March 6, 2008 Handyman’s Guide to Building Contract Efficiency.ppt A HANDYMAN’S GUIDE TO...

March 6, 2008Handyman’s Guide to Building Contract Efficiency.ppt

A HANDYMAN’S GUIDE TO BUILDING CONTRACT EFFICIENCY

(Tools for Today)

Rochelle L. CooperUnited Space Alliance, LLC

March 6, 2008Handyman’s Guide to Building Contract Efficiency.ppt Page 2

Drafting, Standardizing and Simplifying Contracts

As your contract transactions multiply, any inefficiencies accumulate and act as a drag on your business.

• Unnecessary administration costs

• Delays in closing transactions

• Blown deals

• Unpleasant surprises after contract execution

• Disputes

• Missed deadlines


Effective Approaches to Contracting

• Adding value

– Cut costs

– Reduce risks

– Save time

• Practical and useful fallback provisions for commonly negotiated provisions

• Tools for standardizing and simplifying contracts


Research Initiative on Contract Management

• Use contract builder tools to control content or educate about the risks of altering templates while providing scripting to rebut customer objectives during negotiation

• Revise standard contract clauses

– Make more customer friendly

– Provide competitive advantage without creating additional risk

– Opportunity cost of negotiation can outweigh benefit of demanding preferred terms

• Companies forgo material profits by not notifying clients of contract milestones

• Use simple technology and contract information to notify of contract milestones

Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”© 2005 Corporate Executive Board. All rights Reserved.


Steps in the Contract Process

Draft; Negotiate; Review; Monitor

• Preparing Templates

• Improving Template Language and Substance

• Collaborating on Templates

• Preparing Deal Documents Based on Templates

• Using Automation to Prepare Deal Documents

• Outsourcing the Preparation of Deal Documents

• Negotiating

• Signing

• Archiving

• Monitoring


Drafting Preparing Templates

• Most important step in the contract process

• Lays out the legal relationship of the parties

• Acts as a blueprint for how the transaction will be handled

• With use of alternative language, can address the different permutations of any given transaction and how to address them

• Of all the steps in the contract process, is least susceptible to technology solutions


DraftingAdvantages of Using Forms/Templates

• Accomplish business goals

• Efficiency and response time

• Address any significant risks

• Satisfy any legal, regulatory, or tax requirements

• Proprietary Information or Confidentiality Agreements can be quickly executed

• Encourages consistent thinking*

• Focus on legal or contractual issues when negotiating a contract*

• Provides a good place to start*

*Success depends on the user’s level of education or training


Drafting Concerns and Challenges With Forms/Templates

• Danger in relying on cookie-cutter approach in contracting

• Some might borrow from previous contracts not suitable for specific transaction

• Need to make sure template is clear and efficient

• Any given contract contains redundancies, ambiguities and other inefficiencies

• Unclear language in a template invites the other side to make changes and may embolden them to ask for additional changes that they might otherwise have hesitated to ask for

• Templates should be consistent with each other (not look like they were prepared independently of one another)

• Can send mixed signals to customer/supplier

• Can send mixed signals to court

• Makes you look disorganized


Drafting Standardizing and Simplifying Contracts



Drafting Contracts - Case Studies

• BOC’s Salesman’s Guide

• Cisco Systems’ Control Based Contract Builder

• BT’s Low-Cost Contract Builder


Drafting Case Study #1BOC’s Salesman’s Guide

BOC created a contract drafting guide to counter concerns about incorrect use of contract templates

Guide:

- Explains contract clauses

- Provides scripted response to potential customer objections

- Outlines escalation procedures for moving to fall-back terms

Educate on guide’s content during regular training sessions


Drafting Standardizing and Simplifying Contracts



Drafting Standardizing and Simplifying ContractsIMPLEMENTING THE SALESMAN’S GUIDE

Implementation Steps

Step 1

Identify Optimal Contracts

Collaborate with legal staff to select contracts to be included in a Salesman’s Guide, likely candidates include simple contracts reviewed by support staff and templates frequently used by internal clients.

Time Required 1 to 2 weeks

Step 2

Seek Client Input (Round One)

Solicit input from internal clients on common customer objections to standard contract clauses.

Time Required 3 weeks

Step 3

Draft Guide

Task lawyers with explaining the rationale for each clause in layman’s terms, developing suggested responses, and drafting fall-back clauses.


Step 4

Seek Client Input (Round Two)

Test the draft tool by distributing to a limited sample of clients; collect and incorporate their feedback on the guide.

Time Required Ongoing

Step 5

Promote the Tool

Publicize the completed guide through all available channels, in particular through senior sales leadership.


Step 6

Conduct Training

Teach internal clients to use the tool during in-person training sessions and refer to the guide during other client-facing meetings.




Drafting – Case Study #2Cisco Systems Control – Based Contract Builder

• Technology tool automatically drafts a contract

–Inserts pre-approved clauses based on decision rules

• Tool routes nonstandard terms to lawyers for review

• Facilitates self service

• Mitigates drawbacks of templates by creating controls


Drafting Cisco Case Study














Step 1

Define Builder Scope

Identify contract types for which legal review consumes substantial attorney time, but that have straightforward decision rules.


Step 2

Document Decision Rules

Meet with relevant attorneys and business clients to document the inputs and decision rules used in creating and reviewing these types of contracts.


Step 3

Choose Standardized

Clauses

Solicit feedback from relevant attorneys and business clients to document the specific clauses for every decision rule path.


Step 4

Create Builder Tool

Work with IT department or consultant to develop software to prompt the user for inputs, apply decision rules, and insert appropriate contract language.

Time Required 3 months

Step 5

Update Approved Clauses

Assign responsibility and create timeline for updates to the tools inputs, decision rules, templated language, and other tool functionality.


IMPLEMENTING CONTROL-BASED CONTRACT BUILDER



Drafting – Case Study #3BT’s Low Cost Contractor Builder

• Created low-cost contract builder tool to improve consistency

• Presents users with series of prompts

• Builds contract by inserting most appropriate clause according to user response

• Based on Microsoft® Word and macros (a simple Microsoft programming tool)

– Need Microsoft 2000 or later version

– Approximately 100 hours to design and program per contract type

– BT initially hired a consultant to program the tool ($10,000). Now perform programming in-house


DraftingBT Case Study



DraftingBT Case Study


Step 1

Collect Agreements

Gather existing company contracts of the relevant type from individuals and existing storage systems.

Time Required 1 week

Step 2

Identify Frequently Negotiated Clauses

Find commonalities and variations in existing contracts to determine which clauses can be standardized and which require a selection of terms.


Step 3

Create Decision Rules

Develop decision rules to determine which clauses should be used in various circumstances.


Step 4

Finalize Terms

Capture clauses for use in different circumstances from the existing contracts, updating them where necessary.


Step 5

Protect Clauses

Save individual clauses in read-only format to prevent unauthorized staff from editing terms.


Step 6

Build Tool

Program the tool to insert the appropriate clause based on user responses to the decision rules, either using in-house expertise or a contractor.

Time Required 1 to 2 months

IMPLEMENTING LOW-COST CONTRACT BUILDER



Sources for Importing Your Contracts

Reprinted with permission of the American Corporate Counsel (ACC) from “ACC Docket – December 2007”

Technology Vendor Website

The Numbering Assistant Payne Consulting Group www.payneconsulting.com

Ixio Legal QShift Ixio Corporation www.ixio.com

Wordsensa Professional Adsensa www.adsensa.com

MeetMeNow WebEx www.meetmenow.webex.com

Litera IDS Litera Corp. www.litera.com

DealBuilder Business Integrity www.business-integrity.com

Exari Exari www.exari.com

EchoSign EchoSign www.echosign.com

Emptoris Contract Management

Emptoris www.emptoris.com

DocuSign DocuSign www.docusign.com

Upside Contract Upside Software www.upsidecontract.com

On-Demand Workspaces Intralinks www.intralinks.com


Representative Participant Objectives in Contract Negotiation



Preparing for Contract Negotiations

• Know your business

– Risk management philosophies of business

– Products/services, vendor needs

– Other important business details and relationships

• Know your contract goals

– Short and long-term goals

– Importance of contract to business

• Know your contract provisions

– “Deal killers” – be able to articulate why

– Viable alternatives/fall backs

• “Start from Fair”

– A good deal if a “fair” deal

– “Win-win”


During Negotiations

Be reasonable

– Compromise, compromise, compromise

– Don’t “over-negotiate” – pick and choose your battles and don’t sweat the small points

– Stay calm. A raised voice undermines your position and credibility


Negotiation: Streamlining the Process – Case Studies

• Oracle’s Customer-Focused Clause Standardization

• Tilburg Corporation’s Competitor Focused Template Revision

• Vertis Inc.’s Negotiation Toolkit for Key Provisions from The Company Services Agreement

• USA’s Procurement and PIA Toolkits

• USA Contracts Management Clause library


Negotiating – Streamlining the Process

Oracle’s Customer Focused Clause Standardization

Reassess terms from customer’s perspective

1. Identify clauses commonly negotiated by customers

2. Investigate impact on rejections on customer relationship

3. Assess costs/benefits of moving away from the standard term

4. Adopt fall-back clauses where opportunity cost of negotiating a standard clause exceeds its benefits.




Opportunity to improve new customer relationships






NegotiationOracle Case Study



NegotiationOracle Case Study


Step 1

Obtain Benchmarks

Gather intelligence on competitor terms and conditions from customers, salespeople, trade associations, specialist agencies, and publicly available resource.


Step 2

Compare Terms

Evaluate benchmark contracts and consider risks and advantages of aligning company terms with those of competitors, seeking input from business clients where appropriate.


Step 3

Control Version Proliferation

Publish updated contract terms to a central repository to avoid client confusion between new and old templates.


Step 4

Monitor Changes

Track changes to updated terms and an ongoing basis and modify frequently negotiated clauses.


IMPLEMENTING COMPETITOR-FOCUSED TEMPLATE REVISION



Negotiation: Streamlining the Process – Case Study #3Vertis, Inc.’s Toolkit for Key Provisions

Negotiating Toolkit for Key Provisions from the Company Services Agreement


Vertis ToolkitFallback Provisions Warranties

• Understand what your company is prepared to agree to

– 90 days? 180 days? Forever?

– Title Warranty?

– Virus Warranty?

– Warranty against infringement?

• IP Indemnity AND Warranty or, IP Indemnity OR Warranty?

• “To the best of its knowledge…”

• Remedies - repair, replace, refund. Is the refund necessary?

• Disclaimers

Reprinted with permission of the Association of Corporate Counsel as it originally appeared: “Handling Common (& Difficult) Contract Negotiation Issues,” ACC’s 2004 Annual Meeting. Copyright © 2004 Association of Corporate Counsel. All rights reserved. If you are interested in joining ACC, please go to www.acc.com, call 202.293.4103 x360, or email [email protected].


Vertis ToolkitFallback Provisions Limitations On Liability

• Exclusive Remedy, Limitation on Direct Damages, and Disclaimer of Consequential Damages - important to consider them together.

• Relationship between value of agreement and liability amount on damages.

• Not an insurer




• Sole and Exclusive Remedy:

Repair/Replace/Rework or Refund

“Customer will provide Company with prompt written notice of any claim arising out of this Agreement, and Customer's sole and exclusive remedy for any such claim will be for Company, in its sole discretion and subject to the limitations described in this section, to: (a) use commercially reasonable efforts at its expense to cure the breach or damage that gave rise to the claim; or (b) refund to Customer the amounts paid to Company for Services related to the claim.”

– Limiting types of damages lessens exposure for direct damages liability

– Contract law - "benefit of the bargain" and not a windfall




Support for Sole and Exclusive Remedy Provision: If a customer is not satisfied with the work that has been performed, or otherwise feels that the service provider has not satisfactorily performed its obligations, then the service provider would like the opportunity to “make good” with the customer. If service provider is not able to “make good” with the customer, then it will refund to the customer the fees it paid for the defective services. With either result, the customer is fairly compensated for the service provider's failure.




• Request: Remove exclusive remedy provision

– First step:Establish dialogue regarding what damages you/the other side may have

and really need and why to highlight potential compromise areas

– Fallbacks:Add to list of exclusive remedies with specific additional remedies.Allow customer to select remedy among options if contract gave discretion to

service provider. If compromise is not reached, agree to remove the provision, but then be

sure you get an adequate cap on direct damages.“Customer will provide Company with prompt written notice of any claim arising out of this Agreement, and Customer's sale and exclusive remedy for any such claim will be for Company, subject to the limitations described in this section and Customer's approval (which may not be unreasonably withheld), to: (a) use commercially reasonable efforts at its expense to cure the breach or damage that gave rise to the claim; or (b) refund to Customer the amounts paid to Company for Services related to the claim.”

• Not an insurer



Vertis Toolkit - Limitations on Liability – Disclaimer of Consequential Damages

• Disclaimer of Consequential Damages

– “In no event will Company be liable for any indirect, punitive, special, or consequential damages, including lost sales or profits, even if it has been advised of the possibility of such damages.”

• Support for Disclaimer of Consequential Damages

– This sentence is reasonable because Company should not be held liable for losses that are far removed from a breach of the Agreement. Company cannot predict, and be prepared to be held responsible for, every possible loss that may stem from a breach of the Agreement. Company is not an insurer

• Request: Make this mutual.

– Unless there are very compelling reasons why the nature of the obligations between the parties are sufficiently different such that only one side should be liable for these types of damages, you should probably agree to the request. Be sure to consider the types of claims each side would likely make against the other in evaluating what you lose in making this mutual.

“In no event will either party be liable for any indirect, punitive, special, or consequential damages, including lost sales or profits, even if it has been advised of the possibility of such damages."



Vertis ToolkitFallback Provisions – Audit Rights

• Especially following SOX, there seems to be an increase in the use of Audit Right provisions in agreements.

• In deciding how to negotiate an audit right provision, first think about the nature of the performance under the Agreement and whether it makes sense to have an audit provision.

• Audits can be disruptive, overbroad, and give the auditing party inappropriate access to confidential information, so audit requests must be considered with care.




• Request: Include an audit provision.

– Reasons to Have/Not Have an Audit Provision

An audit provision would be appropriate where the charges for services performed are based on a variable factor, such as the number of hours worked. In these situations the audit would permit the auditing company to verify that the charges are correct.

If the charges are based on a final tangible work product that a customer receives or the prices for the work are fixed, then there is no need for an audit.




• Fallback language if you decide to agree to an audit but want to limit its scope:

“For the duration of the Services and a period of 6 months thereafter, Customer will have the right, after giving Company at least 10 days' prior written notice, to review certain records directly relating to the charges paid for the Services. This right will not extend to any fixed fee component of the charges, or to any Services performed more than 2 years prior to the date of Customer's request for a review. If Customer exercises this right, Company will make available such records as it determines to be necessary to support the amounts charged to Customer. Customer agrees to compensate Company for time expended by Company's staff to facilitate the review and to reimburse Company for any expenses incurred in connection with the review. Customer may exercise this right only once in any calendar year and Customer agrees to limit the duration of the review to a reasonable period. The review must be conducted at mutually convenient times and locations and in a manner that does not disrupt Company's business operations. Customer agrees to keep information disclosed to Customer in the course of the review confidential from all third parties, except for any third party participating in the review with Company's consent.”



Negotiation: Streamlining the Process Case Study #4USA’s Procurement Toolkit

1. Gather most frequent exceptions to standard terms & conditions purchase by suppliers

2. Plan working session with Procurement – Compliance and Legal

3. Prior to meeting create a draft toolkit:

• Provision

• Purpose

• Support

• Requests (exceptions)

• Responses

• Rationale

• Talking points

4. Conduct working session

• Review draft toolkit and reach consensus

5. Train

6. Publish Toolkit

7. Maintain – update and revise (ongoing)


USA’s Procurement ToolkitSM-100


USA’s Procurement ToolkitSM-100 Warranty Clause

Warranty: Unless otherwise agreed to in writing by the parties, Seller warrants that articles ordered to specifications will conform thereto and to any drawings, samples or other description furnished or adopted by Buyer, or, if not ordered to specifications, will be fit and sufficient for the purpose intended, and that all articles will be merchantable, of good material and workmanship, and free from defect. Such warranties, together with Seller’s service warranties and guarantees, if any, shall survive inspection, test, acceptance of, and payment for the articles and shall run to Buyer, its successors, assigns, and customers. Except for latent defects, fraud or such gross mistakes of Seller as amount to fraud, notice of any defect or nonconformity must be given by Buyer to Seller within one (1) year after delivery, or one (1) year after receipt of satisfactory qualification test reports, if required thereunder, whichever is later. Buyer may, at its option, either return for credit or refund or require prompt correction or replacement of the defective or nonconforming article or part thereof. Return to Seller of any defective or nonconforming article and delivery to Buyer of any corrected or replaced articles shall be at Seller’s expense. Defective or nonconforming articles shall not be corrected or replaced unless specified on Buyer’s written order. Articles required to be corrected or replaced shall be subject to the provisions of this clause and the clause hereof entitled “Inspection” in the same manner and to the same extent as articles originally delivered under this Order, but only as to the corrected or replaced part or parts thereof.



Warranty

A warranty is a promise or agreement by the Seller that the article sold or services rendered has certain qualities or that the seller has good title thereto. It is a statement of fact respecting the quality or character of goods sold/services rendered made by the Seller to induce the sale, and relied on by the Buyer. This clause as written is intended to offer a warranty that is not limited by time. The timeframe indicated (1 year) applies to the time that USA is required to notify the Seller that there is a warranty claim. However, the clause is silent as to how long the Seller actually has to repair or replace the product.

Note that the warranty direction below does not apply to subcontracts under a government or commercial contract in which USA has agreed to a warranty provision.

Purpose.

This sentence conveys an “express warranty”, meaning that the Seller has made an affirmative statement as to the quality of the goods and upon which USA is going to rely.



Support.

It is important that USA be able to rely upon the Seller’s representations that the goods it will sell to USA conform to specs provided or otherwise fit for the intended purpose, etc. USA should be very concerned if a Seller cannot provide these basic assurances to the quality of its goods and USA should question whether the seller should be the source of the goods if there are no assurances as to the quality and fitness of the products. In fact, in most commercial transactions, the warranties are built into the price of the goods. The Seller should have already priced the cost of the warranties into the product it is selling.

Request #1: Seller requests that the following be deleted: “...fit and sufficient for the purpose intended, and that all articles will be merchantable…”

Response: USA can request that Seller provide exact language to add after the word “intended” to indicate exactly what purpose the Seller deems the product was intended for so there is no misunderstanding. This is not ideal, but if the Seller can state the intended purpose and provide that language to USA, then it is preferable (as opposed to deleting the entire warranty) to add the intended purpose.



Fallback: If USA and the Seller cannot reach an agreement as to the “intended purpose” of the article, rather than deleting the entire warranty provision, USA can also suggest that the following language be used to limit the warranty:

“THE FOREGOING WARRANTIES ARE EXCLUSIVE AND ARE GIVEN AND ACCEPTED IN LIEU OR ANY AND ALL OTHER WARRANTIES, EXPRESS OR IMPLIED.”

If USA cannot negotiate a limitation as described above, then USA can delete the phrase in its entirety if requested by Seller. Compliance will need to obtain approval for the deletion of the warranty from the authorized USA technical representative.

No Legal approval is required to delete or modify the warranty provision if an authorized USA technical representative understands the deviation and accepts it.

Consideration:

Compliance should advise the authorized USA technical representative that the effect of no warranty is that which is commonly understood in any transaction. Namely, USA will not be entitled to repair or replacement parts if the product fails.


USA’s Procurement ToolkitSM-100 Choice of Law Clause

Choice of Law

The Choice of Law provision specifies the legal rules that govern the mutual contract obligations of the parties. It is widely enforceable by courts, arbitrators and other alternate dispute forums. For example, it designates the substantive law to be applied by a court in the event of a dispute. Note that USA does not designate by contract either the venue or forum. Venue is the particular county or geographical area, in which a court with jurisdiction may hear and determine a case. Forum is a court of justice or judicial tribunal where remedies are pursued.

Purpose. The USA provision provides for the choice of law to be either Texas or Florida, depending on the state shown on the face of the Order.

Support. Texas and Florida are states for which there is a nexus between the contract and the choice of state law. Courts will not enforce if selected state law violates public policy of state jurisdiction.

Request #1: Seller requests that USA replace “the state shown in the Buyer’s address” with X state.

Response: USA can agree to Florida, Texas or Delaware. Use of any other state law for choice of law requires legal approval.

Consideration: USA will not accept Virginia or Maryland for software related orders due to the application of the Uniform Computer Information Transactions Act (UCITA).




USA’s Procurement ToolkitSM-101 Disputes Clause

Disputes

In the event that any claim or controversy arising out of this Order cannot be settled by the parties themselves, the parties agree to attempt in good faith to resolve such claim or controversy by mediation in accordance with the Mediation Procedure of the Center for Public Resources (CPR) Institute for Dispute Resolution. Any dispute which is not settled by agreement of the parties or by such mediation may be settled by appropriate legal proceedings. Pending any decision, appeal or judgment in such proceedings or other settlement of any dispute arising under this Order, Seller shall proceed diligently with the performance of this Order in accordance with the decision of Buyer.

Disputes

The provision provides for the parties to attempt to settle a claim or controversy by mediation in accordance with the Mediation Procedure of the Center for Public Resources (CPR). More information about CPR can be found at http://www.cpradr.org/.



Disputes

In the event that any claim or controversy arising out of this Order cannot be settled by the parties themselves, the parties agree to attempt in good faith to resolve such claim or controversy by mediation in accordance with the CPR Mediation Procedure of the Center for Public Resources (CPR) Institute for Dispute Resolution. Any dispute which is not settled by agreement of the parties or by such mediation may be settled by appropriate legal proceedings. Pending any decision, appeal or judgment in such proceedings or other settlement of any dispute arising under this Order, Seller shall proceed diligently with the performance of this Order in accordance with the decision of Buyer.

Disputes

The provision provides for the parties to attempt to settle a claim or controversy by mediation in accordance with the Mediation Procedure of the Center for Public Resources (CPR). More information about CPR can be found at http://www.cpradr.org/.



The provision expressly supersedes the FAR Disputes clause, which incorporates the procedures of the Contract Disputes Act of 1978, 41 U.S.C. §§ 601-603.

Request #1: Use arbitration instead of mediation

Response: Generally, USA does not favor arbitration. In lieu of a provision dictating arbitration, suggest the following alternative:

“Either party may litigate any dispute arising under or relating to this Order before any court of competent jurisdiction. In the alternative, the parties may agree to arbitration of such a dispute or to some other form of alternative dispute resolution. Pending resolution of any such dispute by settlement or by final judgment, the parties shall proceed diligently with performance. Seller's performance shall be in accordance with Buyer's written instructions. Any reference to disputes procedures in FAR clauses incorporated by reference herein shall be deemed to be superseded by this clause.”

Rationale: The alternative allows the parties, optionally, to agree to resolve their disputes through arbitration or some other form of alternative dispute resolution (ADR). Other forms of ADR, besides arbitration include: (1) fact-finding, by a neutral advisor who is often a technical expert; (2) mini-trials, in which the dispute is presented in summary fashion to management official of each party and possibly to a neutral advisor as well, to facilitate settlement discussions; (3) mediation; (4) use of settlement judges; and (5) permutations and combinations of the various techniques. The alternative also leaves open the right to pursue an action before a court of competent jurisdiction.



Talking Point (Why USA Does Not Favor Arbitration):

Most arbitration arises from pre-dispute contracts in which the parties agree that if a dispute arises, it will never make it into the court system, but instead will be arbitrated. If the parties agree to binding arbitration, the arbitrator (usually an attorney, retired judge, or an organization that provides arbitration services) makes a decision at the conclusion of an arbitration hearing, which is final and binding, subject to only very limited review. By agreeing in advance to arbitration, the parties are waiving a constitutional right to a jury of their peers. Unless agreed in advance, the arbitration decision is legally binding and not appealable, except in the very rare occurrence of fraud or other similar act on the part of the arbitrator. The arbitrator is an impartial but experienced person selected by both parties to the dispute. Although arbitration takes place outside the courtroom, the arbitrator nevertheless reads briefs, reviews documentary evidence, hears testimony, examines evidence, and ultimately renders an opinion on liability and damages. USA’s experience has been that arbitration can be just as costly and require as much time and effort as litigation. In addition, USA disfavors arbitration for the following reasons:

– Lack of full range of discovery.

– Reduced chance to sustain positions at odds with industry customs and practices.

– Loss of the opportunity to join other parties in the litigation and bind them by the result.

– Generally not subject to court rules of evidence.



– Limited cross-examination of witnesses.

– Arbitration fees may be substantial, particularly in complex cases.

– Arbitrators typically make awards without written opinions or explanatory documents.

– Increased chance of inconsistent results in disputes with different parties.

– Arbitrators sometimes "split the difference" when making an award, which may not be a desirable solution.

– It is either impossible or difficult to appeal an arbitration decision.

– Frequency of Disputes. It is easier for a party to file a request for arbitration than it is to file a petition or complaint in district court. As a result, the availability of arbitration could result in an increase in disputes that are being submitted to a third party for resolution.



Request #2 Replace “to attempt in good faith” with “use reasonable efforts”.

Response: Acceptable.

Request #3 Delete the third sentence under which the Seller has to proceed diligently with the performance of the Order. (Deletion requires Legal approval, but see Response.)

Response: Not acceptable. The requirement for the subcontractor to continue performance pending the resolution of a dispute is based on the prime contract Disputes clause, FAR 52.233-1, which requires prime contractors to continue performance pending resolution of a dispute arising under the contract. This requirement is based on the Government’s concern that vital national interest could be compromised if a prime contractor (or subcontractors) stopped performance.

Request #3: Insert language through which the Buyer sponsors a claim by the Seller against the U.S. Government.

Response: It is acceptable to offer the following language:

“Disputes

(a) Any dispute arising under this Order which is not settled by agreement of the parties or pursuant to Paragraph B below may be settled by appropriate legal proceedings. Pending any decision, appeal or judgment referred to in this clause or the settlement of any dispute arising under this Order, Seller shall proceed diligently with the performance of this Order.

(b) Notwithstanding any provision herein to the contrary:

(1) If a decision arising under the prime contract is made by the Contracting Officer and such decision is also related to this Order, said decision, if binding upon Buyer under the prime contract, shall in turn be binding upon Buyer and Seller with respect to such insofar as it relates to this Order; provided, however, that if Seller is adversely affected by any such decision made by the Contracting Officer, and if Buyer elects not to appeal such decision pursuant to the “Disputes” clause of the prime contract, Buyer shall promptly notify Seller. If Seller thereafter timely requests Buyer to appeal such decision, Buyer shall do so. If Buyer appeals such decision, whether at its election or at Seller’s request, any decision upon such an appeal, if binding upon Buyer under the prime contract, shall in turn be binding upon Buyer and Seller under this Order with respect to such decision insofar as it relates to this Order.



(2) If any such appeal is denied or otherwise decided adversely to Seller’s interest, or if Seller is otherwise adversely affected by any decision made by any representative of the Government on any decision arising under the prime contract which is also related to this Order, from which an appeal under the “Disputes” clause in the prime contract is not available, said decision, if binding upon Buyer under the prime contract, shall in turn be binding upon Buyer and Seller with respect to such decisions insofar as it relates to this Order; provided, however, that if Seller is adversely affected by any such decision, and if Buyer elects not to bring suit against the Government with respect to such decision, Buyer shall notify Seller with reasonable promptness. If Seller timely requests Buyer to bring suit against the Government, Buyer shall do so. If Buyer brings suit against the Government with respect to any such decision, whether at its election or at Seller’s request, a final judgment in any such suit, if binding upon Buyer under the prime contract shall in turn be binding upon Seller and Buyer under this Order with respect to the decision insofar as it relates to this Order.

(3) If necessary for jurisdiction under the Contract Disputes Act, Buyer shall certify Seller’s claim and proceed with the appeal only if Buyer is satisfied that Seller’s claim is in good faith, that the supporting data are accurate and complete to the best of its knowledge and belief, and that the amount requested accurately reflects the contract adjustment for which the Buyer believes the Government is liable. Buyer’s position on whether or not it is “satisfied” shall be reasonable and shall not be used to arbitrarily deny Seller certification. Seller shall indemnify Buyer against any liability incurred as a result of acting hereunder at Seller’s request, including furnishing such certification.



(4) If any such appeal or suit is taken or brought by Buyer, whether at its election or at Seller’s request, Seller shall assist Buyer in its prosecution thereof in every reasonable manner and Seller shall be afforded reasonable opportunity to participate in the prosecution thereof to the extent Seller’s interest may be affected. To the extent requested by Buyer, Seller shall prosecute for Buyer any appeal or suit taken or brought at Seller’s request and, in such event, Buyer shall assist Seller in every reasonable manner. All costs and expenses incurred by Seller and Buyer in prosecuting any appeal or suit taken or brought at Seller’s request shall be paid by Seller. Where possible, Buyer shall in good faith consult with Seller concerning the presentation to the Contracting Officer or other cognizant representatives of the Government of the matters that may affect Seller’s interest, referred to in subparagraphs (1) and (2) above to the extent they may affect Seller’s interest.

(5) If as a result of any decision or judgment which is binding upon Seller and Buyer, as above provided, Buyer is unable to obtain reimbursement from the Government under the prime contract for, or is required to refund or credit to the Government, any amount with respect to any item of cost or fee for which Buyer has reimbursed Seller, Seller shall, on demand, promptly repay such amount to Buyer.

(6) The rights and obligations described herein shall survive completion of and final payment under this Order.”


USA PIA Toolkit - Disclaimer & Warranty


USA Toolkit – Proprietary Information Agreement

9. Disclaimer of Warranty. Neither party warrants that a receiving party’s use of information it receives under this Agreement will be free from claims by nonparties for infringement or misappropriation of intellectual property rights. An originating party does not warrant that any information it discloses is complete, accurate, free from defects, or useful for the purposes of the receiving party.

Request: The information being disclosed is provided without warranty and on an as-is basis.

Response: Generally this request is acceptable. However, acceptance depends on what use is to be made of the information. If a warranty is necessary, reject the request.


USA Toolkit – Proprietary Information Agreement

18. Export Control. A receiving party will comply with all applicable laws and regulations concerning export control. A receiving party will not provide Proprietary Information or Controlled Technical Data received under this Agreement to foreign nationals without first providing the originating party sufficient notice for the originating party also to comply with such export control laws and regulations.

Request: The counter party request some form of the following - “The receiving Party shall indemnify and hold the disclosing Party harmless for all claims, demands, damages, costs, fines, penalties, attorney’s fees, and all other expenses arising from the receiving Party not complying with this clause or U.S. Government export laws and regulations.”

Response: USA will not accept such an indemnification and hold harmless clause. (Requires Legal approval.)


Negotiation: Streamlining the Process Case Study #5USA’s Contracts Management Matrix

• Used by Contracts Management to evaluate Customer proposed terms and conditions

• Includes:

– Contract Identification

– Cite (Hyperlink)

– Title

– USA Subject Matter Expert

– Acceptability

A = Acceptable

U = Unacceptable

SI = Supplemental Instruction

AF = Acceptable – Facilities Related

AR = “Must have” in all contracts

– Comments/Supplemental Instructions


Terms & Conditions Matrix - FAR


Terms & Conditions Matrix - FAR

SFOC Cite Title USA SME ACC Comments/Supplemental Instructions

52.203-11Certification and Disclosure Regarding Payments to Influence Certain Fed Transactions (Apr 1991)

Contract Management

A

Solicitation Provision. Required by FAR for solicitations exceeding $100,000. The language of this certification must be included in all subcontract awards at any tier and require that all recipients of subcontract awards in excess of $100,000 shall certify and disclose accordingly.


Terms & Conditions Matrix - NASA


Terms & Conditions Matrix - DFARS


Terms & Conditions Matrix – Air Force


Terms & Conditions Matrix – Full Text


Signing

• Would seem to be most straightforward part of the process, but . . .

• Can be nuisance

– Involve exchanging signatures by variety of mechanisms

• Email

• Facsimile

• Various forms of regular mail

• Courier Service

• Personal delivery

– Keep track of signature pages and who has and hasn’t signed

• Tools

– Comprehensive signature – automation solutions

• EchoSign

• DocuSign


Archiving

Contract Signed

• Lose interest, move on to next prospect

• Breath sigh of relief, start putting out next fire

• Copy is put in someone’s filing cabinet

• Disappears from institutional memory

Possible to rigorously maintain complete set of paper copies

Many companies have signed contracts scanned and digitally archived (can be slow, costly, human error)

Tools

• Signature automation

• Contract – Life cycle – Management solutions


Monitoring: Ensuring Contract Term Adherence

• Harman’s Contract Milestone Management

– Agreement Tracking System



Monitoring: Ensuring Contract Term Adherence


Monitoring

Ensuring Contract Term Adherence

• Potential Contract Administration Shortcomings

– Contract Disputes

• Failure to meet diverse contractual obligations

Damage customer relations

Result in disputes

– Lost opportunities

• Failure to take action at specified times

Price increase

Loss of discounts

– Incorrect payments

• May overpay or underpay

• May fail to pay suppliers/licensors


Monitoring – Case Study: Harman International Industries, Inc.

Tool: Database To Capture Critical Contract Related Data








Step 1

Consult Colleagues

Solicit feedback on desirable system functionality from other potential user’s and stakeholders, notably the IT department.


Step 2

Procure Technology

Buy or build a database with only the necessary functionality, carefully considering ongoing maintenance costs and future upgrade requirements.


Step 3

Capture Existing Contract Information

Consider which contracts require tracking and input basic contract details from existing sources.


Step 4

Embed Data Input Into Process

Create a procured for ongoing data input, integrating information capture into the contract creation process.


Step 5

Notify Stakeholders

Alert clients to key milestones either manually or by using automatic notifications.


IMPLEMENTING CONTROL-BASED CONTRACT BUILDER



Contract Management Technology Tools



Contract Management Technology Tools

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