Explore Invoice Terms and Conditions Wording Examples for NPOs that Make Compliance Simple

Invoice terms and conditions wording examples for NPOs

hi everyone and welcome to today's webinar contracts of 101 for nonprofits and small businesses my name is jason q i'm a managing attorney for nonprofit and small business legal assistance programs at the dc barb pro bono center um for those who aren't familiar the pro bono center provides a range of legal services and resources for both non-profits and small businesses if you'd like to speak with an attorney for free to receive brief legal advice or to access our library of training programs and webinars or to apply for our non-profit match program you can learn about all these programs at our website that is pro bono dot center slash npsb that's p-r-o-p-o-n-o dot center slash npsb um but i am very pr pleased to introduce our speaker for today's event dean dasvar managing council at varus pllc um i'll let dean tell you a little bit more about himself in a moment but before i pass it off just a couple of housekeeping notes um first of all if you'd like a copy of the handout of the slides for today's event for those listening live that's available under the handouts tab in your go to webinar platform just click the little white arrow to expand that tab and you can see a copy of the pdf there that you can download for those listening to an archived version of this webinar a copy of the slides will also be available on the webpage that hosts this event also we are happy to take questions from the audience during this live webinar you will see a questions panel in your go to webinar client that will give you the option of asking questions during the presentation i will be uh fielding the questions and i'll sort of forward them along to dean as they come in we might also have some time at the end for questions if we don't get to your questions um over the course of the next hour um you can follow up with us afterwards either through myself at the pro bono center um or through dean and we'll make sure to circle back with you um for any remaining or outstanding questions okay so with all that said i will pass it along to our present presenter dean hi dean hi thanks jason uh hi everybody this is dean dasvar uh as as jason uh you know was kind enough to introduce me i i am a lawyer in the contracts area of law and i specialize actually in commercial and government contracts i teach that at washington lee university and i also practice that you know in my daily practice i've been doing it for about 14 years and my hope is to give you a general understanding and sort of help you help guide you through the process of understanding and diagnosing a contract even if you don't understand what all the terms and conditions mean at least you know what each of this each of these key terms mean in general and you you know enough to triage your problem and quickly understand uh you know whether something might become an issue for you or not or something's not a threat at all um if we have time i would love to be able to talk about the basics of contract negotiation but if we don't that's perfectly fine we can always say that for another day uh just a quick uh here we go so that's just a quick intro about me my background i before you know and i also happen to sit on a as a board member of a national 501c3 so i have experience working for non-profits i've i've had experience working for small business so the the concerns that you know we see on a day-to-day basis are fairly common i mean there are there are certain things that are certainly specific to what you do uh but you know as we go along the key thing is to understand how to diagnose the problem and know when to call your attorney or at least look at something a bit more carefully than we normally would in order to avoid future problems so a bit about a little more background on me i uh a quick background on my education i went to university of virginia for my undergraduate degree the great thing was i studied cognitive science which became an interesting uh addition to my ability to negotiate contracts because you get into cognitive psychology you get to see how humans interact under high pressure situations and honest and in the end how to persuade them well after that i went to george mason university for my mba and finally at american university washington college of law and i also serve on their board of advisors for government contract symposiums and curricula i i'm bored in maryland virginia and dc uh i'm no longer a corporate council i'm a full virginia board member and um pardon that typo and uh i also am licensed to serve in front of the u.s patent trademark office so the key thing to remember about contracts rather than going you know diving quickly into the the nitty-gritty of the anatomy of a contract which we'll do in a moment it's important to remember one key factor uh the key rule with all contracts is to remember that it is the memorialization of a relationship between people you can't have a contract with without people and your contract is only as good as the people you trust in addition to the kinds of terms and conditions you have in place uh the best kind of contract is honestly the kind of contract that you never have to review you write the contract once and for ten years you never open it up again for any kind of review because what is a contract essentially it is a set of rules of the road that uh every member of that contract every party to that contract is subject to uh like any game there have to be rules in order to progress in a orderly and systematized way and commerce can't progress without those basic rules in place and that's what enables us and our ability to enforce those contracts become key to how we operate um the united states commercial system you know runs on that basic premise and a contract essentially becomes a unit of business that is done and sort of becomes a node in a larger web of agreements that come together to form a business so digging a little bit deeper into that point uh a contract involves people and people involve relationships and in the beginning of a contract all you're doing is trying to define the relationship they come in you know there are several elements to a relationship trust what kind of what level of trust do you have to the other side is this a perfect stranger that's coming in from out of the rain you know you you sign a contract every day without even knowing it for example when you order something off of amazon you are trusting that the five stars that are you know and the 3 000 reviews of that you know that provider that vendor that you are working with are is is a form of trusted review that you can depend on you you're trusting that amazon's reputation to deliver something to you is uh is rock solid and it will you know it's it's it's written in stone when they say it's going to arrive by wednesday it's not going to arrive by friday it arrives at the day that that is set by the parties uh you also have to define the level of commitment if you only need a certain kind of protection that only lasts two to three months you're probably not going to be as complicated in what you're trying to write whereas if this is a far more sensitive piece of information that's being exchanged or a kind of work that's being done you know you're going to have to write something a bit more complicated contracts should also include measurable outcomes you in every relationship there has to be a measured outcome why are we getting into this deal and what do we hope to gain from it as we go through it as we live through the life cycle of the contract and finally we want to you know if those outcomes are not met what are the consequences when we're defining this relationship what are the consequences if somebody runs the other party if i don't get my delivery in time if my house is not painted on time if someone does a poor job of doing it you know how do i you know how do i remedy that situation and finally you know once you get past defining this relationship you also have to define how it ends every relationship fortunately or unfortunately has an end date you know it could be till death do you part it could be till you know one of you screws up it could be uh in any number of scenarios but those scenarios have to be taken into account when you're developing that relationship hi dean can we have an audience question just going back to that framing idea of contracts really being about people and relationships someone's asking do you mean literally like human people individuals or are we are we talking about corporations as sort of corporate people in this context where's the focus sure it's it's honestly it's we're talking more in terms of commercial entities so but analogously people so for example imagine a company hires a single consultant that's a relationship if it's two consultants one one hiring the other to help complete a task that's another one it could be individuals it could be a larger entity uh in the end though it relies on the culture between the individuals the level of trust and commitment between the individuals no matter how big or small that's going to define how well and smoothly this thing will go thank you for that excellent question um so digging a little bit deeper now that we've looked at this from a more 50 000 foot view let's dig a little deeper into the actual contract itself what needs to be in there well in essence you have to define the obligations of each party who does what where and how for the purposes of this talk uh let's use a very simple analogy a company has hired a painting company to paint an office space now this was more of a common commonplace thing before covet but you know i'm sure those days will come back and we'll be painting offices again hopefully soon but um essentially imagine that scenario what's the obligation of the painter how how what grade of paint needs to be used uh how soon does the painting need to be done how you know what what kind of staff should they use in order to paint the building these kinds of questions become obligations you know on the buyer's side so for the purposes of this uh talk and scenario it's i'm gonna they have many different names but for the purposes of this we're gonna have a buyer and a seller someone who buys services and someone who sells services we're going to focus on service based contracts for the moment but we can always expand the analogy to products based contracts on a on a second talk that would go deeper into those issues but just for the purposes of illustrating this concept let's focus on services for the purpose for this talk so back to the defining the obligations of each party so on the buyer's side what does the buyer need to do they need to pay they need to uh they need to be able to deliver the money on time for example imagine it's a two-year project to paint this whole building because it's a 50-foot skyscraper so it's probably going to take a lot longer than a you know painting a single family home so you're going to have to ask yourself you know in in order to keep the company the painting complete company afloat to hire all those painters there has to be a cash flow in order to allow that to happen so okay we've defined the obligations of the party now what now we allocate the risk between the parties in every contract it's like a tug of war each party is trying to gain more rights and fewer liabilities as they go along you're trying to you know spread the but here's the key to every good contract it has to be sustainable you can't write a contract that's too one-sided because it just won't last unless you know sometimes we do sign very one-sided contracts without even knowing it for example the click wrap that you see whenever you you buy something from apple you know you're not really negotiating that contract you're sort of you know accepting it as is but in a lot of your agreements as a small business as a larger business you're gonna see uh or as a non-profit you're gonna see that there has to be some kind of negotiation of the allocation of risk for example if someone gets injured while painting this office building you know what's going to happen who's responsible for that you know what level of risk did each party decide to absorb in that scenario next now that we know who bears the risk what are the consequences of that risk imagine i you know i was the office building owner and i kept the windows closed and the fumes from the paint caused one of the painters to pass out you know am i and this person had to be taken to the hospital uh in that scenario am i responsible for keeping the windows open or was the painter responsible for opening the windows just to you know create of airflow so that's the kind of scenario that we see that you know who bears what risk and what are the consequences imagine i was responsible for keeping the windows open um and and the painter passes out then i have to figure out what do i have to pay in terms of damages to the painting company for the hospital bills etc that would occur you know if while they were paying my building finally you have to allocate what work has to be performed by whom in a lot of agreements the buyer often is interested in how the work is done if for example i want a fresco that's that's a detailed painting of a mural on a wall i don't want someone who's just started to learn how to paint to do the work that's you know that level of confidence that i want in the microscopic parts of the job become another material part of the contract when i say material i mean a necessary part of the contract to make it work when something is material to the contract it means it's not just nominal it's not something that you just throw away it's it's key to the purposes of the agreement so this these to answer these questions we have to identify the key objectives to every contact contract we one we define the scope of the contract how how many floors are you painting you know how what color are you painting you know what what is the scope of your work imagine i have a 50-story building but i only need you to paint three floors that's the scope imagine i only need a certain kind of paint that's the scope imagine it's a certain period of time that's the scope so that that's you need to define that in every contract i can't just write in a contract paint my building because that that makes no sense when you're trying to argue over what that means the key with every contract is you want to set as many rules early rather than later yes it's a lot more work you know front loading the contract and writing all those terms and conditions they can get confusing and long and tedious but this is what they do they save you a lot of heartburn later imagine instead of saying i want you to paint three floors this color but in three months i just say paint my building now the painter's gonna have a different interpretation of what that is compared to me so we're trying to eliminate those areas of ambiguity next we set boundaries what are you permitted to do on the job what are you not permitted to do on the job you know how late can i pay you how early can i pay you these are the questions that we answer when you're looking at boundaries measurement imagine i ask you to paint me three floors of a building and you only paint two is that considered a complete job no uh so you set certain meats and bounds depending on how specified and complicated and sophisticated your service delivery is you have to set your measurement ingly if it doesn't need to be that specific you don't need to write it that much and it becomes you know very difficult for the parties to have a sustainable agreement if it's overly specific on the other hand uh you have the the consequences that come from uh you have to set the consequences of not meeting those measurements suppose somebody only paid two out of three floors do i pay them do i pay the person or the company for the two floors or do i pay them zero and hold out payment until they manage to complete it at what point do i take them to court those are the level sets of consequences that are made to be that need to be made clear now here's the catch to that if you don't make the consequences clear in human psychology people are more likely to skirt the rules if you make the consequences clear in your contracts like for example if you only complete two out of the the three floors i need you to complete i will make you pay me ten thousand dollars in liquidated damages meaning you pay me a ten thousand dollar penalty for not completing your work so that's a consequence so now the painter is on notice that if they don't complete the job they're going to have to pay their consequences and all this can be programmed into your contract finally as i mentioned before every contract has to have a sustainably shared risk if you don't sustainably share risk what happens one side is constantly being bombarded with liabilities they may go under they may go bankrupt imagine i make the term so difficult for the painter to operate for example i say i'm not going to pay you a dime two years into the agreement so you're going to have to hire 40 painters to paint this building and you have to pay them out of your pocket until the final day of the until the final ounce of paint has been laid down on the walls that's going to create a lot of risk on the painter's behalf now imagine the painter runs out of money you know has a nasty divorce whatever happens that company starts to go under and they're owed my invoice but i haven't paid it so now i've made an unsustainable share of risk so every contract needs to answer some basic questions it doesn't matter if it's a consulting agreement a licensing agreement a you know or any kind of general service agreement you have to generally answer these questions where is this going meaning beginning and end date final result et cetera what the consequences are how much work share you're going to give me for example imagine i hire five different vendors to paint my office building how much of it do i owe that person how much of it do i owe that company company a will get 10 company b will get 20 percent can i talk to other people often there is a confidentiality requirement in these agreements if you can't discuss the kind of work you're doing imagine this office building is about to go on sale but i don't want the market to know yet then it would become important for me to include a clause that says don't tell anyone that you're paying my building they'll you know they'll get the idea and start putting in their bids early to buy my building so in that case secrecy becomes important this segues into the next section which is who else are we working with who are the other vendors who are the other you know buyers of service that are going to be part of this process what kind of uh what kind of responsibilities do they have what information can i share imagine i can talk to other people what can i say to them what can't i say to them what prom next we we go to what promises can i rely on if you tell me that you're going to pay me within 30 days is that something i can rely on if i ask for a specific kind of color or safety rating or organic level of paints for you to use on my walls are you going to try to shortchange me or is that a material part of the contract and this is an obvious one how much of the cost of the services am i going to carry how much of this is the buyer's responsibility how much of it is the seller's responsibility similar to the earlier scenario that i just mentioned if the buyer sorry if the seller you know has to carry the cost of all of its employees to paint my building that's a lot of risk on their part the risk then you know like the tug-of-war analogy we just mentioned imagine the risk goes on the buyer imagine i paid the painter everything up front can everyone still hear me okay um can everyone sorry he was just giving me a message for audio degradation so i apologize so back to the scenario um imagine i'm the buyer and i say i'm gonna pay you 10 million dollars to paint this office building up front now who bears all the risk i do the money is out of my pocket that i'm not investing i'm not paying my employees with i'm giving it to the painter so the painter has complete power over me to you know get the job done late early and if the the painter's late or does a poor job now i have to sue the painter to get the 10 million back so that again becomes part of that whole uh navigation of seeing you know and negotiation of who bears how much risk and when finally what parts of this sort of this is it's a little a little related but we have an audience question you know there's a lot of llc's on the line and and this audience member is asking in the context of commercial leases but it's probably relevant in other contexts they're asking should the lessee always sign a lease as the llc or other corporate entity rather than as an individual does that you know give additional protection to the business owner do you have any general problems on what what entity actually signs the contract absolutely have your llc signed the lease because what you're doing is you're creating bails of protection and walls of protection that need to exist they can't come after your personal app imagine you you the business owner assign it as a person right as a human entity rather than as a business entity uh the issue with that is that now you're all your personal assets imagine you have three different companies and you're getting revenue from all three and you're sued by the the lessor uh for the lease of your property they can then go after your other sources of revenue once they run out of one source of revenue however if the llc signs it only the llc is liable i hope that answers your question great thanks so that concludes this general uh uh the questions that are are asked about the general quality of the contract now there are many types of contracts as you know was you know a very good question that came up was the leasing question leasing is a form of a contract consulting agreements or contracts licensing agreements if you have intellectual property that you're giving out a certain know-how a certain trade secret that you're using a certain you know copyright that you're using you can use licensing agreements for those uh consulting general deals with service confidentiality deals with you know for example initial discussions that companies are having with each other individuals are having with each other to even do business together they often sign an agreement known as an nda to protect what's being said so there's all they all share certain elements you know ndas are a little bit more watered down in some ways but essentially they all share certain elements that you have to keep in you know take into account while you're doing work so how do you address them in a contract key sections in a service contract include you have a changes clause you have a confidentiality clause you have a limitation of liability clause you have an indemnification clause you have a payment clause a termination clause and inspection and acceptance now there are many more clauses than this but these are the ones that we're going to tackle today because they're key in many ways because they address that tug of war that we've discussed and what the obligations of each party are now every agreement is going to be complex in its own way it's going to be heavier on certain other issues for example licensing agreements deal more with intellectual property uh leasing agreements may deal have more complex clauses regarding termination but they all sort of share this similar dna and of course we're using the painting example for the whole thing because it's a nice simple example that will help demonstrate the point throughout this uh this talk so i would argue one of the most important clauses in all contracts is the limitation of liability clause what a limitation of liabilities clause is four is to armor yourself and your company the questions it seeks to answer are the following what is the limit of one party's liability deal why it should be limited why it shouldn't be limited and should the limitations be asymmetrical and of course to what extent it should be limited and we also include a term that explains what is not included in terms of limitations of liability so for an example going back to the painting example i ask you to paint my mansion that's an office uh for 10 million dollars it's a sprawling compound you know we need multiple painters it's going to take about a year to paint um and the parties want to agree to limit damages one party can propose though there's two ways you can propose to limit damages there's a relative way which is tied to the price of the contract and there is a fixed way or an arbitrary way to do that i'll demonstrate imagine the contract is worth 10 million dollars and i want to limit my damages to one time or two times the value of the contract so the the total value of the contract being 10 million the total the total amount that i could be sued for becomes 20 million now say for example the value of the contract increases or decreases imagine i assign i expand the contract to mean three or four different buildings in addition to the original one now you know it proportionally increases to the size of the risk well it's meant to track the size of the contract as closely as possible it's never perfect and it's always going to be arbitrary in a way but you it's better to define what that the damages would be rather than to leave it undefined because then you're essentially exposing yourself to unlimited damages which is far more dangerous do include this clause in nearly every contract you sign it is incredibly important because you need to make sure whether you're the buyer or the seller how much you can be ultimately liable for and why that's important is that as you grow as a business as you grow as a non-profit you're going to have a portfolio of contracts that portfolio of contracts come with risks imagine you're a small business and suddenly you have hundreds of contracts it's going to start adding up if you haven't limited your damages so when a company is looking to purchase you or you're looking to purchase a company they're going to look at that portfolio of contracts and say wow you're exposed to so much risk if even one of these screws up so for that purpose it's important to include that the second way you can limit damages is by the arbitrary means where you set a fixed value because you can also make it a hybrid version which i'll get into in a moment say i say that i'm the painter and you're the owner of this building and i say i will do all the work for you however you cannot sue me above one million dollars so if for example i caused 10 million dollars of damages that's 9 million dollars of damage imagine i do some negligent activity and i flood your building and it creates mold and there's 10 million dollars of damages you can only sue me under this hypothetical scenario you can really only sue me for one million dollars that's not including or you know depending on how you argue or negotiate negotiate for it that may not include uh attorney's fees so let's just say one million dollars you can the hybrid way you can do it is you say the lesser or the greater of and you have a fixed amount and a relative amount so the lesser of one million or one times the value of the contract say again it's a ten million dollar contract and one times the value of the contract would be 10 million however i included the caveat that it's the lesser of 10 million or 1 million so again my liability is only 1 million often limitation of liability limitation of damages doesn't include certain areas and this is usually industry standard in most service based industries and that includes death personal injury confident you know a breach of confidentiality breach of intellectual property because usually it affects more than one party there's always a third party that's being injured you know if somebody dies on the job there's usually a family that's aggrieved if there is intellectual property violated there's a company who created the license or like for example imagine i bootleg uh copies of microsoft office uh microsoft offices at that point has been aggrieved um if you know everybody has the problem is that there will be multiple sewers you know multiple plaintiffs in this situation uh because of that and because the kinds of damages that are received cannot easily be quantified often the limitation of damages does not apply to that area now that's usually addressed in another section which we're about to get to called indemnification now i like to call the indemnification the bodyguard clause you're essentially it's essentially stepping in front of the bullet it is there for when there is a severe wrong that is accounted for in the contract say for example what's known as gross negligence which is something absolutely horrible that you did wrongful death property damage breach of privacy reach of intellectual property imagine someone's health records are you know posted online by some hacker in that moment this bodyguard clause kicks into effect an indemnification clause's job is to step in front of that bullet for the wrong party so imagine i'm the buyer and you're the seller you're painting my house and while painting my house your truck runs over the neighbor's dog and the owner of the dog sues me in that moment because you cause damage you and it's a grievous form of damage and this person was driving horribly negligently you know basically with gross negligence or willfully was driving like there was the video game grand theft auto and was running over things left and right you know your truck driver was driving your truck to do a job for me and the neighborhood was aggrieved by this your job is to then step in front of the bullet that was meant for me because i'm the sued party because i own the house my property's on lot etc because i'm the sued prop the sued uh entity you're st you're pushing your llc your nonprofit your personal self if you're just a single consultant in front of me to take that bullet form now there is a catch to this when you're using an indemnification clause again this goes back to sustainable shared risk your the entity that's taking that bullet for you has to be able to sustain that damage because sometimes it's just not enough imagine it's 10 million dollars worth of damage and your company is only worth 1 million then you're sort of left in a difficult position another important clause that you'll see in a lot of these agreements especially if it's a service-based agreement or a product-based deliver agreement that involves the delivery of some good or service is inspection and acceptance the you're setting rules for what is acceptable if i order a bicycle and it's missing a wheel is that acceptable no i ordered a bicycle and as as the name implies there are two wheels you sent me a bicycle with one wheel this thing is rendered unusable so for me that on a very elemental way that's considered unacceptable so but it gets more complicated the more complicated your services imagine you're you're developing a software when is that acceptable imagine you are painting a fresco and it's a it's a very subjective judgment when is that acceptable you're right and that's not only that on the seller side they're concerned about inspection imagine the buyer reserves the right to inspect you constantly you know day in day out they're on your job site staring at you as you're doing it that's obviously going to interrupt your work you know imagine they keep taking your laptop from you and reading what you wrote in your emails imagine they give themselves the right to audit you at any given moment that then becomes an issue for the seller it's going to cause delays in delivery and if you don't take that into account you're technically in breach even though you did nothing wrong imagine you know i'm painting a house and the buyer interrupts me all the time you know to pull out my staff and talk to each of us individually and let us go back to work after an hour it chips away at my schedule and eventually i'm late by five days and then the the buyer says to me that i haven't painted the house on time is that fair to me no but it's written into the contract remember that when you're writing a contract you're essentially creating a law unto itself state federal and municipal rules and case law tend to favor the drafters of the contract when they've had a chance to fairly negotiate it and judges don't like to substitute their opinion for what is written into the contract they don't like to do that what what you wrote into your contract is your doing if it's unfairly and you've had a chance to negotiate it that's your problem the judge or the state is not going to take responsibility for that so it becomes incredibly incumbent on you to make that decision clearly and to do it effectively there are ways you can write this clause for example buyer may inspect services deliverables and or supplies delivered by seller for a reasonable for reasonable defects you can include the term reasonable in your contracts to sort of give yourself some wiggle room and you know imagine you don't have any exact definition of what reasonable is that's okay the term reasonable in contracts wait if you're negotiating them yourself is a useful term as a wiggle room so when you're writing something too narrowly or too broadly it tends to backfire payment issues you want to define in your agreement when do you pay and how do you pay and also what what happens if the buyer doesn't pay and or the seller doesn't deliver i'll give an example you know your invoice is due to me at the fifth of the month that's how you define when to pay how do you pay okay well you have to send it to my international bank account in switzerland that's that's a means of paying and when you know it has to be arrived by electronic funds transfer in 60 days that's that's the hap now you have to take into account the what ifs what if the buyer doesn't pay okay well you know suppose you're the seller do you have the right to walk off of the job imagine i'm a painter have i written into the contract the right for me to stop work if you haven't done that you haven't given me payments in the schedule that you promised me that you would what if you're the painter and you you don't do the job right can the buyer say you know what i'm not imagine i divide it into five payments and by payment three it becomes clear to me that you're not going to do the job right can i stop paying you now the default rule is you can't you can't simply stop doing your obligations on the contract because the other party's stopped you have to keep going as though nothing went wrong unless you expressly call that out in your contract and dean we have an audience question that's related here so someone from the audience is a one-woman llc she's saying that her clients are often organizations that get money from usaid so while the contract says that they're obligated to pay within 30 days the payments are often late what remedies does she have so you talked about sort of stopping payment you know but this seems to be something that's invoiced after the fact so what kind of remedies exist in that situation maybe that we could put into the contract or even if they aren't in the contract certainly so a great remedy before you you know get into the situation is to include what is known as an interest clause so imagine you say that if you're 30 days late to pay me you will owe me 5 of the invoiced amount every month you're late now suddenly that starts to add up and what's going to happen is that that that adding up of of cost is going to be a painful consequence as we go back to the earlier slides consequences are important and they have psychological effects now if they they haven't paid you yet you still have to perform your contract usually under a government contract you'll see that you know you can't just stop work and unfortunately that forces you to get financing for you know paying your employees etc uh but what what happens is that in your subcontract with a a prime contractor you can include clauses that say you can stop work if they're late by 60 days uh but if your contract doesn't allow you to walk away you can't so it's very important to negotiate that in advance hope that answers your question termination so how do we get out of a situation every contract has to have an escape every contract has to have an end when we're looking at termination for convenience termination for cause and termination for insolvency those are three basic ways you can get out of a contract now the most friendly way to get out of a contract is the way it sounds determination for convenience you're saying in that's essentially a term of art that says you can get out for whatever reason you want so long as you give me enough notice say for example you've hired me to be your painter and i've been painting i've been doing a decent job but you just don't like me you don't get along with me i'm rude to you but i still do the job fine and you're like you know what i might my cousin can do the same job i just want to hire him or her to do the job for me and i want you to leave now you should include a termination for convenience clause to allow you to do that because once you've signed the agreement and that this clause doesn't exist you're stuck because if you don't pay and just say get off the job you have to have a written termination agreement or something if it's not already pre-programmed into your contract so you want to include that escape clause for both sides sometimes you want it to be one-sided depending on the deal for example if you're in federal contracts and you're a prime contractor and you depend on your vendor to keep you afloat while you're doing the work you can't afford them to walk off the job even if they give you 30 60 90 days notice so you know you want to eliminate that and negotiate that out so sometimes it's useful sometimes it's central determination for cause of default well this is the most basic one essentially if something is not ing to the material specs that you've written into your contract imagine i asked you to paint my walls white in the blue you know that's a that's a material difference if i've said that this is a material part that this wall has to be white and of a certain grade of paint and you didn't do that you know that's def that's determination for default now termination for convenience and default tend to be different in how you pay the other party if someone is terminated for cause you can sometimes cut off payment for the poorly completed tasks in termination for convenience it's often negotiated that okay whatever work you've completed up till this point and maybe some off-ramping costs like you know some costs for you to find another job or you know pay out your employees or de-escalate the work you're doing i'll pay you an added fee to make you go away basically finally determination for insolvency this doesn't happen as often you know because it requires bankruptcy imagine your subcontractor can't pay his employees anymore or your your vendor can't pay their employees anymore your seller can't pay they're you know can't buy paint anymore and they just can't do their job anymore you can end the agreement based on that imagine the person who's asking you to paint the building or the company that's asking you to paint the building is uh is no longer you know capable of paying you you can walk off that job for bankruptcy so now why is termination so important it's important to negotiate this clause to provide yourself a way out even under tough circumstances you don't want to be forced to perform or face dire penalties you got to give yourself an escape hatch so imagine you're painting the house and there is a family of bears that moves in you know one night while you're you're you're home you come back the next morning and sure enough there's a family of bears living in the office what's your escape then you know imagine however the kind of work is in a certain you know you're you're painting an office building that is known for bear attacks and you've written into your contract that you know having bears come onto the property is considered part of the hazards of the job similar to cutting sequoia trees or you know you got to be ready to to you know receive some kind of damage from falling from high high heights you know certain things are built into the kind of work you're doing but if you're in the middle of the suburbs and a bear somehow moves into a single family home that you're painting should you be forced to perform well the answer is no but but unless you write that into your contract that doesn't become a a part and parcel of the whole thing it doesn't become a key requirement of the contract confidentiality often in your agreements especially if your technology healthcare many industries that are knowledge based confidentiality becomes a key aspect of what you're doing what is meant to be kept secret you know how is confidential information defined well simple you have to write that into your contract it could be whatever you want it to be sometimes they're written very broadly sometimes they're written very narrowly the problem with writing it too broadly is that now you have many many other obligations to you know and it's hard to define what is and isn't you know considered you know just just uh you know water cooler talk and what's considered protected so you want to keep this language as focused as possible especially if it deals with sensitive information if you're telling me the last night's score in football that shouldn't be considered confidential well you have to also define how long you want to keep something confidential if if for example you're trying to close a very important deal and you don't want the market to know about it you know it's it should be for a reasonable period of time that covers that period and a little bit further what if something was already out in the public eye well you have to take that into account too you can't hold someone's feet to the fire if something was already public you can't sue them for nor should you be sued if something becomes publicized later intellectual property in this clause you're essentially saying intellectual property can be a number of things it it'd be patents trademarks copyrights that are important to you that you're bringing to the deal imagine i the painter have developed a patented way to apply paint that will last 10 years longer do you own the patent because i painted your walls with it no you shouldn't but i'm sort of giving you a license to have it on your walls you know how do i remove that rule if uh how do i remove that if uh it becomes an issue do i come into your house and chip off the paint if you you then sell the house is that fair well you have to define that in your agreement you also have to define the damages because ip infringement becomes this runaway cost and it's hard to define you know what losing a patent it's like saying for example imagine i was an executive at coca-cola and i revealed the trade secret of how to make coca-cola soda to all the competitors including pepsi and they started mimicking it what are the damages that coca-cola is owed by me the changes clause now every contract has to be able to change with time especially if it's a long-term agreement you know not every relationship stays exactly the same you know situations change the owners of the company change all sorts of factors in an ever dynamic world change a contract is meant to be an anchor point but it can't always be completely fixed so you have to have some kind of leeway so the parties can get together and figure out how you change it sometimes you create a clause that's for unilateral changes where you reserve all the power to change the agreement as you wish without any kind of input from the other party sometimes it's bilateral where both parties get to decide you know to lengthen the contract to increase the scope of the contract say for example you and i are back to the painting scenario i ask you to paint three more houses for the same price well you know per square foot let's say well that's not written into the agreement so you can't just start doing it you know and imagine we get into an argument while you're paying the first or second house how is the judge supposed to figure out you know what that's supposed to be worth we need to have the ability to modify our agreement and that that's what the changes caused that's us do you know who needs to sign it you know that doesn't have to be in writing those kinds of questions are answered there it should include certain things that say you know it's done by mutual written agreement it's and how do you do it well you you you write it into the as an amendment to your contract so you're basically writing a mini contract that attaches to the original contract you write you both sign sign it but both sides will sign that amendment and that becomes a part of that living document when can you start implementing it again you can write that into your amendment saying effective today you know november 11 or november 12 2020 you know this these changes will not go into effect i will paint three more houses for this rate and what do you do when the law changes and it's outside of your control well you take that into account the amendment if your attorneys catch it in time non-solicitation now this is usually written in such a format that you know you can't directly or indirectly solicit each other's employees this happens a lot under uh services agreements suppose i have a artisanal painter that can paint murals and you asked me that in addition to me painting this house you um you want me to uh include this artisanal paint painting and this uh this 30-foot mural in the wall now imagine i'm part of a larger contract that you're doing for a third party and you think this person is so talented that you want to steal well this clause will prevent you from stealing my employees for a length of time non-competition suppose you and i are in the same business i'm in the painting business and i hired you to do part of a job for me now you start talking with the end customer that i have i'm buying your services but someone start buying my services how do i keep you from running around and talking to these people that are part of my portfolio when i've given you access to them because you're doing the work and you're you're available to them to talk to these people well the way you do that is that you have to write it in a way that to make it legally enforceable remember these three things you have to have geography scope and time to make it non-com and compete enforceable suppose i am a gym trainer a personal trainer at a gym and you tell me you can never train anyone in physical fitness in the united states for the rest of your life well that's completely unenforceable and it doesn't really work it's it's totally unreasonable and it would ruin my life but suppose you say in fairfax county virginia you can't do it you can't you know within a 20-mile radius of this gym you can't do this kind of physical training uh suppose it's specific specifically for running athletes uh for the next three years now that hits all three of those categories there are ways the vendor can push back by lengthening or shortening the scope you know tightening the scope length shortening the time uh tightening the geography to be able to push back on these restrictions a contract is very similar to a computer program they have levers that you can you know like light switches you can turn them on and off they also have dimmers you can you can make it brighter or darker one of my favorite clauses is the disputes clause differences will inevitably arise in every agreement the question is what do you do when they happen do you go to open court or do you create a venue for the parties to discuss their their grievances and and find a way to resolution quickly and efficiently without one your contract is essentially unsustainable so how do you what are three ways you can do it well there's mediation there's negotiation which we won't include here but like just basically between two parties just talking it out there's mediation which is basically a non-binding third party comes in and helps you almost like a therapist and helps you give you business therapy and let you guys talk out your issues there's arbitration which is basically a private judge which you hire and you pay for it but is usually sp specialized in your field and lets you figure out what your issues are uh on a on a morse focused basis and you also have litigation or open court where you go to your jurisdictions that you've listed in your contract or whatever your your site is in if you haven't listed it say new jersey delaware dc wherever you've listed and you go to court in the traditional way you hire lawyers and the prevailing party wins the prevailing party can make the losing party pay for the legal fees well there are problems with that well mediation is great if you want to keep it very amicable but often it's not very efficient because sometimes you just need a resolution mediation is great when there's a way back in terms of your relationship there was a little bit of a stumble but nothing that's that's totally out of whack and not fixable uh it's not great for all scenarios and sometimes it's a waste of time if things have gotten very adversarial between the parties that's when arbitration comes in and that's this is my favorite because while there's some upfront costs there is that it's streamlined because if you're in a specific area or industry it creates subject matter expertise you can pick an expert to be your judge imagine you're a painter you want someone who's painted a hundred thousands a thousand houses and has has had a huge company and has sold it to be your arbitrator so they're like i know how this industry works and how how uh parties interact not only that imagine you want to keep this disagreement offline an arbitration is usually confidential what transpires between them the parties is not publicized there's also what's known as limited discovery rights you don't have endless reams of paper and evidence being brought in to litigate this issue you're given a tight window of time and a tight window of evidence you can bring in to talk about like what emails you can use etc uh finally uh it's binding if once you get a an arbitral decision you can take it to any court and it's enforceable open court it's it's old school it can take a lot longer it is binding but it's also public and a lot of folks don't want their name in the news now i'm not saying it's never good it's just sometimes not good so i'm going to leave you with some practice tips that are key when you're as you're building your portfolio of agreements and often a sign of success is that your your number of contracts are increasing uh when as they're increasing you need to have a way of organizing them and keeping them steady and within certain guardrails tip number one is definitely write a contract playbook so the make sure the areas that i've similar to the ones i've discussed but you know that are part of your template agreement whatever it may be whether it's a consulting agreement a leasing agreement so you have outlined those key terms and you've defined you know and you already know what you're willing to accept before you enter live negotiations it's like knowing what car you want to buy and for what price before you enter the car lot you want to know what features you want what features you don't want and what you're willing to accept you don't want to get into a negotiation without a plan always and what a playbook does is that it sets up a standard plan so that if even if the owner of the company is not there their lieutenant their their second in command whoever is in charge the account manager whoever's there knows what they can and cannot negotiate for even if the attorney is not present on that negotiation that happens a lot on high volume negotiations second is to bring in all the concerned parties on your side to build the playbook now i've included a sample of what my law firm uses in terms of you know for one of our clients what we've used as a standard um obviously we've got permission to show you this for example you know here we define a position you know what you're willing to accept what you're not willing to accept and your fallback position which says okay suppose the other party doesn't agree to one time the value of the contract we can agree up to two times the value of the contract suppose that even the fallback is violated you go to the third call and you say okay who in our organization if you're one person llc you know you don't have a problem you just make that decision and make the approval on the fly but if you're you're growing as an organization you're going to want to have people who have levels of approval that would be for a specific clause like okay we can approve higher than two times the value of the contract if the ceo says yes so that in essence becomes the key of looking at every contract every contract has a life cycle methods of risk mitigation and methods of negotiation and ways of triaging them that you can do that will protect your company in the long run and in the short term so i'd like to thank you all for your time i i'm happy to answer any questions you have uh whether online or offline you're welcome to email me or email uh our team that i would be more than happy to field your questions at any time it's a very complex world out there it's tough to negotiate it's tough to navigate at times but the more the more you do it the more savvy you're going to be and having this in your arsenal is going to be helpful in terms of advancing your contracts and hopefully you know running a successful enterprise thank you awesome thank you gene um do you have a few minutes to stick by to do some audience questions i know we're kind of going to hit the hour maybe some people have to drop off but we can knock off a few if that's okay with you absolutely awesome okay so one audience member is asking you know for smaller jobs is kind of a simpler more bare bones contract okay and if so what are the most important elements to still keep in i would say you know make sure that you have the basic elements of the agreement essentially saying like know what level of risk you're willing to accept like limitation of liability uh and and cap your damages as much as possible so your most important thing is to cap your damages even if they're even if it's a small contract imagine you're doing something very small like painting one room but you accidentally injure you know the resident of the house's kid you don't want to be you know imagine you hire a consultant to do that work for you and they do that you don't want to be responsible for you know something that wasn't your fault and and didn't happen so even though the money the monetary value of the contract was low you still want some some essential terms so if you in the absence of anything else definitely have a cap on damages great thanks this is an interesting question someone's asking how does a non-profit contract differ from a commercial contract and that's an interesting distinction to me because you know in my experience a lot of the contracts that nonprofits sign are nevertheless still commercial contracts you know non-profits or businesses um just like for-profits but can you think of categories of contracts or situations that you can maybe classify as a non-profit contract well often the uh you said it very well jason uh often the the whether you're non-profit or not your your agreement is governed by the same rules of commercial agreements as anyone else's uh it's it's rare to see the where a non-profit status will absolve you of certain things certain things of course exist like for example uh winning a grant as a non-profit gives you special rights uh and and you are given certain privileges that a for-profit organization isn't uh the tax uh the the tax waiver that you receive the tax um uh the fact that you're not being taxed by the irs and and follow certain compliance rules uh you know become part of the contract but also as i mentioned the compliance rules become higher uh for a non-profit that you may want to have your uh for-profit vendor uh agree to so say for example you know they're doing your accounting or they're doing work for you and there's a certain accounting requirement you have as a non-profit that you have to report to the irs you have to flow that requirement down to your vendor or vice versa flow that requirement up to your buyer that would you know essentially make sure that you are in compliance with those rules that's the biggest fear i have is you falling out of compliance with your nonprofit requirements yeah one other thing i'll say on that question is you know a lot nonprofits might deal with relatively more government contracts or government grants and so when you're getting that government money all the fundamentals are still there but as you said there could be an added layer of comp of complexity in terms of grant compliance that's really going to be coming from the grantor so when we talk about what the deliverables are what the rules are um it just might be more complicated all these fundamental aspects are still going to be there but there's just going to be more to understand and more issues to look out for absolutely absolutely i ran into that and i was you know applying for grants as a professor so i mean yeah so i mean yeah there's layers and layers of rules that get added on oh um so you talked about confidentiality clauses someone has a specific example so if if i hire teachers for my school and i train them to teach languages using a specific methodology and specific books how can i prevent them from using those methodologies and books outside of my school and our in our employment relationship is that something that we can use a confidentiality clause to protect well well it would be a mix of confidentiality and intellectual property clauses so um one would mark your your materials you know as confidential and proprietary or just proprietary to so that essentially you're you're you're putting them on notice that this is intellectual property belonging to my school uh second what you would do is you can certainly say okay you can only disclose it for a limited scope like only to teach under this contract to teach 10 students i'll let you use this um third you know you're you know you um you you right into your confidentiality agreement like you know or your intellectual property you know clause i've seen it done both ways um you know who you can redistribute it to uh you can also include a licensing requirement saying okay you can only use that you're you're licensed you know in a revocable way meaning i can pull back this license for me whenever i want uh for this purpose only and if you violate it you know there are consequences and you can even include some kind of penalty if they do like liquidated damages that's just a fancy way of saying a hard penalty that you write out a number in numerical form like you know if you sell my book or use my book to train somebody outside of my purview outside of my governance outside of my my my right that i give you i can sue you for ten thousand dollars per violation you can do something like that to sort of um dissuade your your teachers from from stepping outside of their uh boundaries excellent thanks a couple more quick hits um this is a great question is there any way to respond to a client who refuses to remove clauses from a contract that don't apply to your situation and they say oh that's just our standard contractor that's just our boilerplate language is that a problem how do you negotiate that well i've heard that a lot and it depends on how innocuous or problematic the clause is imagine it's something that could become a problem later they're like oh no it's just unstandard i've heard this countless times and i know it can be frustrating um i i've heard this a bunch of times what you want to do is what's up you can you can try to fight it out if you know that it's going to become a risk later and often reason prevails you're like look this will become a problem if you know this unrelated portion of this contract this thing that i'm doing for you you know kicks in and i get sued over this you know i don't have any recourse i don't have any remedy for this you're going to screw me over if i let this hap