amount of Damages: Liability limited to fees paid or some other dollar amount
Determine how a supplier could hurt your company (damages) if they don’t perform. Negotiate a cap on liability that will protect your company. It may be a multiplier on the fees (2X fees, 5X fees) or a specified dollar amount. Negotiate carve-outs from actions by the supplier that should not be subject to a cap:
Nothing in this Agreement limits or excludes the liability of either party: for death or personal injury; for any damage or liability incurred as a result of willful or intentional misconduct, fraud or fraudulent misrepresentation; for any damage or liability incurred as a result of gross negligence; for any damage or liability incurred as a result of the infringement of any third party rights or breach of confidentiality obligations; for indemnification obligations (language courtesy of Molson Coors)
1.With Cause: a.Need a reason for termination b.Reasons may be specified in the Contract i.Supplier’s failure to perform ii.Supplier’s failure to comply with contract requirements iii.Bankruptcy or insolvency c.May terminate even if contract is silent d.Check contract for any notice/cure rights 2.Without Cause: a.Must be stated in contract b.No need for reason to terminate c.Check contract for notice period
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