A HANDYMAN'S GUIDE TO BUILDING CONTRACT EFFICIENCY

A HANDYMAN’S GUIDE TO BUILDING
CONTRACT EFFICIENCY
(Tools for Today)
Rochelle L. Cooper
United Space Alliance, LLC
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Drafting, Standardizing and Simplifying Contracts
As your contract transactions multiply, any inefficiencies
accumulate and act as a drag on your business.
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Unnecessary administration costs
Delays in closing transactions
Blown deals
Unpleasant surprises after contract execution
Disputes
Missed deadlines
March 6, 2008
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Effective Approaches to Contracting
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Adding value
– Cut costs
– Reduce risks
– Save time
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Practical and useful fallback provisions for commonly
negotiated provisions
Tools for standardizing and simplifying contracts
March 6, 2008
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Research Initiative on Contract Management
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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
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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.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 4
Steps in the Contract Process
Draft; Negotiate; Review; Monitor
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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
March 6, 2008
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Page 5
Drafting
Preparing Templates
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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
March 6, 2008
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Page 6
Drafting
Advantages of Using Forms/Templates
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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
March 6, 2008
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Drafting
Concerns and Challenges With Forms/Templates
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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
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 8
Drafting Standardizing and Simplifying Contracts
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 9
Drafting Contracts - Case Studies
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BOC’s Salesman’s Guide
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Cisco Systems’ Control Based Contract Builder
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BT’s Low-Cost Contract Builder
March 6, 2008
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Drafting Case Study #1
BOC’s Salesman’s Guide

BOC created a contract drafting guide to counter
concerns about incorrect use of contract templates
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Guide:
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Explains contract clauses
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Provides scripted response to potential customer
objections
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Outlines escalation procedures for moving to fallback terms
Educate on guide’s content during regular training
sessions
March 6, 2008
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Page 11
Drafting Standardizing and Simplifying Contracts
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 12
Drafting Standardizing and Simplifying Contracts
IMPLEMENTING THE SALESMAN’S GUIDE
Implementation Steps
Step 1
Identify Optimal
Contracts
Step 2
Seek Client Input
(Round One)
Step 3
Draft Guide
Step 4
Seek Client Input
(Round Two)
Step 5
Promote the Tool
Step 6
Conduct Training
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
Solicit input from internal clients on common customer
objections to standard contract clauses.
Time Required
3 weeks
Task lawyers with explaining the rationale for each clause in
layman’s terms, developing suggested responses, and
drafting fall-back clauses.
Time Required
3 weeks
Test the draft tool by distributing to a limited sample of clients;
collect and incorporate their feedback on the guide.
Time Required
Ongoing
Publicize the completed guide through all available channels,
in particular through senior sales leadership.
Time Required
Ongoing
Teach internal clients to use the tool during in-person training
sessions and refer to the guide during other client-facing
meetings.
Time Required
Ongoing
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 13
Drafting – Case Study #2
Cisco 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
March 6, 2008
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Page 14
Drafting
Cisco Case Study
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 15
Drafting
Cisco Case Study
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 16
Drafting
Cisco Case Study
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 17
Drafting
Cisco Case Study
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 18
Drafting
Cisco Case Study
IMPLEMENTING CONTROL-BASED CONTRACT BUILDER
Implementation Steps
Step 1
Define Builder
Scope
Step 2
Document
Decision Rules
Step 3
Choose
Standardized
Clauses
Step 4
Create Builder Tool
Step 5
Update Approved
Clauses
Identify contract types for which legal review consumes
substantial attorney time, but that have straightforward
decision rules.
Time Required
4 weeks
Meet with relevant attorneys and business clients to
document the inputs and decision rules used in creating and
reviewing these types of contracts.
Time Required
4 weeks
Solicit feedback from relevant attorneys and business
clients to document the specific clauses for every decision
rule path.
Time Required
6 to 8 weeks
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
Assign responsibility and create timeline for updates to the
tools inputs, decision rules, templated language, and other
tool functionality.
Time Required
3 weeks
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 19
Drafting – Case Study #3
BT’s Low Cost Contractor Builder
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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
March 6, 2008
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Drafting
BT Case Study
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 21
Drafting
BT Case Study
IMPLEMENTING LOW-COST CONTRACT BUILDER
Implementation Steps
Step 1
Collect Agreements
Step 2
Identify Frequently
Negotiated Clauses
Step 3
Create Decision
Rules
Step 4
Finalize Terms
Step 5
Protect Clauses
Step 6
Build Tool
Gather existing company contracts of the relevant type from
individuals and existing storage systems.
Time Required
1 week
Find commonalities and variations in existing contracts to
determine which clauses can be standardized and which
require a selection of terms.
Time Required
1 to 2 weeks
Develop decision rules to determine which clauses should
be used in various circumstances.
Time Required
2 to 3 weeks
Capture clauses for use in different circumstances from the
existing contracts, updating them where necessary.
Time Required
1 week
Save individual clauses in read-only format to prevent
unauthorized staff from editing terms.
Time Required
1 week
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
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 22
Sources for Importing Your Contracts
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
Reprinted with permission of the American Corporate Counsel (ACC) from “ACC Docket – December 2007”
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 23
Representative Participant Objectives in Contract
Negotiation
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 24
Preparing for Contract Negotiations
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Know your business
– Risk management philosophies of business
– Products/services, vendor needs
– Other important business details and relationships
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Know your contract goals
– Short and long-term goals
– Importance of contract to business
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Know your contract provisions
– “Deal killers” – be able to articulate why
– Viable alternatives/fall backs
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“Start from Fair”
– A good deal if a “fair” deal
– “Win-win”
March 6, 2008
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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
March 6, 2008
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Negotiation: Streamlining the Process – Case Studies
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Oracle’s Customer-Focused Clause
Standardization
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Tilburg Corporation’s Competitor Focused
Template Revision
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Vertis Inc.’s Negotiation Toolkit for Key
Provisions from The Company Services
Agreement
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USA’s Procurement and PIA Toolkits
USA Contracts Management Clause library
March 6, 2008
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Page 27
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.
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 28
Negotiating – Streamlining the Process
Opportunity to improve new customer relationships
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 29
Negotiating – Streamlining the Process
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 30
Negotiation
Oracle Case Study
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 31
Negotiation
Oracle Case Study
IMPLEMENTING COMPETITOR-FOCUSED TEMPLATE REVISION
Implementation Steps
Step 1
Obtain Benchmarks
Step 2
Compare Terms
Step 3
Control Version
Proliferation
Step 4
Monitor Changes
Gather intelligence on competitor terms and conditions from
customers, salespeople, trade associations, specialist
agencies, and publicly available resource.
Time Required
1 to 2 weeks
Evaluate benchmark contracts and consider risks and
advantages of aligning company terms with those of
competitors, seeking input from business clients where
appropriate.
Time Required
3 to 4 weeks
Publish updated contract terms to a central repository to
avoid client confusion between new and old templates.
Time Required
1 week
Track changes to updated terms and an ongoing basis and
modify frequently negotiated clauses.
Time Required
Ongoing
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 32
Negotiation: Streamlining the Process – Case Study #3
Vertis, Inc.’s Toolkit for Key Provisions
Negotiating Toolkit for Key Provisions from the
Company Services Agreement
March 6, 2008
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Vertis Toolkit
Fallback Provisions Warranties
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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?
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“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 membership@acc.com.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
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Vertis Toolkit
Fallback 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
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 membership@acc.com.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 35
Vertis Toolkit
Fallback Provisions Limitations On Liability
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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
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 membership@acc.com.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 36
Vertis Toolkit
Fallback Provisions Limitations On Liability
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.
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 membership@acc.com.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 37
Vertis Toolkit
Fallback Provisions Limitations On Liability
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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
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 membership@acc.com.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 38
Vertis Toolkit - Limitations on Liability – Disclaimer of
Consequential Damages
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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.”
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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
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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."
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 membership@acc.com.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 39
Vertis Toolkit
Fallback Provisions – Audit Rights
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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.
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 membership@acc.com.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 40
Vertis Toolkit
Fallback Provisions – Audit Rights
•
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.
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 membership@acc.com.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 41
Vertis Toolkit
Fallback Provisions – Audit Rights
•
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.”
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 membership@acc.com.
March 6, 2008
Handyman’s Guide to Building Contract Efficiency.ppt
Page 42
Negotiation: Streamlining the Process Case Study #4
USA’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)
March 6, 2008
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USA’s Procurement Toolkit
SM-100
March 6, 2008
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USA’s Procurement Toolkit
SM-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.
March 6, 2008
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USA’s Procurement Toolkit
SM-100
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.
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USA’s Procurement Toolkit
SM-100 Warranty Clause
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.
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SM-100 Warranty Clause
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.
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USA’s Procurement Toolkit
SM-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).
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SM-101
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USA’s Procurement Toolkit
SM-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/.
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SM-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 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/.
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USA’s Procurement Toolkit
SM-101 Disputes Clause
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.
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SM-101
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.
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SM-101
– 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.
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SM-101
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.
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SM-101
(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.
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USA’s Procurement Toolkit
SM-101
(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.”
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USA PIA Toolkit - Disclaimer & Warranty
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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.
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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.)
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Negotiation: Streamlining the Process Case Study #5
USA’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
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Terms & Conditions Matrix - FAR
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Terms & Conditions Matrix - FAR
SFOC
Cite
52.203-11
Title
USA SME
Certification and Disclosure Regarding
Contract
Payments to Influence Certain Fed
Management
Transactions (Apr 1991)
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ACC
A
Comments/Supplemental Instructions
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
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Terms & Conditions Matrix - DFARS
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Terms & Conditions Matrix – Air Force
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Terms & Conditions Matrix – Full Text
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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
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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
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Monitoring: Ensuring Contract Term Adherence
•
Harman’s Contract Milestone Management
– Agreement Tracking System
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Monitoring: Ensuring Contract Term Adherence
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
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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
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Monitoring – Case Study: Harman International
Industries, Inc.
Tool: Database To Capture Critical Contract Related Data
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
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Monitoring – Case Study: Harman International
Industries, Inc.
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
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Monitoring – Case Study: Harman International
Industries, Inc.
IMPLEMENTING CONTROL-BASED CONTRACT BUILDER
Implementation Steps
Step 1
Consult Colleagues
Step 2
Procure Technology
Step 3
Capture Existing
Contract Information
Step 4
Embed Data Input
Into Process
Step 5
Notify Stakeholders
Solicit feedback on desirable system functionality from other
potential user’s and stakeholders, notably the IT
department.
Time Required
1 to 2 months
Buy or build a database with only the necessary
functionality, carefully considering ongoing maintenance
costs and future upgrade requirements.
Time Required
2 to 4 months
Consider which contracts require tracking and input basic
contract details from existing sources.
Time Required
3 to 4 weeks
Create a procured for ongoing data input, integrating
information capture into the contract creation process.
Time Required
2 weeks
Alert clients to key milestones either manually or by using
automatic notifications.
Time Required
Ongoing
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
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Contract Management Technology Tools
Reprinted with permission of the General Counsel Roundtable from “Reengineering Contract Management to Further Business Goals”
© 2005 Corporate Executive Board. All rights Reserved.
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Contract Management Technology Tools
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