Common Contract Issues
It's your legal team's jobs to find a way to make your contracts work for you and foster your business. So saying that, there are a number of legal issues that your legal team will need to overcome. Every business deal comes with some risk, but the question becomes "what is an acceptable level of risk and do you want to take it?" Some issues that you and your legal team should pay particular attention to are: who are the parties, what is the product, where does the liability rest and is it limited, is your company facing indemnification obligations and how steep are they, and what are the conditions on performance. Every contract is different based on the product or service being contracted, the conditions and timing of performance, service hours, urgency, quality and price, whether the product is customized or mass-produced, and other aspects particular to your engagement.
Who are the parties: When considering the individuals and entities listed on the contract as a party, pay special attention to whether or not affiliates are covered by the contract. If you're actually working with subsidiaries and commonly owned companies, you should consider what the definition of "affiliates" includes, as the typical definition does not include commonly-owned companies. Ensure that the correct parties are listed or included in the contract or you may find it difficult to enforce the contract against the party.
What is the term of the agreement: The time span of an agreement can have a massive impact on the enforceability of your claims, if it comes to that. Consider whether your agreement renews automatically, how it can be terminated, penalties for early termination, and what happens when the agreement is terminated.
What is being exchanged: Is your agreement clear and concise? Have you specified the levels of performance or minimum criteria that an acceptable product would require? Are the conditions of performance clear? Is there a force majeure clause to protect you in case of a natural disaster that bars performance? Would the agreement be a clear understanding to a third party not engaged in the same industry without an explanation? Be sure to define all of these factors throughout the agreement.
Timing of performance. Does the agreement specify due dates for performance, payment, updates, key meetings, or other key elements you require? Is there a penalty built in for delays? Will interest be applied to late payments?
What is included in your agreement: Have you incorporated all the terms from your previous discussions into the final agreement? Does your agreement have an integration clause, stating that the agreement is the final expression of the terms between the parties and exclude all other discussions the parties previously participated in? The parole evidence rule may prevent you from submitting evidence of previous conversations if the agreement is integrated. Take special note of the change procedures specified in the agreement, whether it needs to be written or signed.
Who is assuming the risk: Contracts are always fraught with language allocating and disclaiming risk, including specifying warranties, terms and conditions, service levels, limitations on liability, exclusion of damages, etc. A well written agreement will remove as much liability as possible from yourself and will limit the liability to only acts that you are directly responsible for. Accepting liability for actions you didn't perform or products you didn't provide is not in generally in your best interest. Be wary of language that provides for joint and several liability between you and other parties that you did not hire or employ, such as other vendors providing the same product or service to the same customer.
Who owns the intellectual property: For many companies, the value of having a product custom-made or manufacturing the product themselves, whether it is tangible or intangible, is ownership of the intellectual property rights. When negotiating a contract, consider what is being created, if it a custom design or an existing product, what you intend to do with the product, and whether you want sole ownership.
Who is bound by confidentiality. When engaging in discussions for the development of products or provision of services, you may encounter some difficulty having conversations freely when you're trying to preserve the integrity of confidential information. Non-disclosure agreements or confidentiality clauses in other agreements can help you preserve the integrity of the information and allow to have the conversations necessary to foster your business.
How are disputes to be resolved. Would you prefer to go to arbitration, mediation, or escalation? Where will dispute resolutions be litigated or conducted and which law will apply? Will attorneys' fees be awarded to the prevailing party? Do you believe equitable remedies are called for in your situation, rather than just damages?
Contract language can be tricky and in order to be sure that you've worked out all the nuances, you must pay attention to the detail of the contract. Contact us today for assistance reviewing or negotiating your contract. Let us help you get your business moving!
