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Contract Considerations

Contract Considerations

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Published by Erin McClarty
Considerations nonprofits should keep in mind when entering into certain contracts.
Considerations nonprofits should keep in mind when entering into certain contracts.

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Published by: Erin McClarty on Aug 24, 2012
Copyright:Attribution Non-commercial


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Contract Considerations
Have you identified all the relevant parties?
Have you identified the transaction and its scope? For example, whether it is a purchase of good(s) or service(s)?
Is this a one time agreement or framework for a bunch of different transactions?Logistics of the Agreement
How will the parties go about initiating the transaction? Ex. If something is being purchased, howdoes the Buyer institute purchasing it? Do they fill out a purchase order? Send an email?
What are the parameters of the transaction? What will it apply to?
If changes need to be made is there a process?Delivery
What are the terms of delivery? Where must delivery take place, how and by when?
If goods are being purchased when does the title in them transfer?
At what point is the buyer responsible for damaged or loss of the goods?
How long does the Buyer have to accept what has been purchased? For complicated things(such as software being custom made) will there be multiple times where the software is testedand accepted? Or even a distinct test created to test and allow for acceptance?
Where sales are international how are import/export issues addressed? Who is responsible forthe export documentation? Do the parties want to adopt INCOterms, and if so, which one?Price/Payment/Taxes
What amounts or costs will each party be responsible for?
When will an invoice be issued?
What is the metric for the price? Is it fixed or as quoted? Price plus any reimbursement costs upto a quoted amount? Can the price be adjusted, and if so, when and how?
When is payment due?
Are backups or documentation required to be submitted with all invoices?
Will payment be tied to milestones? Will a certain amount be held back each payment? (Doing sodoes a number of things. Can giveBuyers leverage if the ultimate product doesn’t work andcreates a pot to dip into if the seller f ails to pay off all liens or taxes.)
What taxes will the Buyer reimburse to the Seller or be responsible for?
To ensure the Seller isn’t overcharging, will the Buyer be able to audit the Seller’s books? If so,has the Seller addressed the parameters for proprietary or confidential information such as pricingformulas or trade secrets? Or does the Seller want a third party auditing? Warranties/Representations
If certain functionalities or customizations were promised during a demo or in marketingmaterials are they replicated in the agreement?
If manufacturer warranties are available, does the seller have an obligation to pass them on?
 What warranties are included? Is there a certain amount of time in which it is promised that whatyou’re purchasing will work?
If there is a warranty, are there instances in which you might void it?
 What happens if what your purchase breaks? Do you have to send it back? If so, at whose cost? Who is responsible for the time it takes to get it back to the Seller and then back to you?
 Are there warranty disclaimers? If so, do you understand what they’re saying?Confidentiality
Is there information being exchanged that should be held confidential between the parties?
Should the arrangement, transaction or contract itself be kept confidential?
Does the confidentiality obligation apply with one party or both.
How long is the obligation to hold something confidential? Don’t want this to last infinitely.
Are there certain types of information that shouldn’t be kept confidential? For example,information that was already in the possession of a party, information that was received fromsomeone outside the transaction, or information that must disclosed to authorities.Risk Allocation/Liability
Indemnity. If there is property damage or someone is hurt who is responsible and how much arethey responsible for? If the agreement states you won’t be responsible for X, when does that kick in? At the time a claim is filed? Or after its been resolved?
Notification; exclusions. If a claim is filed, does a party have an obligation to notify the other? Arethere instances in which a party won’t defend, or indemnify, another party against a claim?
Limitation of liability. Have one of the parties limited its liability for damages that result from theagreement? Either using a monetary cap or rejecting liability for certain types claims?
Exclusion of certain indirect or consequential damages. There are some types of damages thatdon’t directly “flow” out of a breach of a contract. For example, where one party misses an orderbecause the other delivers shoes late, or one party couldn’t finish a job because the other party’sequipment didn’t work right. These aren’t necessary a direct result of a failure under the contract.That being the case, are the parties going to agree to be responsible for them? Or are they goingto reject liability?Intellectual Property
If intellectual property (trademarks, copyrights, patents, trade secrets) will be created during thetransaction:
How will the IP created before the transaction be treated? Will each party maintain therights to IP it created, developed or owned beforehand?
How will the IP created during the transaction be treated? Will the Seller keep it? Is thebuyer asking that it all be assigned to them? Or will it be owned jointly?
Note: Where ownership goes entirely to one or the other party, the party withoutownership will probably want to discuss getting a license to us the IP to carry outits role under the Agreement where necessary.Term of the Agreement/Default by Parties
Term of the Agreement. Does it end once the transaction is over? Can the agreement berenewed? If so when will the renewal take place? Will renewal be automatic or require the consentof both parties?
Termination. Who can terminate the agreement? When can they terminate and how? Will partiesbe able to terminate out of convenience or only where there is a breach? What must the parties doif there is termination? And what are they responsible for?
Breach. Aside from failure to pay or deliver on time, what other events will constitute as a breach(ex. illegal acts, bankruptcy, breach of confidentiality)? What happens if a party breaches? How dothe parties go about notifying the other of the breach? How long does a party have to fix thebreach, if allowed?
If the breach is not corrected, and the agreement is terminated, are there items that should bereturned or destroyed? How will payment be worked out?
Where there is a breach because of circumstances outside the control of the parties will it beexcused (i.e. not count as a breach)? If so, is there a Force Majuere clause detailing whatcircumstances will be excused, and what will happen if a Force Majeure event happens? Are thereexceptions? Assignment and Other Miscellaneous (but important) Provisions
Assignment. Is the agreement assignable? Is there an assignment clause?
Notice Provision. If a party needs to terminate the agreement, or let the other party know abouta breach, have the addresses of each party been provided in a Notice Provision? When will noticessent by mail or carrier be considered delivered to the other party?
Entire Agreement Provision. Is there a provision stating that the agreement is confined to that inthe contract?
Governing Law Provision. What law governs the agreement? Is there language detailing howdisputes are resolved (arbitration or litigation) and what geographical location it will take place. Willthe governing law change depending on the claim (for example, where a party is threatening todisclose confidential information the other party)?

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