Managing the review and negotiation\u00a0of contracts involves regular stack ranking of projects.\u00a0With many\u00a0agreements to review and other job responsibilities for both in-house counsel and business counterparts alike, the value or strategic importance of the agreement often determines\u00a0the amount of attention it receives.\u00a0Given this, attorneys and their business counterparts generally do\u00a0not\u00a0have time for a \u201cdeep dive\u201d into every nook and cranny of an agreement under negotiation.\u00a0They focus their available resources on the big-ticket items \u2014 obligations of the parties, termination rights, ownership, confidentiality, indemnification\/limitation of liability, and the like \u2014 and may\u00a0only have time for a cursory review (at best) of other contract\u00a0terms that appear in most agreements, called the “legal boilerplate.”<\/p>\n
If you\u00a0have a little extra time to spend on\u00a0an agreement, here are six\u00a0clauses<\/strong>\u00a0that are worth a closer review. Why these?\u00a0If worded improperly, each of these clauses\u00a0can have a significant adverse impact on\u00a0your company in the event of an issue or dispute involving that clause.<\/p>\n (1) the Notices\u00a0clause.\u00a0<\/strong>Failure to provide timely notice can case major issues.\u00a0So can failing to receive a notice that was properly served.\u00a0If mail can take some time to be routed internally, consider avoiding certified or first-class mail as a method of service.\u00a0Personal delivery and nationally or internationally recognized express courier service (FedEx, UPS, DHL, etc.) with signature required on delivery\u00a0are always good choices. Notice by confirmed fax or by\u00a0email to a role address (e.g., “legal@abc.com”) are\u00a0also options to consider, either as a primary method of notice or as a required courtesy copy of the official notice. Use a role and not a named person in the ATTN: line – if the named person leaves, routing of the notice may be delayed.\u00a0Consider requiring that\u00a0a copy of every notice be\u00a0sent to your legal counsel.\u00a0Consider whether to make notice effective on delivery, versus effective a fixed number of days after sending (whether or not actually received).\u00a0It is also worth considering making notice\u00a0effective on a refused delivery attempt<\/em> – the other side should not be able to refuse a package to avoid being served with notice.\u00a0Ensure delivery is established by the delivery receipt or supporting records.<\/p>\n (2) the Dispute Resolution clause.<\/strong>\u00a0Ensure the agreement\u2019s dispute resolution mechanism (litigation vs. arbitration), and any dispute escalation language, is right for your company\u00a0given the potential claims and damages that could come into play if you have a dispute.\u00a0Make sure\u00a0you\u2019re OK with the state whose law governs the agreement\u00a0(and ensure it applies without regard to or application of its conflicts-of-laws provisions).\u00a0If neither home state law is acceptable, consider a \u201cneutral\u201d jurisdiction with well-developed common law governing contracts\u00a0e.g., New York.\u00a0Ensure you\u2019re OK with the venue — consider whether it is non-exclusive<\/em> (claims can be brought there) or exclusive<\/em> (claims can only be brought there), and whether a \u201cdefendant\u2019s home court\u201d clause might be appropriate (a proceeding must be brought in the defendant’s venue). Finally, ensure the parties\u2019 rights to seek\u00a0injunctive relief — an order to stop doing something, such as a temporary restraining order or injunction, or an order to compel someone to do something — are not\u00a0too easy or hard to obtain. In some cases, whether a party needs to prove actual damages or post a bond in order to obtain an injunction can play a critical role.<\/p>\n (3) the Order of Precedence\u00a0clause.\u00a0<\/strong>If your agreement has multiple components\u00a0(e.g., a master services agreement, separate Terms and Conditions, incorporated policies from\u00a0a web site, service exhibits or addenda, statements of work, project specifications, change orders, etc.), which piece\u00a0controls over another can become critically important if there is a conflict between the two (e.g., liability is capped in Terms and Conditions,\u00a0but unlimited in a\u00a0Statement of Work).\u00a0Ensure the order of precedence works for you.\u00a0Consider whether to allow an override of the order of precedence if expressly and mutually agreed to\u00a0in an otherwise non-controlling contract component.\u00a0Don\u2019t forget about purchase orders \u2014 they often have standard terms which can conflict with or override the contract terms unless they are specifically excluded.\u00a0If you are negotiating a SaaS agreement, consider how acceptable use policies, terms of use, and other online policies may relate to the agreement.\u00a0Watch out for other agreements\/terms incorporated by reference, or on the other hand, consider\u00a0incorporating your standard terms and having them control in the event of conflicting terms.<\/p>\n (4) the Assignment\/Change of Control clause.<\/strong>\u00a0If consent to assignment or a change of control is required, the clause\u00a0can create significant headaches and delays during an\u00a0M&A closing process or during\u00a0a corporate reorganization.\u00a0A client or vendor\u00a0with \u201cveto power\u201d could leverage that power\u00a0to get out of the contract,\u00a0or to obtain concessions\/renegotiated terms.\u00a0Consider whether to include appropriate exclusions from consent in the event of a\u00a0reorganization or change of control, but keep a notice requirement.\u00a0Consider whether a parental guaranty is an appropriate trade-off for waiving\u00a0consent.\u00a0Also consider whether consent is needed in\u00a0a transaction where the party continues to do business in the same manner it did before (e.g., change of control of a parent company only).<\/p>\n (5) the Subcontractor clause<\/strong>.\u00a0Ensure\u00a0you have approval rights over subcontractors where necessary and appropriate, especially if they are performing material obligations under the agreement or will have access to customer data or your systems.\u00a0A service provider may not be willing or able to give an approval right to a subcontractor providing services across multiple\u00a0clients, but may be OK with approval of a subcontractor\u00a0providing services exclusively or substantially for your company.\u00a0Include the ability to do due diligence on the subcontractor; remember that subcontractors can be an attack route for hackers seeking to compromise a company\u2019s network.\u00a0Ensure a party is fully liable for all acts and omissions of the contractor. Consider pushing security obligations through to the subcontractor.\u00a0Require subcontractors to provide phishing training.\u00a0\u00a0Consider limitations on what obligations\u00a0of the other party can be\u00a0subcontracted.<\/p>\n (6) the Non-Solicitation clause.<\/strong>\u00a0Consider limiting a non-solicitation\u00a0clause to those employees key to each party\u2019s performance under the agreement, and other named personnel such as executive sponsors or corporate officers.\u00a0Most often, neither party can live up to a clause that covers every employee at the company.\u00a0Ensure there are appropriate exclusions for responses to job postings, recruiter introductions, and contact initiated by the covered party.\u00a0Consider whether the clause prevents soliciting an employee as well as hiring\u00a0them, and whether you want to restrict one or both.<\/p>\n","protected":false},"excerpt":{"rendered":" Managing the review and negotiation\u00a0of contracts involves regular stack ranking of projects.\u00a0With many\u00a0agreements to review and other job responsibilities for both in-house counsel and business counterparts alike, the value or strategic importance of the agreement often determines\u00a0the amount of attention … Continue reading