A well-formed contract is based on mutual agreement and understanding. It provides clarity for how both parties will behave under optimal and less-than-optimal circumstances. In this post, we will look at some common points of discussion between client and vendor. We will also suggest mutually agreeable terms that can help ensure the contract provides equitable protection for both parties.

We are leaving out the fees, payment structures and rates – the obvious points of negotiation or discussion. Instead we will focus on those contract clauses that address resourcing and human resource concerns, cancellation, and questions of intellectual property.

Please note this blog post is not a substitute for competent legal counsel. Rather, it is our goal to provide some general guidance on those issue we most often see surface and provide our experience on negotiating a reasonable resolution. Every organization is different. Every state’s laws are different. Every contract is different. It is our goal to foster discussion, not supersede legal recommendations. We put this post together because the project team is often the first line of review – and with limited access to legal counsel, the team often has to surface those issues we feel warrant legal advice.

1. Indemnity

Indemnity refers to an obligation by one party to compensate the other should a loss or harm occur. At face value, this is fairly straightforward stuff. If someone causes harm to someone else, the person being harmed should have the opportunity to be compensated for the harm inflicted upon them. Of course, contracts are often not straightforward. A lopsided contract is one where one party receives rights or compensation in a given set of circumstances, while if the circumstances were reversed, the other party would not.

The most common issue we see with this contract clause is that the indemnity is stated as one-way. One party will be held accountable for compensation where the other is not. A common solution is ensuring that indemnity is mutual, meaning it is provided with equal measure to both parties.

2. Jurisdiction or Applicable Law

Jurisdiction typically refers to where, should it come to legal action, the legal action would take place. Clearly, it is in both parties’ interest to specify their own local jurisdiction. When lawyers are involved, not having to put them on a plane is an advantage. Our general recommendation is that instead of stipulating a specific jurisdiction the contract should use “a mutually agreed upon location” or equivalent language.

The goal of contracts is typically to avoid litigation. Should one party have a significant advantage, those negotiations are much more difficult.

3. Publicity / Marketing

For many organizations their logo is more than just a brand: it is an identity. It is common for a vendor contract to allow the vendor’s use of your organization’s logo or name, usually in their marketing or publicity. The contract language might allow their adding your name/logo to their website as a client. Or, it might allow for the vendor to generate a press release of your association with them – with or without your consent.

The most common substitution we see in this clause is a simple statement that your organization does not grant use of your name or logo without express written consent. Some organizations use this clause as a negotiation point: limited use rights might be granted if there is an offset in price or other compensation built into the contract.

4. Subcontractors

Be wary of the subcontractor clause. Many vendors will scale by using  subcontractors. This is neither uncommon or necessarily a problem. However, your organization should be sure that there is a quality assurance step to subcontractors being brought in.

We often see language inserted that says no subcontracting will be permitted without written consent. Taken a step further, some organizations will require written consent for any resources added to the project. Such language can have unintended consequences in price negotiation or on the project duration as you vet resources being brought into the project.

5. Cancellation or Termination

Cancellation or termination clauses attempt to account for the worst. The cancellation or termination clauses may include circumstances such as dissolution of one of the parties, failure to make payment, or simply that one of the parties finds the relationship untenable.

When we are talking about cancellation, there is no great solution to be found. We suggest evaluating this clause by thinking about how long it would take to replace the vendor should a cancellation occur. An organization confronting a cancellation with a cashing and caging vendor would do well to consider that replacing the vendor may include selecting a new vendor, confirming documentation, and training a new party to take their place. At an absolute minimum, your organization would need 90 days to make this change, though 6 months is likely more realistic.

As we said, cancellation or termination is a worst-case scenario, and you would hardly have recourse if your vendor suddenly went out of business. But, for cancellation without a cataclysmic cause, you should protect yourself so as to ensure business continuity.

6. Intellectual Property

Intellectual property is a tricky thing – especially when dealing with consultants. You hire consultants because of their experience in the space. This is often reflected by their working with organizations very similar in size, structure and (often) mission to your own. For them to have value they must be bringing some element of those other organizations’ intellectual property to the table.

Similarly, consultant partners have invested significant time and energy in defining best practices or building collateral to help you succeed. As soon as they pass that material to you across the conference room table they have handed you something of substantial value — that you could potentially provide to others, thereby undermining their return on the time and energy they sunk into it. That being said, you paid for that information and can hardly be blamed for using it as you please.

An effective intellectual property clause is one that strikes a balance between the two parties. You may acquiesce to language that says you will not repost or otherwise distribute those materials specifically flagged by your partner. Your consulting partner may reciprocate this by indicating that there is certain information that cannot also be shared. And, you may further agree that the experience will leave both of you better off as an outcome of the project and leave it at that.

7. Access or Materials

Access typically refers to materials that are expected to be provided to the vendor. This might be office space, software licenses or some other material provision. These requests are often very reasonable. If you have required that your vendor spend a set number of days working onsite, the vendor could be expected to ask that you provide them with a desk or work area.

Perhaps the most important question for you concerning this clause is its impact on the project budget. Contractual requirements to provision materials of any sort would typically be reflected in the project budget or otherwise recognized within the cost management plan.

8. Non-Solicitation

Great staff are hard to come by. This is true for both the organization and the vendor. And a project, in many ways, is the ultimate interview as it gives both parties an opportunity to see staff perform under pressure. A non-solicitation clause is often present in contracts to help ensure that the vendor will not hire staff from the organization (thereby disrupting the project) and vice versa.

We would recommend that, at the very least, whatever non-solicitation clause is stated is reciprocal.

It is worth noting that some states specifically disallow this as who you work for is considered a fundamental right. Clearly, when working in those states this is a clause that would normally be struck altogether.

9. Electronic copy or signing qualification

The days of the fax machine are over and the days of the electronic signature are here. It is worth clarifying in your contract any protections or qualifications required of an electronic signature.

Summary & Conclusions

There are many ways to approach contract negotiations. We have tried to offer an approach that is mutually agreeable – one where both parties can see equal protection and understanding as an outcome of negotiations. Starting a partnership on equal footing, in our experience, is most likely to set the tone and pace for the work that lies ahead.