An indemnification provision can be included in an agreement to establish which party will assume liability upon the occurrence of a specified event. This provision’s importance lies in the fact that it provides additional protection to a party for the other party’s breach of its obligations under the agreement.  Events that can trigger indemnification liability include, but are not limited to, the following: breach of a representation, warranty or covenant of the agreement; negligent misconduct; and/or copyright or patent infringement.  The party agreeing to provide indemnification should consider the ramifications relating to indemnification and craft the provision in a manner that focuses on the issues as they relate to the relationship between the parties.  Ultimately, it is important to include an indemnification provision to ensure that in the event the other party breaches the agreement you have adequate recourse to recover your losses or damages.

With rising pressure to reduce supply costs occurring throughout numerous organizations, many supply chain managers are using a troublesome tactic to address their unprofitable or problematic procurement contracts – threatening to breach or not pay under such contracts. Supply chain managers using this tactic hope that their significant leverage and bargaining power over suppliers can force a renegotiation of unfavorable provisions to their benefit. However, not only is such tactic unwise from a supplier-buyer relationship vantage, but it also could trigger some unfortunate remedies. Under Sections 2-609 and 2-610 of the Uniform Commercial Code in the State of Delaware (the “U.C.C.”), a supplier is entitled to recover damages or suspend performance, among other things, if a buyer repudiates or threats to breach a contract – even if the breach is cured or the threat is retracted. As such, buyers should refrain from using this tactic, because the consequences could be detrimental to the organization and/or supply chain. If a supply chain manager desires to use this tactic, legal counsel should be consulted immediately.

In the course of drafting a master agreement, you should always consider including a provision that allows for the termination of a statement of work (“SOW”) separate from the termination of the master agreement.  Since a master agreement allows you to commence several projects under one agreement through the issuance of SOWs, the ability to terminate any SOW without actually affecting the master agreement itself is ideal.  In circumstances where a termination of SOW provision is not included in the master agreement, unless otherwise addressed by the parties in the master agreement, termination of the master agreement will also terminate any SOW issued under such agreement (potentially, jeopardizing outstanding projects under other SOWs).  Overall, a termination of SOW provision provides you with the flexibility to terminate a specific SOW without having to terminate the master agreement and undertake the monetary expense and time required to the draft and/or renegotiate a new master agreement.

Protecting your company’s name, logo and/or mark (collectively, the “Company Marks”) from unauthorized use should always be a priority when drafting an agreement.  Including a use of name/advertising provision in the agreement that limits the use of the Company Marks in any advertising or promotional literature without your company’s prior written permission can protect unauthorized use.  Such a provision puts the opposing party on notice that the use of the Company Marks without permission is a breach of your legal right and can result in a potential claim by your company.  It is important to remember that the Company Marks can be a valuable marketing tool that an opposing party to a contract could potentially use to gain additional customers for its product or service (resulting in monetary gain for the opposing party, not your company). Consequently, a use of name/publication provision should, at minimum, require the opposing party to seek written permission from the owning party (the company) prior to each instance of use of the Company Mark.

A limitation of liability provision is a contractual mechanism that limits exposure to liability relating to the performance of a contract.  Typical limitation of liability provisions limit a seller’s damages for breach of the agreement to: (i) the value of the contract, (ii) a sum agreed upon by the parties to the contract, (iii) the seller’s available insurance coverage or (iv) a combination of the aforementioned.  Depending on its structure, a limitation of liability provision may apply to all claims arising during the course of the performance of the contract, or to claims relating to the breach of certain covenants, representations or warranties in the contract.  The importance of the limitation of liability provision is its ability not only to limit potential damages in a claim, but to also forecast the possible damage award in the event such a claim is initiated.  As the purchasing party, if the seller manages to convince you to include such a provision in your agreement, consider excluding breaches of confidentiality, indemnification, liquidated damages and any other special provisions (i.e., trademark or logo) from the limitation.  These exclusions will ultimately allow the purchaser to seek relief for the most important provisions of the contract without limitation.

To borrow a famous expression, “Nothing great lasts forever”. Although business terms within a contract may remain consistent over time, generally, auto-renew provisions are not recommended for inclusion within a purchasing agreement. Auto-renew provisions extend the duration of an agreement on the same terms and conditions after the expiration of the initial contract period. Overall, the inclusion of an auto-renew provision avoids the need for the parties to renegotiate the terms of the agreement after the expiration of the initial contract period. This provision can be advantageous with respect to agreements that are low risk and do not require re-negotiation at the conclusion of the contract period. However, for those complex or high-risk transactions where pricing and other important terms are subject to change over time, an auto-renew provision is not ideal. Ultimately, before including an auto-renew provision in a purchasing agreement, you should evaluate whether the terms relating to the services, goods or products being procured are subject to change at the conclusion of the contract period. If you decide to include an auto-renew provision, you should ensure that a provision that allows you to terminate without cause is included in the purchasing agreement in case your initial assessment was incorrect.

Form agreements should be reviewed every three (3) to six (6) months to ensure that the terms of the form are consistent with current trends in the market and law. As a general rule, every time you attend your bi-annual dental check up, it should serve as your cue to review your forms. Also, legal and purchasing departments should ensure that revised and updated forms are distributed promptly within their department and identify those outstanding agreements that contain problematic terms and conditions requiring amendment. Remember, form agreements that are updated periodically will allow early identification of problematic provisions and limit the number of executed agreements containing such provisions.