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September 30, 2009 at 9:32am
James Martin, an attorney in St. Petersburg, Florida has an article on his website regarding 50 tips for writing contracts that stay out of court. Most of the suggestions are good… a few are a little dated. This is my response to the dated things on his list:
3. Ask your client for a similar contract. Huh? If your client has a similar contract, they probably don't really need you. Now, I'm not advocating reinvention of the wheel. If there's a pre-existing solution to the problem, by all means, use it. But I'm guessing that someone's coming to you to draft the agreement because you have the skills. More importantly, however, is that their template/sample probably contains a LOT of issues. So it's usually 110% easier to start from scratch (or from your form) and customize it to your client's specific needs.
4. Check the form books and treatises for a contract form. and 5. Buy forms on disk or CD-ROM. I don't know who first created form books, but they're not as good as one might think… and they're not necessarily battle tested, either. You'd be better off getting a template from someone else you know if you don't know where to start. There are exceptions, of course, but still – be careful (see the second part of my advice for #3 above).
6. Don't let your client sign a letter of intent without this wording. Actually, my advice is to NEVER sign a letter of intent, regardless of the wording. As I've said before, a Letter of Intent is usually just a poorly written contract. Don't get caught up in that mess.
9. Identify the parties by nicknames. This isn't a hard-and-fast rule. Use nicknames only if it actually makes things easier to draft AND read. Be careful about using descriptive terms as nicknames (customer, vendor, consultant, etc) because other forms of that word could appear in the agreement. Use the "Find" feature of your word processor to discover if this is true.
12. Include recitals to provide background. I know a lot of people love these. But I hate them. I hate reading them and I hate writing them. On the other hand, for complex deals where the agreement could apply to many different things and you want to be clear on what the contract is really covering, this is the place. But for a standard software agreement, the place to list the products is in a product schedule… that way you can use the same license and only add additional product schedules w/o having to amend the agreement itself to modify some "Now therefore, the parties agree to license Word Processing application." type of language.
17. Title it "Contract." Actually, the better advice is to simply make sure that it doesn't say "proposal" or some other transient contract type (like "letter"). Granted, I like document titles "Software Licensing Agreement" or "Amendment to Master Services Agreement".…
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September 28, 2009 at 9:31am
These are the discussions that happened around the web this week – maybe you already read about them, maybe you need to again. Come join the party on twitter (follow me here and you'll participate in the conversation live.)
I also realized that many of you might have no idea what you're seeing below. Sorry. These are "tweets", 140 maximum character messages sent via Twitter. Within the Twitterverse individual users follow others and have followers (think of it like overlapping Venn diagram circles). To read a tweet, you have to wade through a bit of jargon used to make the most of the 140 character limitation. "RT" for example, is shorthand for "Re-tweet" and the @____ is the username of some other individual on Twitter. Combined together, then, "RT @_____" means that someone else wrote a tweet that I found important and I now want to forward along to my followers. The URL's are then also shortened by shortening services like bit.ly to make the most of the character limitation, too. Lastly, you might see "hash" identifiers "#______" which are ways to tag tweets of a particular flavor for easy searching later and "<" which means that I am commenting on what came before it.
September 23, 2009 at 9:32am
Over the span of my career, I've seen thousands of insurance sections in various contracts. At the beginning (and at certain employers), I would have to run this section by the insurance people in the event of any changes to our template language. But as time went on (and with a different employer), we really only paid attention to the need for insurance certificates and the actual amount of coverage listed. Then one day, I found myself in charge and needed to set the policy for how we were going to handle this oft-ignored/misunderstood area of the contract. So I brought in the insurance folks to talk with me about this interesting topic. [Note: What I'm about to tell you is what I've learned as a result of countless deals and several discussions with dozens of insurance agents. But if your insurance folks advise you differently, just remember where your bread is buttered. Hint: it's not by me.]
Insurance Types
There are five basic types or categories of insurance policies: Commercial General Liability, Professional Liability (errors and omissions type), Excess or Umbrella Liability, Workers' Compensation, and specific liability policies for particular types of work (auto, boating, construction, etc). Your contract should at least list the first four and optionally include reference to any other policies necessary based on the work you (or your vendor) are performing. There are, of course, some caveats.
- Not all professional services will qualify for Professional Liability policies. It's conceivable that you (or your vendor) will not be able to provide this type of insurance because of the nature of the work completed. However, many insurance companies will interview the insured organization and "create" a Professional Liability policy for that service – the key is to simply ask.
- Excess or Umbrella Liability policies can't exist without a primary Commercial General Liability policy on which to hang (hence the term "excess").
- Workers' Compensation is MANDATORY. In fact, in most contracts, you'll see this called out as statutory Workers' Compensation. In other words, if state law requires it, the insured must have it. If the insured is a sole-proprietorship (ie: they are their only employee), this policy probably won't apply. Again, however, it's based on the state's law in which the work is being performed.
- Specific Liability policies aren't always easy to determine up front. Who today can guess that you'll need "boater's insurance" five years from now? If you don't list these policies in the master agreement, simply remember to add them to a particular Statement of Work when needed.
Insurance Limits
Typically, when talking about Insurance Limits, we're really talking about the maximum dollar value of each policy. Some organizations love to go for broke on this – asking for $10M minimum aggregate and $5M per occurrence, etcetera. Lets break down the distinction and then talk about dollars.
- "Minimum aggregate" refers to the total amount of money recoverable under the specific policy regardless…
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September 20, 2009 at 9:32am
These are the discussions that happened around the web this week – maybe you already read about them, maybe you need to again. Come join the party on twitter (follow me here and you'll participate in the conversation live.)
I also realized that many of you might have no idea what you're seeing below. Sorry. These are "tweets", 140 maximum character messages sent via Twitter. Within the Twitterverse individual users follow others and have followers (think of it like overlapping Venn diagram circles). To read a tweet, you have to wade through a bit of jargon used to make the most of the 140 character limitation. "RT" for example, is shorthand for "Re-tweet" and the @____ is the username of some other individual on Twitter. Combined together, then, "RT @_____" means that someone else wrote a tweet that I found important and I now want to forward along to my followers. The URL's are then also shortened by shortening services like bit.ly to make the most of the character limitation, too. Lastly, you might see "hash" identifiers "#______" which are ways to tag tweets of a particular flavor for easy searching later and "<" which means that I am commenting on what came before it.
September 18, 2009 at 9:32am
I have written before on how a contracts professional can justify their position within an organization. One of the hardest groups to convert to your way of thinking, however, can be lawyers. It's interesting when you can get the lawyers to admit this because they are well aware of the value of specialization and the nature of what is taught in law school. For those of you not graced by the opportunity to spend at least three years of your life burrowing into the method of how to "think like a lawyer", please allow me to explain.
Law school creates generalists. Your curriculum usually spends 1.5 years on the 10 basic classes: Criminal Law/Procedure, Civil Law/Procedure, Constitutional Law (usually long enough to require 2 separate courses), Torts, Evidence, Legal Writing and Contracts. The rest of that second year and part of the third is usually focused on electives: tax, business, alternative dispute resolution, intellectual property, etc. The last part of the third year (distributed in part of the second and third years, actually) is almost always some sort of practicum or clinic experience along with some trial advocacy skills and legal ethics.
So at the end of this endurance test, newly minted lawyers have had exactly ONE class on most of the various subject matters that they'll encounter in practice. This is pretty frightening to some if you consider that some new lawyers immediately hang their own shingle and go into practice for themselves. Contrary to the educational system of the past, then, these lawyers now have to learn on the job with live clients.
This is true of contracting. If they took an elective on contract drafting, then fine, they had two classes. But still – a sum total of 1 academic year of discussion on contract theory and drafting is not a lot when you consider the vast nature of the space. Software licensing, hardware purchase agreements and other tech-related contracts are but one type of contract. Services agreements, nondisclosure agreements, regulatory-related agreements and others add to the mix (and we haven't even talked about things like Statements of Work or other more business-y agreements).
Add to this the fact that contracting doesn't happen in a vacuum. Contract negotiations are the method by which two or more parties come together to agree on the needed and acceptable language. Negotiation is but one facet of alternative dispute resolution – and again, unless taken as an elective, hasn't necessarily been formally taught to a law student.
All this is to say that it makes sense that contract professionals exist in this world as a specialty service. In fact, some contract professionals even only specialize in one type of contractual agreement. Lawyers should therefore: a) not assume that their law degree grants them the knowledge to automatically operate in this space without additional training; and b) remember that specialization is a hallmark of the law business – so they shouldn't be afraid of…
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