Essential Features in a Long-Term Contract
Essential Features in a Long-Term Contract
Essential Features in a Long-Term Contract
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
<strong>Essential</strong> <strong>Features</strong> <strong>in</strong> a <strong>Long</strong>-<strong>Term</strong> <strong>Contract</strong>■ Confidentiality■■■■<strong>Essential</strong> confidentiality provisions <strong>in</strong> the <strong>Contract</strong> especially - protection oftechnical know-how, proprietary processes, bus<strong>in</strong>ess-related <strong>in</strong>formationEqually important t is monitor<strong>in</strong>g i the confidentiality obligations, flow of<strong>in</strong>formation etc., with<strong>in</strong> the organisationChances of “fizzl<strong>in</strong>g out..”Period to cover the lifecycle of the <strong>in</strong>formation/technology■ Pre-<strong>Contract</strong>ual period■■Cover any ypre-contractual exchange of <strong>in</strong>formation as confidential. Mustconta<strong>in</strong> an exclusive negotiation periodPre-contractual agreements should be normally non-b<strong>in</strong>d<strong>in</strong>g (except forsecrecy obligations and exclusivity agreements) until the f<strong>in</strong>al agreement isreachedAir Liquide, world leader <strong>in</strong> gases for <strong>in</strong>dustry, health and the environment<strong>Essential</strong> <strong>Features</strong> <strong>in</strong> a <strong>Long</strong>-<strong>Term</strong> <strong>Contract</strong>■ Scope, Change Orders■ <strong>Essential</strong> to def<strong>in</strong>e each party’s obligations, clarity, completeness, objectivity,responsibilities and limitations of SoW.■ Def<strong>in</strong>e each party’s exclusions■ Watch out for expansion of scope <strong>in</strong> 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 <strong>in</strong> gases for <strong>in</strong>dustry, health and the environment2
<strong>Essential</strong> <strong>Features</strong> <strong>in</strong> a <strong>Long</strong>-<strong>Term</strong> <strong>Contract</strong>■ Price, Payment <strong>Term</strong>s■ Price - start<strong>in</strong>g po<strong>in</strong>t of commercial negotiation; determ<strong>in</strong>es pr<strong>in</strong>cipalcompensation for work. Elaborate pric<strong>in</strong>g mechanism. Include provision forprice adjustments and escalations – delays, Force Majeure, taxes, statutoryvariations..■ Payment <strong>Term</strong>s - Cash/commitment positive (or at least neutral) <strong>in</strong> case ofcontract suspension, term<strong>in</strong>ation, prolongation etc.■ Down-payments, milestone and progressive payment mechanisms,documents for trigger<strong>in</strong>g payments, last payment. Payment securities andguarantees to be established.■ Rights and mechanisms <strong>in</strong> case of payment default. Interest t for delay,suspension and term<strong>in</strong>ation mechanisms. Currency Split and Hedg<strong>in</strong>g issues.Air Liquide, world leader <strong>in</strong> gases for <strong>in</strong>dustry, health and the environment<strong>Essential</strong> <strong>Features</strong> <strong>in</strong> a <strong>Long</strong>-<strong>Term</strong> <strong>Contract</strong>■ Taxes■■Taxes not covered may lead to <strong>in</strong>sufficiency of price, affect marg<strong>in</strong>/risk andcont<strong>in</strong>gencyTaxes require special knowledge and advice through specialists.■ Insurance■■■■Enumerate the obligations of <strong>in</strong>suranceElaborate which parties take up what obligationsAnticipate changes <strong>in</strong> <strong>in</strong>surance regimeL<strong>in</strong>k with general obligations (title, possession..)Air Liquide, world leader <strong>in</strong> gases for <strong>in</strong>dustry, health and the environment3
<strong>Essential</strong> <strong>Features</strong> <strong>in</strong> a <strong>Long</strong>-<strong>Term</strong> <strong>Contract</strong>■ Suspension / <strong>Term</strong><strong>in</strong>ation■ Always leave an exit option under specific circumstances (viability of bus<strong>in</strong>ess,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 term<strong>in</strong>ate the contract.■ <strong>Term</strong><strong>in</strong>ation for convenience■ Specify the provisions expla<strong>in</strong><strong>in</strong>g the rights of the party upon term<strong>in</strong>ation orsuspension Clauses which should survive term<strong>in</strong>ation:■ Confidentiality■ Limitation of Liability■ Choice of Law and ArbitrationAir Liquide, world leader <strong>in</strong> gases for <strong>in</strong>dustry, health and the environment<strong>Essential</strong> <strong>Features</strong> <strong>in</strong> a <strong>Long</strong>-<strong>Term</strong> <strong>Contract</strong>■ Assignment■ Keep an assignment clause for long-term contracts.■ Preferably “with <strong>in</strong>formation” (as aga<strong>in</strong>st – “with consent”)■ Certa<strong>in</strong>ly for <strong>in</strong>ter-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 <strong>in</strong> gases for <strong>in</strong>dustry, health and the environment4
<strong>Essential</strong> <strong>Features</strong> <strong>in</strong> a <strong>Long</strong>-<strong>Term</strong> <strong>Contract</strong>■ LiabilityMust have an appropriate aggregate liability cap. Liability for <strong>in</strong>cidental,consequential, and punitive damages should be excluded <strong>in</strong> all contracts.■ Force MajeureMust conta<strong>in</strong> a Force Majeure clause that broadly protects the <strong>in</strong>terests of theorganisation.■ PerformancePerformance guarantees must only relate to the scope of work/services, andcontracts should allow meet<strong>in</strong>g performance obligations through either “makegood” obligations or the payment of liquidated damages.Air Liquide, world leader <strong>in</strong> gases for <strong>in</strong>dustry, health and the environment<strong>Essential</strong> <strong>Features</strong> <strong>in</strong> a <strong>Long</strong>-<strong>Term</strong> <strong>Contract</strong>■ Liquidated DamagesAny non-achievement due to default shall be subject to liquidated damages(not penalties) capped with a certa<strong>in</strong> amount of the contract value. Payment ofliquidated damages must be considered as f<strong>in</strong>al and it must further excludeany additional rights.■ Intellectual PropertyThe <strong>in</strong>tellectual property created out of the contracts should be clearly detailedas to who owns them. Third-party <strong>in</strong>tellectual property rights provided to otherparties should be “back-to-back” with those rights extended to a party.Air Liquide, world leader <strong>in</strong> gases for <strong>in</strong>dustry, health and the environment5
<strong>Essential</strong> <strong>Features</strong> <strong>in</strong> a <strong>Long</strong>-<strong>Term</strong> <strong>Contract</strong>■ Remember Teamwork?■ Good <strong>in</strong>volvement of technical / commercial personnel■ Understand<strong>in</strong>g of bus<strong>in</strong>ess is critical■ Equally important is f<strong>in</strong>ance / taxation teams■ Ability to foresee long-term■ Lawyers’ role should be not only limited to “legal” provisions, but equally toelucidate “bus<strong>in</strong>ess / commercial” clauses <strong>in</strong> sufficient clarity.■ Most disputes arise not from “legal” provisions, but out of lack of clarity <strong>in</strong>deal<strong>in</strong>g with situations not foreseen at the time of draft<strong>in</strong>g of contracts.■ “Cold-eye” review helps significantly.Air Liquide, world leader <strong>in</strong> gases for <strong>in</strong>dustry, health and the environment<strong>Essential</strong> <strong>Features</strong> <strong>in</strong> a <strong>Long</strong>-<strong>Term</strong> <strong>Contract</strong>Air Liquide, world leader <strong>in</strong> gases for <strong>in</strong>dustry, health and the environment6