An Article by, Thomas J. Dolan III Esq, An Attorney with over 7 years of contract experience for both small, medium and large companies.
Many small to mid-size businesses are in the delivery business. Whether companies are delivering, services, infrastructure capabilities, technology products, or business solutions, many lack a very important and essential component to their operating structure: A Contract Portfolio. Many business clients with whom I have worked to build a suitable portfolio understand the need for a legitimate contract structure for their business but all too often pass over it believing that these types of documents are for larger companies, or are simply unaffordable. Most often they are in the habit of using some kind of form feed contract which they have inherited through a friend or associate, who obtained it from another colleague and so on. This article will identify three problems with using this type of Contract System, and put your business on track to building a stable, risk mitigating system.
Problem 1: The Non-Disclosure Agreement-
I have yet to find a small business owner that uses a Non-Disclosure Agreement (NDA) as part of their normal business practice. This is a basic building block of protecting your solutions, pricing models, intellectual property, trade secrets, and other proprietary information that contribute to keeping your business competitive in the marketplace. The lack of such a document in normal small to mid-size business practices leaves me perplexed. When dealing with mid to large size businesses or corporations, the NDA is as commonplace as exchanging business cards before discussing a working relationship, teaming agreement, or procurement in general. Simply stated, both parties know and are aware that a simple NDA gives them a shield of protection in any aggressive business environment.
Problem 2: The Quasi Contract
Although "Quasi Contract" is a legal term which describes a contract with incomplete terms or ambiguous conditions, I find that many small to mid-size companies operate with a less than adequate system or Top-Level Agreement which contains standard provisions required to protect itself from lack of specificity in the work to be performed, missing or incomplete clauses, terms, indemnification language, limitation of liability, insurance requirements, and ensuring that the duties of both parties are clearly defined. A sound Standard Services Agreement or Top-Level Contract, should be comprehensive, workable within the confines of one's business, and detail in specify the working relationship that is to take shape.
Problem 3: Subcontractors
All too often, I see that companies make one of two major mistakes with respect to dealing with their subcontractors, which often results in a financial loss to the project, a delay in performance or the need to constantly renegotiate terms: Example 1: The Prime contractor uses its standard agreement to enlist the work of a subcontractor. The terms "contract" and "subcontract" have different designations for a reason. Simply stated they formalize the business relationships of two different parties to a business opportunity. As a prime you must have one document which is customer facing and allows you to provide the solution, technical excellence, and requirements to a customer, while still protecting your interests as a company. A separate document dealing with subcontractors represents a different and wholly separate agreement from the one that you have with your customer. This document should, above all, protect you as a prime contractor, detailing the work that MUST be furnished, on schedule and in a timely manner, and with the correct credentials that are being sought by your Customer. Example 2: The Prime contractor uses the subcontractor's standard agreement rather than its own Subcontract to memorialize the relationship. From the standpoint of being a Prime contractor, this is quite possibly the worst system to use. A major functional part of the Subcontract as indicated above is to protect the Prime. The Prime should provide the terms and conditions to the subcontractor rather than the reverse to ensure that it is receiving the services and/or products for which it is subcontracting to fulfill its obligations under the Prime Contract with the customer. Additionally, a Prime will want to make sure that such a subcontract is in place for liability purposes, and that it specifies the Subcontractor as an independent contractor rather than an employee of the Prime for liability purposes. Solid Subcontracts should require those seeking to obtain a portion of work from the Prime as a subcontractor to make certain warranties regarding their performance, corporate insurance, communication, and relationship, if any, to the Prime Customer.
The Examples provided do not cover all contract issues, as each company has its own needs pertaining to: risk factors, customer requirements, and scope of business. If you find yourself or your company falling into any of the problem examples as described above, or simply want to consult an Attorney regarding your businesses contract portfolio, The Law Offices of Thomas J. Dolan III can help. Consultations are free and we pride ourselves on producing the best portfolio to meet your company or business's needs. There is no risk in the consultation, so why not take a shot? Please contact us!
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