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HomeABOUT USINTRODUCTIONWHAT IS "CONTRACTS MANAGEMENT" ?12 PRACTICAL REASONS TO USE WRITTEN AGREEMENTS WITH SUPPLIERSCONTRACT LEGALESE REDUCTION TIPS60 PRACTICAL CONTRACT DRAFTING TIPSCOMMERCIAL CONTRACTS MANAGEMENT BEST PRACTICES50 TIPS FOR YOUR STATEMENT OF WORK (SOW)JOHNNY'S SOW TEMPLATEService Level Agreement TemplateINTERNATIONAL SALES AGREEMENT CHECKLISTCHECKLIST FOR JOINT COLLABORATIVE AGEEMENTS115 ISSUES IN COMMERCIAL SERVICES AGREEMENTSRISK MANAGEMENTCHECKLIST FOR OUTSIDE COUNSEL AGREEMENTSSEVERABILITY40 INDEMNIFICATION CLAUSE REVIEW TIPSUS PATENTS: 30 FACTORS TO CONSIDER40 NON DISCLOSURE AGREEMENT REVIEW TIPS14 IMPORTANT, PRACTICAL, AND USEFUL INVENTORSHIP ISSUESSTART-UP ENTITY INTELLECTUAL PROPERTY DUE DILIGENCE CHECKLIST4 STEP NEGOTIATION CHECKLISTP-4 PREFERRED PROVIDER PARTNERING PROGRAMOFF SHORE OUTSOURCING OF COMMERCIAL CONTRACTS MANAGEMENTBUSINESS INSURANCE BROKER AGREEMENTSJOHNNY'S CERTIFICATE OF INSURANCE REVIEW CHECKLISTTX BUSINESS TYPETX LLC CHECKLISTTX CORP CHECKLISTSTATE BAR OF TEXASCLIENT REVIEWSAVVOARTICLES57 RESUME BLUNDERSYOGI-ISMSUECKER-ISMSBASEBALL IS DIFFERENTClient Access Only Page - Password Protected
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* 115 Services
Agreement Issues for the Service Provider – NCMA CM Magazine in June 2011 115 Issues in Commercial Services Agreements
for the Service Provider . A handy checklist for use as a contractual
risk prevention tool for commercial services agreements . . Thoroughly reviewing
or initially drafting a commercial services agreement to properly address the major issues from the viewpoint of the service
provider can be challenging. There are certainly many key commercial services issues to consider. Many of the issues are vital
to the success of the services procurement. . The amount of money that companies spend on the procurement of commercial services is sizeable. A well-respected study of U.S. companies revealed that (from an overall spend management perspective) commercial services spend represents 11 percent of total revenue and 30 percent of the total purchase spend by companies. . If your contract management activities involve supporting a service provider, it is
likely that you will be asked by your service provider employer to either draft or review a commercial services agreement
from the service provider’s viewpoint. As with any substantive contract executed by an entity, commercial services agreements
are important contracts which contain numerous issues which need to be properly addressed. This article is applicable to both indirect and direct procurement of commercial services agreements.
It also addresses both domestic and international issues with regard to commercial services agreements. This article does
not, however, address the procurement of goods, except to the limited extent that secondary ancillary goods may, at times,
be procured in combination with the primary procurement of services. . . In my contracts management
career, I have drafted and reviewed many services agreements from the service provider’s viewpoint as well as from the
purchaser’s viewpoint. Although this article focuses on services agreements for the performance of services from the
service provider’s viewpoint, it is also quite useful to the purchaser of services by helping the purchaser identify
issues which may also be of importance to the purchaser. For clarification purposes, it should be noted that “service level agreements” (SLAs) are not the same
as “services agreements.” Properly addressing SLAs is only one of the many issues to consider when addressing
the much larger topic of commercial services agreement issues. In order to systematically and thoroughly cover the multitude of unique issues in a typical commercial services agreement
for the performance of services from the service provider’s viewpoint, I have, over the years, developed the following
list of 115 issues in commercial services agreements for the service provider, which I routinely use as a practical and efficient
checklist. .
115 Issues Checklist . *Is the contract type appropriate for the applicable statement
of work (SOW)? For example, consider the following three services contract examples: *The time and
materials (T&M) “best efforts” type contract is the lowest performance risk and lowest cost risk for the service
provider with the requirement to exert the service provider’s best efforts to complete the SOW within the period of
performance (POP) and monetary estimate of cost (budget). If the service provider can complete the SOW at or below the budget,
then that actual cost within the budget is all the purchaser is charged. If the service provider exerts its best efforts but
cannot complete performance within the POP and within the budget, then the service provider can suspend performance at the
expended budget amount until the service provider receives: --More T&M best efforts budget funding from the purchaser to complete the work; or --Notice from the purchaser not to continue the work. This type of
contract would be appropriate for use with a loose, indefinite SOW. *The
firm-fixed-price (FFP) contract is a high-performance risk and a high-cost risk for the service provider with the firm requirement
to fully complete the performance of the SOW within the POP, regardless of actual cost. This type of contract might be appropriate
for a very definite, complete, and precise. *The
T&M not-to-exceed (NTE) type contract, without the best efforts notion, is the highest performance risk and the highest
cost risk for the service provider with the firm requirement to fully complete the performance of the SOW at actual cost (but
within the NTE cost amount) and the within the POP. This type of agreement is a higher risk for the service provider than
the FFP contract. The service provider should avoid the T&M NTE contract in favor of either the T&M “best efforts”
contract or the FFP contract, depending how definite, complete, and precise the SOW may be. There
are, of course, many variations of the above three commercial services agreements and many other additional types of agreements
used with commercial service providers. The key point for the service provider to remember, however, is that the contract
type must be appropriate for the SOW. *Are the parties to
the services agreement accurately identified in the preamble by full legal name, type of entity, state of entity creation,
and entity physical address? *Is there an appropriate “Background” or
“Whereas” recitals section that describes the reason for and purpose of the services agreement?
*Is legal consideration cited (e.g., “in consideration of the above premises and below mutual promises
of the parties, the parties agree as follows…”)? *Is there a “Definitions”
section that clearly defines the agreement’s key capitalized terms, such as: --Each party’s “Proprietary Information”; --Each party’s “Rights,” to include know-how, technical data, computer software, and
inventions now in existence or later developed by each party, including all such party’s applicable copyrights, mask
works, trademarks, service marks, trade dress rights, patents, provisional patents, patent applications, trade secrets, moral
rights, and other related intellectual property including related future developments and improvements; and --Any other key terms which need to be capitalized and defined?
*Is there a “Relationship of the Parties” section that clearly states that each party is
an independent contractor with regard to each other under the agreement and that neither the agreement nor the operation of
the agreement in any way causes the parties to become legal partners, legal joint venture parties, or parties to any other
legal entity? *Does each party state that it is not and will not
be a party to another contract that would prevent or impair its performance or obligations under the agreement? *Is it clear that
nothing in the agreement shall prevent, preclude, or restrict either party from dealings with outside parties to the extent
such outside party dealings do not create a default under the agreement? *Is there a “Term
of the Agreement” section that states the effective date of the agreement, the length of the POP, and how to extend
the POP of the agreement? *Is the “Schedule” provision’s definition
of when deliverables are due reasonable? Fast-track projects typically lead to problems. *Has the SOW been professionally prepared? *Is there a prohibition on the use of subcontractors or consultants by the service provider? *Have job site health and safety responsibilities been
appropriately addressed? *Are the compensation and payment provisions complete
and acceptable? The compensation and payment provisions are vital. Consider whether or not the service provider’s work
should start before adequate initial payment is received. *What is the purchaser’s financial condition? *Will payment be made in net 30?
*Is the purchaser allowed to use set-offs against the service provider?
*Is there an “Exchange of Proprietary Information”
section in the agreement? *Is
this a mutual two-way non-disclosure/non-use provision that addresses all the applicable non-disclosure/non-use issues? *Is there a fair “Termination” section that
properly addresses termination for default and (possibly) termination for convenience?
*Is there a “Limitation of Liability” section that reasonably caps each party’s monetary
liability to the other for actions related to or arising out of the agreement (excluding the harmed party’s intellectual
property infringement claims or wrongful disclosure/use of proprietary information claims against the harming party)? *Is there a “Waiver
of Consequential Damages” section that provides for an equitable mutual waiver of consequential, indirect, special,
and incidental damages between the parties? *Is there an “Indemnification”
section in which each party reasonably agrees to indemnify the other for: --Third-party
general liability claims arising out of the services agreement to the extent of the indemnitor party’s proportional
negligence or willful misconduct; and --Third-party intellectual property infringement claims arising as a result of the indemnitor party’s
activities under the services agreement? *Is there an appropriate “Warranty” provision, “Limited Warranty” provision,
or a “Disclaimer of Warranties” provision? *Is there a representation
that software viruses will not be included in the deliverables? *What is the standard
of care for performance of the services? *Are there any required SLAs and, if so, are they acceptable? *Is there an “Insurance” provision
that states the types of coverages and coverage limits that will be required of each party? *Will there be any endorsements (waiver of subrogation,
additionally insured party, etc.)? *“Governing Law”
provision? Is the chosen state law suitable? *Does the provision exclude the chosen state’s choice of law provisions?
*Is
there a “Jurisdiction” clause that establishes jurisdiction and venue in a specific type of court in a given location?
*Is there a prohibition on delivery of open source software?
*Are there periodic reporting requirements that are reasonable?
*Is there a provision that properly addresses “Public Announcements,” “News Releases,”
and “Advertising Materials”? This is an important provision since the service provider very often likes to extract
as much publicity as possible from the services agreement. *Is there a reasonable
“Allocation of Technology and Intellectual Property” provision? This should address the current “Rights”
of each party individually to its currently existing technology and related intellectual property. Also, it should address
the future “Rights” of each party individually to its technology and related intellectual property solely developed
by each party under the agreement. Additionally, the provision must also address how the ownership and rights of use will
be equitably allocated between the parties with regard to jointly developed technology and intellectual property under the
agreement. *Is there a “General Skills and Knowledge”
provision that reserves and allocates ownership of general skills and knowledge to the service provider?
*Is there a “Dispute Resolution” provision that fairly addresses how disputes between the
parties will be resolved? *Are there any contractual
time limits on when dispute resolution or litigation must be started? *Is the prevailing party
in a dispute under the agreement entitled to attorney fees and court costs?
*Is there a “Business Continuity” (disaster recovery) provision to address how each party
plans for continuation of their business in the event of interruptions?
*Is there a “Business Ethics” provision to address how each party will operate ethically
and with integrity? *Is there a “Data Privacy” provision that
addresses how individual privacy will be safeguarded? *Is there a “Records
Retention” provision that properly addresses how long applicable records and data will be retained and stored before
deletion and destruction? *Is there a “Score Card” provision
so the parties can periodically assess and evaluate the services provided? *Is there an “Anti-Piracy
of Employees” provision that reasonably prohibits one party from soliciting or hiring the other party’s employees? *Is there a notice of labor strikes requirement? *Is there an “Export
Compliance” provision that requires compliance with the Foreign Corrupt Policies Act (FCPA), anti-boycotting laws, Export
Administration Regulations (EAR), International Traffic in Arms Regulation (ITAR), and other
export compliance laws and regulations? *In an international
services agreement, will there be an initial payment prior to performance? *In an international
services agreement, after receipt of the initial payment (if any), is the remainder of the payment to be made under a letter
of credit or secured by a standby letter of credit? *In an international services agreement, is the payment
letter of credit (if any) irrevocable, advised, confirmed, transferable, issued by a bank that you approve, and paid for by
the purchaser? *In an international services agreement, can you receive
payment under the letter of credit (if any) by presentation of your invoice to the issuing bank?
*Is the payment currency appropriate? *Is there late payment
interest? *If on-site work is required, is demobilization/remobilization
recoverable? *How is “Inspection, Testing, Delivery, Acceptance,
and Rejection” addressed? Is it reasonable? *Are there definite acceptance criteria?
*Is there a “Liquidated Damages” provision? *Is there a “Stop
Work” clause? *Will an US Department of State /ITAR or Bureau
of Industry and Security/EAR export license be required? *In an international
services agreement, is there an advanced payment bond, performance bond, or warranty bond requirement?
*How are taxes, tariffs, and import duties handled? *In an international
services agreement, is English the controlling language of the agreement? *In an international
services agreement, is a FCPA clause required? *In an international
services agreement, is the agreement compliant with anti-boycott laws?
*Are there any antitrust issues to consider? *Is the purchaser listed
as a “Denied Party” under any U.S. Denial Orders? *Should software
or technology licensing be addressed? *In an international
services agreement, will a carnet be required? *In an international
services agreement, has the inflation rate in the purchaser’s country been considered?
*In an international services agreement, have exchange rate issues been considered?
*In an international services agreement, are there any repatriation problems?
*In an international services agreement, will the contract create a “presence” in a foreign
country that may create certain foreign country registration requirements?
*In an international services agreement, are there specific, unique foreign country quality standards
which must be met? *In an international services agreement, will
power of attorney documents be required? *Will the metric system
apply? *In an international services agreement, are there any
political risks? *In an international services agreement, are there any
in-country personal safety risks? *In an international
services agreement, will you need to protect any of your company’s patents or trademarks in another country in order
to do the work? *In an international services agreement, are there any
special cultural considerations? *In an international
services agreement, do any aspects of the legal/judicial system of the purchaser’s country present a problem? *In an international services agreement, are there any foreign country economic/financial
concerns? *In an international services agreement, are there any
labor-related issues to consider in the customer’s country? *In an international
services agreement, are there any applicable import restrictions? *In an international
services agreement, are there any local content requirements? *Is foreign offset cooperation
required of the service provider? *What is the purchaser’s
gratuity policy? *Are there any International Organization for Standardization
(ISO) 9000 quality issues? *Are there any other quality requirements?
*Are
there any ISO 14000 environmental issues? *Are there any other
ISO requirements? *Are there any security requirements?
*Are there any sustainability issues? *Are there any conflict
of interest requirements? *In an international services agreement, do EU
laws and regulations apply? *In an international services agreement, has “The
United Nations Convention on Contracts for the *International Sale of Goods” been waived?
*Do any international commercial terms (INCOTERMS) apply?
*In an international services agreement, what are the foreign trade barriers in the purchaser’s
country? *How are contractual changes handled? *Is there a “Most
Favored Customer” clause? *Is there a reasonable
“No Third Party Beneficiaries” provision? *How will litigation
assistance (during or after the POP) be performed by the service provider if requested by the purchaser?
*Is there a reasonable “Force Majeure” provision?
*Is there a reasonable “Assignment” clause?
*Is there a reasonable “Notices” provision?
*Is there an “Acceptable Compliance with Applicable Laws and Regulations” clause?
*Is there a reasonable “Audit” provision? *Is there a “Survival”
clause?
*Is there a “Non-Waiver” provision? *Is there a “Headings”
clause? *Is there a “Severability” provision?
*Is there an order of precedence procedure in the event of conflicting provisions?
*Is there a “Merger” clause that states that the written sales agreement is the entire agreement
between the parties? *Does the services agreement state that the agreement
may only be modified in signed writing by the parties? *Are there any flow-down
provisions from a prime contract the purchaser may have which might apply to the services agreement? If so, are such flow-down
provisions reasonable? *If the primary services activity may also concurrently
include the acquisition of secondary ancillary goods, does the services agreement appropriately comprehend and address the
goods issues? *If the primary services activity may also concurrently
include the acquisition of secondary ancillary software ownership or licensing, does the services agreement appropriately
comprehend the applicable software issues? *If the services agreement
will be used by the purchaser for indirect and/or direct procurement, does the agreement appropriately address the applicable
indirect and/or direct procurement issues (as the case may be)?
*Are there any legacy boilerplate provisions which should be deleted because they do not apply to the
services procured? *Are there any purchaser “moving-target”
clauses such as requiring compliance with the purchaser’s then-current policies and procedures?
*Are there any purchaser “weasel” provisions, such as: “…as so determined by
Purchaser”? . . The goal of a commercial services agreement is to facilitate an ongoing, mutually
beneficial, contractual, win-win relationship between the service provider and the purchaser. In contract management, it is
very important to be able to initially identify the applicable services agreement issues and then seek the appropriate resources,
as needed, to professionally resolve the issues. If the issues are not initially identified, they are passed-over, missed,
and not resolved. The checklist in this article
will help in professionally creating or reviewing a commercial services agreement from the viewpoint of the service provider.
Also, a good checklist to help you identify services agreement issues is a valuable contracts risk management tool in contracts
management. However, this checklist is not exhaustive. Every commercial services agreement has some unique aspects which may
not be addressed in this checklist. Nevertheless, if you routinely use this checklist as one of several resources when you
draft or review a commercial services agreement from the service provider’s viewpoint, you will be pleasantly surprised
with the large number of substantive, material, risk reduction, performance improvement, and cost-savings
issues that will be surfaced for proper resolution. . Consider the above checklist as a contractual risk prevention tool for commercial services agreements. Just remember, “An ounce of prevention is worth a pound of cure.”
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