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Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: www.buchananingersoll.com Anatomy.

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Presentation on theme: "Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: www.buchananingersoll.com Anatomy."— Presentation transcript:

1 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Anatomy of a Contract – A Workshop on Contracting for Independent Contractors Presentation for the Corzo Center for the Creative Economy at the University of the Arts December 6, 2011 Francis X. Taney, Jr.

2 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Anatomy of a Contract Some key features of contracts Scope of work Warranties and performance standards Intellectual property ownership Payment provisions Restrictive covenants Limitations on damages Dispute resolution provisions

3 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Anatomy of a Contract Understanding the purpose of key contractual provisions Drafting techniques Identifying potential problem areas Balancing and allocating commercial and legal risks

4 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Scope of Work Example: “In exchange for payment of the fees referenced in the Fee Schedule, Contractor will perform the services described in the Scope of Work attached as Exhibit ‘A.’” Goal - Clearly describe the nature of the work required to be paid

5 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Scope of Work Know your audience - the fact finder Produce clarity, and eliminate ambiguity Describe items of work objectively in plain English Depict subject matter graphically where possible Define jargon and technical terminology Define areas of responsibility Address key assumptions

6 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Scope of Work Depict subject matter graphically where possible: “The website landing page and subpages shall have a look and feel substantially in accordance with the conceptual sketches attached to this Exhibit A.” Define jargon and industry terminology

7 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Scope of Work Define areas of responsibility: “Upon contract execution, Customer shall provide the following items of information with respect to its customers: [_____]. Contractor shall import this information into the CRM application.” Address key assumptions: “Customer shall make its Chief Financial Officer available to Contractor to discuss end user requirements on or before 12/31/11.” “Customer shall allow Contractor access to Customer’s production environment during the hours of 9 am to 4 pm, Monday through Friday, during the term of this Agreement.”

8 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Scope of Work Use an integration clause: “This Agreement together with the terms of the Proposal constitutes the entire agreement between the parties with respect to the Programs and shall supersede all previous proposals, both oral and written, negotiations, representations, commitments, agreements, and all other communication between the parties concerning the Proposal.”

9 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Scope of Work Don’t merely incorporate a proposal containing sales and marketing speak: “Our application is lightweight and scalable” “Our application is simple to configure” Avoid imprecise language in addressing allocation of responsibility and key assumptions: “Customer will cooperate with Contractor...” “Customer will facilitate the transfer of information...” “Contractor will partner with Contractor...”

10 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Warranties and Performance Standards “Contractor will perform the Services in a good, workmanlike and professional manner in accordance with the Specifications attached as Exhibit B.” Goal - Clearly define how well you have to perform to be paid

11 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Warranties and Performance Standards Use underlying business need as starting point for standard, and seek objective criteria/functionality: “The application shall allow 10 concurrent users.” “The application shall complete 10 transactions per minute” “The application shall experience no more than 1 hour per month of unplanned downtime.”

12 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Warranties and Performance Standards Confine and limit express and implied warranties: “THE WARRANTY HEREIN IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, WHETHER STATUTORY, ORAL OR WRITTEN, EXPRESS OR IMPLIED. CONTRACTOR HEREBY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.”

13 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Warranties and Performance Standards Integration clause Limit your downside for failing to meet the standard Notice and opportunity to cure Repair and replace

14 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Managing Changes in Scope Changes in scope result from changes in the time, cost, amount or difficulty of performance Expressed in terms of changes in compensation, and changes to the project delivery schedule Goal: Put mechanisms in place to minimize the disruption caused by changes in scope

15 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Managing Changes in Scope Include change order clause: “In the event that Customer requests or directs Contractor to perform work in addition to the Scope of Work, this work shall be the subject of a Change Order. The parties will Seek right to cease work until disputes over scope are resolved: “Contractor may cease work in the event that the parties cannot agree that a Change Order is appropriate, or upon the cost or schedule adjustment associated with a Change Order.” Negotiate change order items up front where possible: “In the event of Change Order requiring Contractor to expend additional time, the change order rate shall be $50 per hour.”

16 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Managing Changes in Scope Provide for periodic documentation of progress: “Contractor and Customer shall conduct a weekly conference call to discuss the progress of the project. Contractor shall create written minutes of the items discussed during the weekly conference call and provide a copy of the minutes to Customer for review and supplementation and/or correction, if applicable, at the subsequent weekly conference.” Do not hold back on change order claims Document problems as they arise

17 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Protecting Intellectual Property The main varieties of intellectual property are patents, copyrights, trademarks and trade secrets, and each come into being and are protected differently Goal: Ensure that the scope of the rights you retain and transfer are consistent with value you receive and the needs of your business

18 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Protecting Intellectual Property Appreciate the difference between licensing and conveyance of ownership Obtain clarity on scope of permitted and prohibited behavior Match value of what you license or give away to your compensation

19 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Protecting Intellectual Property Sample provision pertaining to intellectual property (part 1): “Customer expressly acknowledges and agrees that Customer shall not have or acquire, solely by this Agreement, any rights, claims, or other ownership interests, legal, equitable or otherwise, in any patent, copyright, trademark, service mark, design concept, software right, methodology, or other, similar intellectual property right in any goods or services used by Contractor and or provided to Customer pursuant to this Agreement. Customer shall have access to all source code and documentation used within this scope of work for the Application). The Customer will not have ownership of, nor access to, any Contractor source code for the Application (the “Contractor Source Code”), and Customer may not duplicate, translate, disassemble, decompile, reverse assemble or reverse engineer all or any portion of the Contractor Source Code.”

20 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Protecting Intellectual Property Sample provision governing intellectual property (part 2): “Rather Contractor shall grant Customer a perpetual, non ‑ transferable, non ‑ exclusive, royalty ‑ free license to use the compiled code for the Application. Nothing in this Agreement shall transfer or be deemed to transfer to Customer ownership of any patent, copyright, trademark, service mark, design concept, software right, methodology, or other, similar intellectual property right, and Contractor expressly retains all right, title and interest in and to such property. Except as otherwise explicitly set forth in this Agreement, and on the express condition that Customer not be in default of any provision of this Agreement, Customer's sole rights in such property shall be limited to the grant by Contractor to Customer of a perpetual, non ‑ transferable, non ‑ exclusive, royalty ‑ free license to use such property.”

21 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Minimizing Difficulties in Obtaining Payment Contracts should specify the timing of payments due to the contractor in exchange for the production of deliverables or the demonstration of progress Goal: Maintain balance between payments and the delivery of value and the expenditure of resources and avoid ambiguity as to criteria for payment

22 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Minimizing Difficulties in Obtaining Payment Do not let the customer get "ahead of you" Negotiate objective criteria for entitlement to payment Credit is for customers who have earned it

23 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Minimizing Difficulties in Obtaining Payment Spell out right to terminate upon failure to make timely payments or disputes over entitlement to payment "Possession is nine tenths of the law" Condition conveyance of IP rights on full payment

24 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Non-Competes and Restrictive Covenants Non-compete and restrictive covenant provisions limit a person or a company from performing certain kinds of work or work for certain customers for a specified period of time Goal - Avoid undue restrictions on your ability to make a living and benefit from your experience

25 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Non-Competes and Restrictive Covenants The three key dimensions of a restrictive covenant are typically time, geography and field of endeavor Measure value of the current opportunity versus the value of the work that is foreclosed

26 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Non-Competes and Restrictive Covenants Negotiate for clarity and objectivity on prohibited activities off limits customers time

27 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Non-Competes and Restrictive Covenants Sample restrictive covenant provision: “Contractor agrees that for the term of the Agreement for one year thereafter, Contractor will not provide Competitive Services to any post-secondary educational institutions within Philadelphia County. For purposes of this agreement, “Competitive Services” shall mean the installation, modification, implementation, development or support of any customer relationship management software.”

28 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Remedies/Damages Remedies refer to the relief a party may obtain in the event of a breach by the other party Remedies include monetary damages but may also include non-monetary items Goal: Do not undertake liability that is unreasonable in light of the technical and commercial circumstances

29 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Remedies/Damages Attempt to limit or exclude consequential damages and to cap overall liability Consider effect of indemnification Offer remedies other than monetary damages

30 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Remedies/Damages Sample provision limiting damages and remedies: “SUBJECT ONLY TO THE WARRANTY PROVISIONS HEREIN, THE EXTENT OF CONTRACTOR'S LIABILITY UNDER THE WARRANTIES AND REPRESENTATIONS SET FORTH IN THIS AGREEMENT, TO THE EXCLUSION OF ALL OTHER REMEDIES IN CONTRACT, TORT, OR OTHERWISE, SHALL BE LIMITED TO THE CORRECTION OR REPLACEMENT OF ANY DEFECTIVE ITEM(S) OR ERRORS IN THE DELIVERABLE, AS APPLICABLE, AT CONTRACTOR’S OWN COST AND EXPENSE, PROVIDED WRITTEN NOTICE OF SUCH DEFECTIVE ITEM(S) IS GIVEN TO CONTRACTOR DURING THE WARRANTY PERIOD.”

31 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Remedies/Damages Specify availability of injunctive relief: “Customer agrees that his obligations provided in this Agreement are necessary and reasonable in order to protect Contractor and its business. Customer acknowledges that there is no adequate or complete remedy at law, including damages, for the disclosure and/or use of Confidential Information by Customer in violation of this Agreement and that, in addition to any remedies to which Contractor may be entitled at law, Contractor shall be entitled to seek injunctive relief and other equitable remedies in the event of such violation.”

32 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Remedies/Damages Consider using liquidated damages to address situations where damages are difficult to prove: “In the event that Contractor is unable to deliver the Application on or before the due date, Contractor shall pay Customer liquidated damages in the amount of $___ per day.”

33 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Dispute Resolution Dispute resolutions typically address the dispute resolution mechanism, choice of forum for dispute resolution, and choice of applicable law Goal: Negotiate provisions that minimize the burden and disruption of dispute resolution

34 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Dispute Resolution Three options for dispute resolution are litigation, arbitration and mediation All vary in numerous important dimensions, but mediation is typically cheapest and least disruptive to the relationship

35 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Dispute Resolution Forum for dispute resolution affects cost and difficulty of litigation Effect of choice of law provision hard to predict in advance

36 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Dispute Resolution Consider the potential affect of these provisions and attempt to obtain terms favorable for your circumstances. One potential example: “This Agreement shall be deemed to have been made in The Commonwealth of Pennsylvania, and shall be governed by and construed in accordance with the laws of The Commonwealth of Pennsylvania, exclusive of its rules governing choice of law and conflict of laws. All disputes arising under or relating to this Agreement that cannot be resolved amicably, other than claims for injunctive relief, shall be resolved by binding arbitration before the American Arbitration Association, by a single arbitrator, in Philadelphia, Pennsylvania.”

37 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: In Conclusion Each project or relationship requires individualized consideration, planning and management Draft contracts with your ultimate audience in mind Put in the effort on the front end to avoid costly problems on the back end Being right isn’t always enough if you haven’t been clear Address problems sooner rather than later to keep them small Be prompt and straightforward in your communications with your contractual partner

38 Pennsylvania :: New York :: Washington, DC :: Virginia :: New Jersey :: Florida :: Delaware :: California :: Ohio :: Contact Information Francis X. Taney, Jr. Buchanan Ingersoll & Rooney PC Two Liberty Place 50 S. 16 th Street, Suite 3200 Philadelphia, PA Phone: (215) Facsimile: (215)


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