Essential Features in a Long-Term Contract

Essential Features in a Long-Term Contract■ Confidentiality■■■■Essential confidentiality provisions in the Contract especially - protection oftechnical know-how, proprietary processes, business-related informationEqually important t is monitoring i the confidentiality obligations, flow ofinformation etc., within the organisationChances of “fizzling out..”Period to cover the lifecycle of the information/technology■ Pre-Contractual period■■Cover any ypre-contractual exchange of information as confidential. Mustcontain an exclusive negotiation periodPre-contractual agreements should be normally non-binding (except forsecrecy obligations and exclusivity agreements) until the final agreement isreachedAir Liquide, world leader in gases for industry, health and the environmentEssential Features in a Long-Term Contract■ Scope, Change Orders■ Essential to define each party’s obligations, clarity, completeness, objectivity,responsibilities and limitations of SoW.■ Define each party’s exclusions■ Watch out for expansion of scope in subsequent clauses/appendices/technical appendices.■ Elaborate “Change” clause for all changes after contract execution.■ Have a clear process for changes / change orders.Air Liquide, world leader in gases for industry, health and the environment2

Essential Features in a Long-Term Contract■ Price, Payment Terms■ Price - starting point of commercial negotiation; determines principalcompensation for work. Elaborate pricing mechanism. Include provision forprice adjustments and escalations – delays, Force Majeure, taxes, statutoryvariations..■ Payment Terms - Cash/commitment positive (or at least neutral) in case ofcontract suspension, termination, prolongation etc.■ Down-payments, milestone and progressive payment mechanisms,documents for triggering payments, last payment. Payment securities andguarantees to be established.■ Rights and mechanisms in case of payment default. Interest t for delay,suspension and termination mechanisms. Currency Split and Hedging issues.Air Liquide, world leader in gases for industry, health and the environmentEssential Features in a Long-Term Contract■ Taxes■■Taxes not covered may lead to insufficiency of price, affect margin/risk andcontingencyTaxes require special knowledge and advice through specialists.■ Insurance■■■■Enumerate the obligations of insuranceElaborate which parties take up what obligationsAnticipate changes in insurance regimeLink with general obligations (title, possession..)Air Liquide, world leader in gases for industry, health and the environment3

Essential Features in a Long-Term Contract■ Suspension / Termination■ Always leave an exit option under specific circumstances (viability of business,events of default, material / substantial breach of contractual obligations)■ Circumstances, such as Force Majeure or other delays, which may allow aparty to suspend or to terminate the contract.■ Termination for convenience■ Specify the provisions explaining the rights of the party upon termination orsuspension Clauses which should survive termination:■ Confidentiality■ Limitation of Liability■ Choice of Law and ArbitrationAir Liquide, world leader in gases for industry, health and the environmentEssential Features in a Long-Term Contract■ Assignment■ Keep an assignment clause for long-term contracts.■ Preferably “with information” (as against – “with consent”)■ Certainly for inter-group assignments■ Foresee that corporate structures may undergo changes■ Dispute Resolution■ Disputes should be resolved by well-known and established arbitral bodies■ Location of the arbitration and the applicable law must be neutralAir Liquide, world leader in gases for industry, health and the environment4

Essential Features in a Long-Term Contract■ LiabilityMust have an appropriate aggregate liability cap. Liability for incidental,consequential, and punitive damages should be excluded in all contracts.■ Force MajeureMust contain a Force Majeure clause that broadly protects the interests of theorganisation.■ PerformancePerformance guarantees must only relate to the scope of work/services, andcontracts should allow meeting performance obligations through either “makegood” obligations or the payment of liquidated damages.Air Liquide, world leader in gases for industry, health and the environmentEssential Features in a Long-Term Contract■ Liquidated DamagesAny non-achievement due to default shall be subject to liquidated damages(not penalties) capped with a certain amount of the contract value. Payment ofliquidated damages must be considered as final and it must further excludeany additional rights.■ Intellectual PropertyThe intellectual property created out of the contracts should be clearly detailedas to who owns them. Third-party intellectual property rights provided to otherparties should be “back-to-back” with those rights extended to a party.Air Liquide, world leader in gases for industry, health and the environment5

Essential Features in a Long-Term Contract■ Remember Teamwork?■ Good involvement of technical / commercial personnel■ Understanding of business is critical■ Equally important is finance / taxation teams■ Ability to foresee long-term■ Lawyers’ role should be not only limited to “legal” provisions, but equally toelucidate “business / commercial” clauses in sufficient clarity.■ Most disputes arise not from “legal” provisions, but out of lack of clarity indealing with situations not foreseen at the time of drafting of contracts.■ “Cold-eye” review helps significantly.Air Liquide, world leader in gases for industry, health and the environmentEssential Features in a Long-Term ContractAir Liquide, world leader in gases for industry, health and the environment6