Date post: | 28-Oct-2014 |
Category: |
Business |
Upload: | primafacie |
View: | 5 times |
Download: | 0 times |
CONTRACT DRAFTING - BOTH AN ART AND A SCIENCE
“Only the Paranoid Survive” Andrew S. Grove ~ Intel
Prima FACIE / Law Firm ®Corporate Legal Counseling
All Rights Reserved © 2009
Contracts & Mistakes
2
TOP MISTAKES IN CONTRACTS
Prima FACIE / Law Firm ® Corporate Legal Counseling
"My God, it's Full of Stars!“ Monolith, Arthur C. Clarke, 2001 Space Odyssey ©
“IF STARS REPRESENT MANDATORY RULES OF CIVIL
LAW, THEN THE DARK SPACE OF THE UNIVERSE IS THERE FOR
CONTRACTUAL FREEDOM. USE IT WISELY.”
3
TOP MISTAKES IN CONTRACTS
Prima FACIE / Law Firm ® Corporate Legal Counseling
- General Agreement- SoW
4
TOP MISTAKES IN CONTRACTS
Prima FACIE / Law Firm ® Corporate Legal Counseling
Mistake No. 1 There Is No Contract
5
Thinking There Will Be
No Problems
Weather delays, employees are quitting, computers break down,
software is full of bugs, governments and unions have new bright
ideas that ruin the business, and more and more will happen. It
always does
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
6
Not Investigating and Understanding Future
Business Partners
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
Perhaps the most fundamental mistake made by businesses is failing to adequately investigate the entities with whom a business intends to enter a
contractual relationship. While most companies analyze whether a proposed deal is financially advantageous, a surprising number fail to
adequately study their proposed business partners. It is important because it provides warning signs about the partner, the likelihood that obligations
will be met and whether litigation is likely if disputes arise.
7
Failing to accurately
identify the parties to the contract
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
The contract should identify the parties as completely as possible. In the case of corporations or other business entities, it is important to verify the capacity of the contracting party to bind the
corporation to the contract
8
Hasty, Inadequate or Non-Existent
Due Diligence
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
The next step should be to conduct thorough due diligence. Often businesses are so eager to "do the deal" that they
perform inadequate due diligence, or not at all. While companies elect to take "calculated risks," there are real risks
to circumventing due diligence. If a deal appears to be too good to be true, the need for due diligence is even greater.
9
Not Writing the First Draft
Negotiations start from the first draft. BE THERE. It might seem wise to let the other party write the
first draft – as a courtesy – but this will work against you in the end. Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
10
Ambiguous (Payment) Terms
Trust should never come into play when talking about business contracts. Make sure that the contract
explicitly states the exact payment terms with no room left for ambiguity
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
11
OPPORTUNITY DEVELOPMENT AND MARKET RESEARCH TELEMARKETING
STATEMENT OF WORKOracle Czech s.r.o. - Linea Directa d.o.o.
Nondisclosure & Security
Upon completion of the services, Provider will destroy the list, related materials
and all copies thereof (hard copy, electronic or otherwise) in its possession in a
manner that ensures that these materials cannot be recreated or used
by commonly encountered, usual commercial software.
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
12
Agreeing to Overly
Restrictive Covenants
Too restrictive covenants should be avoided if at all possible. If they are
unavoidable, they should be reasonable in terms of time and they SHOULD BE
MUTUAL. Such clauses either should not extend beyond the termination of the
contract or should not apply if the contract is terminated for cause
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
13
Overly Restrictive Covenants
INTELLECTUAL PROPERTY RIGHTS
LINEA DIRECTA (LD) represents and warrants that the Marketing Services, and
all parts thereof, provided under this Agreement do not infringe any patent,
copyright, trademark, trade secret or other proprietary right of any person or
entity (“Proprietary Interest”). LD agrees to defend, at its own expense, any claim
or suit against “CLIENT” and to pay all awards and damages of the foregoing
arising out of such suits or claims, in respect of any infringement, misuse or
misappropriation of any Proprietary Interest arising out of or related to this
Agreement of any Marketing Service provided hereunder, provided “CLIENT”
notifies LD of any such claim or suit. “CLIENT” shall be represented by its
own counsel at LD’s expense.
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
14
Overly Restrictive Covenants INTELLECTUAL PROPERTY RIGHTS
If any Marketing Service or part of it thereof is reasonably claimed to
constitute an infringement of the IP or other rights of third parties, or if
“CLIENT“ became the subject of a claim of infringement, LD shall, at its own
discretion either:
(a). Procure for “CLIENT” the right to continue usage; or
(b). Replace or modify the Marketing Service so that it becomes non-
infringing while continuing to meet specifications.
The previous section states LD 's entire liability and “CLIENT's” remedy for
infringement. In the event, that either of above solutions is reasonably
adequate, each party may declare that a Force Majeure Event has occurred.Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
15
Committing to Long-Term
Contracts
Contract terms should be limited to one or two years and the parties should retain the right to terminate the contract if the
other party fails to perform or if one reasonably determines that continuation of the contract is no longer in his best interest
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
16
Time is of the
EssenceIn business it is usually so, but it is not all about Time Value
of Money. The »Time is of the Essence« clause in transactions means that if time limits are not strictly
complied with, you can lose legal rights or have rights of the other party exercised against you.
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
17
Not knowing what you want
If you don't know what you want, you might not like what you get. Also, if you change your mind and change the goals, the contract and price will change.
(Hint: it won't get cheaper) Know clearly what you want.
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
18
Entering a Contract Not Written or
Approved by a Lawyer
The temptation is greater when contracts "seem" simple. However, the rule that "THINGS ARE RARELY AS SIMPLE AS THEY SEEM" applies here. Having a lawyer to briefly review a contract is an investment that more than pays for itself and, if nothing else, allows a company to identify the risks
of proceeding without greater attorney involvement. Where companies enter the same type of transaction over and over again, the use of form-template contracts is appropriate as long as they are drafted or approved by a lawyer and the form is occasionally reviewed in light of new laws and
past performance.
If you don't know what you want, you might not like what you get. Also, if you change your mind and change the goals, the contract - and price - will change. (Hint: it won't get cheaper)
Know clearly what you want.
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
19
No Provisions Relating to Defaults,
Opportunities to Cure and Termination
Companies are sometimes reluctant to raise these issues, because they worry that their partners will have second thoughts. However, these provisions are important ways to PROMOTE
PERFORMANCE and AVOID LITIGATION. If notice of breaches and opportunities to cure are required, parties that might otherwise litigate are forced to attempt to work out their
differences. Another important benefit of these provisions is that they require alleged contractual breaches to be raised when they first arise and not after problems spread and damages
escalate.
If you don't know what you want, you might not like what you get. Also, if you change your mind and change the goals, the contract - and price - will change. (Hint: it won't get cheaper)
Know clearly what you want.
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
20
Failing to be All-Inclusive
You should dot every i and cross every t. Not only should the legal terms be covered, but
also the specific requirements of both parties. Leave no stone unturned, and your interests will
always be protected.Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
21
Assumptions
Assumptions are particularly harmful in contracts. If you are purchasing equipment, do not assume that the other
party will deliver the equipment with all related software or attachments. Spell it out explicitly.
Don't assume the other party will know that if you receive the goods late, you will lose big money.
Put a “Time is of the Essence“ clause in your agreement
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
22
Failing to Negotiate
Everything is negotiable. EVERYTHING. Even the things the other party tells you are not negotiable
are negotiable. Even preprinted forms are negotiable. It means that you discuss, argue, deliberate, and ultimately
agree upon all terms of the agreement. Not only are you ALLOWED to do this, you SHOULD. Too many
people fail to negotiate unfavorable terms in contracts.
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
23
Failing to Understand
If you do not understand a provision, find out what it means. Demand explanations, seek for answers.
AND DO IT BEFORE SIGNING
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
24
Lack of Deadlines And Penalties
When contracting for services it is critical that you include
timelines for completion of the work. It's one thing to say "Work to be
completed by May 2nd," but better to add, “EUR 300 per day to be
deducted from the contract price for each day the job is unfinished
beyond May 2nd." That's what I call a motivational clause.
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
25
Not Including All Deal Terms
In The Agreement
Include items upon which you relied when entering into the agreement. What is your reason for entering into the agreement ? Did the party state that he has
been in business a long time or has a particular type of expertise in a particular field? What did the other person agree that he would do for you and
what did you agree to do in return?
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
26
Leaving the Negotiation
Process Strictly to Lawyers
Lawyers will eliminate onerous clauses, but are often not aware of industry standards. Have the contract reviewed by both a legal professional and an industry professional. Having a legal professional draft or
review a contract is necessary, but not always sufficient to ensure a solid contract.
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
27
Failing to Adequately Define How or When
The Contract Terminates
A contract should specify the length of time of the contract – either terminating on a stated expiration
date or on completion of performance. Litigation may be avoided if the parties are clear about the
grounds for termination
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
28
Contract Language/s &
Translations
If the contract exists in several language versions, only one version of the contract, is a binding contract. All other language versions are translations for
conveniance only and have no legal binding power
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
29
Leaving Out Boilerplate Provisions
These are clauses that protect the rights and privileges of the parties, like Notice Provisions, Assignment, Integration, Consent to jurisdiction and Forum selection, Modification of
Agreements…Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
30
No Paraph on all Pages
before Signing
Puting a paraph on each numbered page of the contract, declares that negotiations are concluded but also prevents the integrity of the substance of the contract untill the signing - closing
un
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
31
Not Signing the Contract as the
Last Party
It is the best solution if the contract is signed simoultaneously by both or all of the parties. If this is not the case,
never be the first party to sign, be the last, so nothing can be changed or amended in the contract with your signature already on.
un
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
32
Using Generic, One-Size-Fits-All
Contracts
Popular in Sales, but dangerous if not used properly. The fact is, there are no One-Size-Fits-All business situations in real life. Use with caution.
Have them checked by the lawyer anyway.
un
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
33
Rushing Through the Agreement
to Closing
Businesses are often in a hurry to get deals done. But, it is never a good idea to negotiate and execute an agreement hastily.
The results could be unfavorable terms, ambiguance language or even an unenforceable contract
un
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
34
No Third-Party Escrow Servicing
(Escrow Account)
Using an escrow account or agent is well worth the small cost. All deposits and down payments should be deposited on escrow account and not to the other
party, whenever possible
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
35
Failing to Define Rights and Obligations
That Are Assignable
f
You should include an assignment clause, so you can transfer the rights to third parties without seeking consent of the other party.
(Contract, not claims in commercial contracts)
unPrima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
36
Failing to Include a “No Set-Off"
Clause If
Without a “No Set-Off” clause, you open the back door for the other party to acquire your outstanding debt (with discount) and set it off
against your claims. You’ll never see any money, no Cash Flow, just Paper Flow…
un
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
37
Failing to adequately state the method
for resolving disputes
Arbitration clause is often drafted too narrowly; thereby, excluding certain types of disputes from arbitration. Other essential elements include the location of arbitration, the governing law…
un
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
38
Failing to Include a Choice
of Law Clause If
Conflicts of law issues arise when the parties are residents of different jurisdictions, or obligations are to be performed in more than one. It can be resolved in advance with the proper choice of law provision. Without this clause, the law of the place where the contract was made, or services were
performed will apply.
un
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
39
Failing to include a Contract
Effective Date If
It is important that the contract states when the contract is effective, for purposes of determining obligations and the time for performance
un
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
40
Failing to determine What Happens
After Termination?If
The contract must spell out obligations of both parties, during and AFTER the life of the contract. Some provisions SURVIVE TERMINATION (Reps & Warranties, Non Disclosure…)
un
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
41
Have You Ever Actually Read
Your Entire Contract?
The contract is the key to your obligations and responsibilities. How many contractors actually read the entire contract before beginning performance? Most read the Statement of
Work (SOW) and proceede, but there are other critical sections in the General Agreement that are equally or more important
. If
un
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
42
Follow the Contract not verbal
Promises andDirections
Only the written word is binding. Contractors should learn to ignore diplomatically any verbal advice from any business partner or government official - no matter how convincing.
The written contract always defines your duties and responsibilities. Reliance upon verbal advice is at your own risk.
. If
unPrima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
43
EstablishingInternal Procedures and
Protocols to Insure Contractual Compliance
and Avoid DisputesIf
The final and often most serious mistake that businesses make is that they merely file a contract in a cabinet and then proceed to "do business.“ Companies too often ignore the
contract and only consult it when problems arise. By failing to establish procedures to monitor performance, companies may breach their contracts or may waive the right to insist
that their business partners fulfill their obligations.
un
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
44
Protocols to Insure Monitoring of
Executed ContractsIf
Executed contracts should be forwarded to the managers and employees responsible for performance. Individuals should be assigned to insure that business partners fulfill their responsibilities. These people should understand the agreement . If personnel changes occur, companies must have procedures to insure that the new
managers or employees are educated about the contract. Companies should verify that its managers and employees are fulfilling the requirements of the contract and regularly
CHECK TO INSURE THAT PROTOCOLS ARE FOLLOWED.
un
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS
45
Tips & WarningsIf
TAKE YOUR TIME to read the contract. If you don't understand it, ASK A LAWYER to look it over.
Always KEEP A COPY of the contract.DO NOT SIGN anything that is BLANK. Make sure everything is filled out before signing your signature.
Read the DEFINITIONS and check ATTACHMENTS
un
Prima FACIE / Law Firm ® Corporate Legal Counseling
TOP MISTAKES IN CONTRACTS