CONTRACT & RELATIONSHIP TYPES

Introduction
 Business relationships take many forms. Before appropriate terms
can be established, it is critical to determine the type of
relationship that will best fit the capabilities and goals of parties
involved.
 We will therefore take a look at the major contractual relationship
types, when they should be used and some of the primary issues,
with advice on how to address them in the contract.
 We will be looking at the major features of contracts for
purchasing products and services and some of the typical areas of
concern and discussion in those contracts. One of the biggest
issues is who will set the base for the contract, creating the
potential for the ‘battle of the forms’.
Primary Types of Contracts Used
Products &
Services
Contracts

Outsourcin Solutions
g Contracts

Turnkey
Contracts
 Product & Services Contracts
 Contracts provide considerable flexibility
for the parties to agree to terms suitable
for their purpose.
 However, it is important to understand
the role of statutory terms that apply to
the agreement, supplementary terms that
cannot be excluded by agreement,
construed terms that can be excluded
only be express or specific language and
any gap fillers that will be applied in
interpreting the agreement.
 Product & Price
In an agreement to purchase products, there are several essential
terms to include:
 Letters of credit or other payment assurances.
 The method and terms of payment and invoicing as well as
reference to the currency and exchange rate to be used.
 Rights to upgrade products over time or as a result of new product
introduction.
 Delivery and title terms.
 Definite description of the type, quantity and quality of the goods.
 A specified total price or price given per unit or by weight or other
measurement. Whether or not prices can be adjusted based on
circumstances within or beyond the seller’s terms
 Delivery Terms
Ensure that the delivery terms are clear and suit the business
purpose:
 It must be clear whether delivery and acceptance occur together.
 Delivery terms should provide for a specific shipping date or a
means of determining the date.
 Delivery terms may allow for delays related to circumstances
beyond either party’s control or for other specified circumstances.
 When or where the title transfers from the seller to the buyer.
 Who has the risk of loss while product is in transit.
 Who provides insurance coverage during transportation and what
happens if the product is damaged or lost?
 Warranty & Performance Issues
 Are the goods beings sold as it is or does the sale include a
warranty?
 Is the seller obliged to maintain or service the goods after delivery?
 Does the buyer have the right to return the goods? At whose
expense?
 Can the buyer pass on the warranty to others? If so, what provisions
must be incorporated into their agreement?
 In what circumstances is the warranty negated or voided?
 What are the remedies available to the buyer; what types of
warranty service are offered? What are the service hours and
turnaround times being committed?
 Intellectual Property
Intellectual property (IP) includes inventions, patents, computer
programs, product and service names, technical and business
information, logos, artwork, geographic indication of source,
industrial design, etc.
 Intellectual Property Issues
 Is the buyer prohibited from altering labels, packaging and other
materials connected with the goods?
 If software or code is embedded in the product, are there
restrictions on its replication, reverse engineering, etc?
 Are your company’s name and trade secrets protected?
 What rights are granted to non-owner contribution?
 Who owns newly developed intellectual property or how is
ownership determined?
 Remedies & Termination
As Robert Burns said, “The best laid plans of mice and men often
go awry”.
Accordingly, significant attention should be devoted to the “what
if” questions referred to earlier- that is, what will happen if
specific risks materialize.
 Remedies & Termination
It is important to consider remedies that provide practical support
in encouraging performance and providing solutions to problems
caused. These could include:
 Liquidated damages
 Re-work and re-testing within specified periods
 The ability to take over work
 The provision of additional resource in the form of people,
products or services to mitigate any operational issues
 Contracts of Services
 Service contracts can take many
shapes and cover a multitude of
items such as office cleaning,
website support to consultancy
services.
 A contract for the supply of
services is required when
engaging professional advice and
guidance from a consultant.
 Contracts of Services
 A contract for services may include products, in which case the
same issues as previously discussed will arise.
 Some specific items to consider:
 Scope of work to be performed
 Development, design, installation and testing
 Excusable delays and recoverable damages
 Limitation of liability
 Milestones and method of payment
 Solutions Contracts
 The drive for differentiation and value-add has caused many
suppliers to accept greater performance responsibilities by
aggregating products and services into ‘solutions’.
 Essentially a ‘solution’ implies a much higher standard than a
‘package’. Solutions carry substantial responsibilities for
performance, both interoperability of components, and suitability
for the customer’s intended use.
 Examples of solutions arrangements include, but are not limited
to the following:
 Systems or network integration and management
 Managing and optimizing customer resources, facilities or
networks
 Implementation and operations
 Outsourcing
 Unlike procuring a supplier or subcontractor for a specific project,
outsourcing gives the day-to-day operational control of a function
or service to a specialist supplier who will be responsible for the
provision of that service for a number of years.
 Business process outsourcing (BPO) could mean that functions or
department such as Human Resource, Training, Help Desk and
Accounts and Finance move to an external service provider.
 Building maintenance and facilities management is another common
example.
 In the technology sector, areas such as application development,
operation and maintenance of systems and networks, and help
desks may be outsourced.
 Outsourcing
 Outsourcing is transcending in traditional IT
and data processing boundaries. The growth
rate of business outsourcing has outstripped
that in the IT arena.
 There has been significant growth in such
areas as logistics, human resource, building
facilities management and back-office
accounting services.
 The concepts of outsourcing have been
tested and proven in the IT arena and now
are being widely adopted in non-IT areas.
 The Critical Success For Outsourcing
 Knowing the resources they are using and their cost and
performance before signing a deal
 Measurement of the outsourcer in cost, performance and business
contribution
 Determining how to add value to the outsourcing process
 Knowing the strategic direction they will be taking and building
incentives for the outsourcer to follow the strategic decision
 Establishing ongoing performance benchmarks
 Building in contractual flexibility
 Advantages of Outsourcing
 Opportunities to reduce risks or mange complex
relationships
 Opportunities to leverage scale
 Opportunities to leverage capabilities
 Source of investment
 Source of ideas
 Source of energy
 Disadvantages
 Lack of flexibility in addressing change in the business
 Lack of suitable remedy in the event of failure
 Loss of control
 Increased cost
 Dissatisfied customer
 Loss of data and in-house skills
 Inadequate change mechanisms
 Turnkey Contracts
 A term used to designate those contracts in which the
contractor agrees to complete work of building and
installation, to point of readiness for use.
Issues of Importance in Turnkey Contracts
Scope Of
Work (SOW)

Compensation
Turnkey System Design
Contracts

Change
Management
Process
Thank You