A deadline for a project is looming, you have only just been involved in the contracting process, the proposed contract just landed in your inbox for the first time, and the order comes that it needs to be finalised by … yesterday.
Hold the bus. All is not lost. Read on for our 5 minute checklist of what to look out for in contracts, so you can give your approval and still be out the door in time for dinner…
Pens at the ready, here is your guide of what to check:
- Key responsibilities and service levels/KPIs
Be clear about the key responsibilities, exactly what is required, how it will be delivered to you, the standard that is required, and any reporting required – and be clear about what the remedy will be if any of these items are not met.
Many times we find that key responsibilities, and detail relating to the required performance of a supplier, are deemed to be the most important parts of a contract, yet are given very little attention.
Also ensure that you include a remedy to apply if these requirements are not met. If you want a right of termination for an underperforming contract, make sure you clearly specify that.
- Timing and deadlines
If timing is going to be important, then you must specifically deal with this in the contract. Ensure there is a very clear timeline – and a right of termination (or adequate other remedies for you) if deadlines aren’t met.
- IP ownership
If there is no mention in the contract of who owns the copyright and other intellectual property in the work produced for you, then it is likely that the supplier will be taken as owning the underlying rights, whilst the customer will hold a licence to the use of the works.
In simple terms, in relation to services, this means that if you (as the customer) want to use the work again in the future, you might have issues, or have to pay an extra fee.
There are often reasons why this might be fair and reasonable. There are also often reasons why at times it isn’t. If you aren’t sure – call us. We will give you a balanced view, and ways to deal with it in the contract. Or stay tuned for future editions where we will delve much deeper into this issue and the options for a commercial outcome for both parties.
- Capturing pre contract negotiations and promises
You must ensure you correctly capture any pre-contractual promises that may have been made during the negotiation process. Often a decision will be made to accept the proposal of one supplier over another because of the performance promises made during the negotiation phase. However it is extremely common for these promises to fail to make it to the contract, or to not be included in a way that is enforceable.
You should ensure that comprehensive notes are taken during the negotiation phase, including everything the other party has promised. And that these notes are then used as a checklist for inclusion of appropriate terms in the contract (together with remedies for a failure of the contracting party to meet these terms).
- Indemnity and risk allocation clauses
We often see indemnity clauses that are inappropriate for the contracting relationship that they are used in.
Start off with a consideration of what risks there are for both parties in this relationship, and how you want to deal with those risks. Then consider how this is best reflected in the contract. Often a generic template will not have the right clauses to adequately deal with your particular contract relationship, so it is important to spend time understanding what risk allocation approaches are possible in a contract and how to effectively use them.
If you are interested in this topic, see our website for other articles on indemnity and risk allocation, or see below for details on our advanced contract law seminar for non lawyers, which deals with indemnity clauses in detail.
- Other items you might also want to consider:
- Service Levels/KPIs – are any KPIs clear, and linked to a right of termination if they aren’t met?
- Variations – how will they be managed?
- Price – clearly set out the price, and what will trigger a payment obligation (ensure that you wont be required to make payment, if you don’t receive what you had intended)
- Contract management and contacts – who will be responsible for managing the contract on both your side, and the side of the supplier?
- Sub-contracting and assignment – can the other party sub-contract out parts of the contract, or do you want to ensure that you know exactly who is working on your projects?
- Term and termination – what is the term of the contract? If it is an extended term, ensure you have appropriate rights of termination built into the contract in case problems arise. Consider what other rights of termination might be appropriate
- Ownership and Risk – when does ownership (title) transfer, when does risk transfer?
- Insurances – what insurances (if any) should the other party be required to hold
- Back to back contracts – ensure you consider what contracts need to be in place to ensure that you will be able to meet your obligations under this contract, and what contracts are in place that will require this current contract to be performed properly. Ensure that each relevant term (including termination) is clearly lined up between the contracts
This article doesn’t list everything that you will ever need to consider, but it does at least highlight the main areas that should usually be considered. If you are interested in getting assistance in having a tailored contracting checklist prepared for your organization, just pop us an email to [email protected] or contact us on 02 8006 0830.
Or if you want to learn more about contract drafting and learn practical, easy to use tips and tricks on how to minimise risks and make contracts work for you, come and join us in our contract law series – aimed directly at managers, procurement officers, CFOs, sales people and anyone else involved in contracting. We run regular introductory and advanced sessions throughout Australia through our sister business Aspect Educate. We also conduct inhouse sessions if you want something tailored to your organisation. For more details, just send an email to [email protected].