Essential Agreement Considerations

When drafting agreements, there are essential terms that each party needs to consider in order to make sure that they have a well written contract that will protect their interests. A few of these considerations include the following:

1. Identity of the Parties – This provision should clearly outline who the parties to the agreement are and what their relationship is to each other. For example, who is the client and who is the service provider, as well as whether the parties are an individual or a company. 
2. Effective date – A well written agreement should include the date that the agreement becomes effective so that the parties are aware of when their obligations under the agreement will begin. 
3. Scope of Services – This provision is very critical and should outline the type of work and materials that the client is expecting to be provided. This provision should be as specific as possible so that there is no confusion as to what work the service provider is expected to provide. 
4. Compensation – A well written agreement will include a term of how much a service provider can expect to be compensated. These fees may sometimes be in the form of a flat fee or an hourly rate. This provision should also include terms as to when the client expects certain projects to be completed and when the service provider may expect to be compensated once the work is completed. It may also include the form of payment that the service provider can expect to receive. This provision may also include terms as to what happens if the client does not pay on time. Is there a late fee imposed? Does the service provider have to turn over the product or continue to provide services? 
5. Term of the Agreement – This provision is very important for the parties to know the time period in which they can expect the agreement to be performed. It will set expectations for the service provider as to when the work is to be completed and for the client to know how long they will receive and are required to pay for the services. The term of the agreement may also depend on whether the agreement is based on the completion of a particular task/service (where once the task is complete the agreement ends) or is based on continuous services. Some service agreements may also contain language stating that the agreement will continue until terminated by either party. 
6. Termination of the Agreement – This provision will be critical if one party wants to terminate the agreement. This provision should provide who may terminate the agreement, how much notice is required, the form of notice that is required (ex. whether written or verbal notice is acceptable), the methods in which the notice can be given (ex. email or regular mail). It should also address payment for services that were provided prior to the termination of the agreement. Sometimes, the address where notice should be given may be included. 
7. Confidentiality – This provision is important if the parties are expected to exchange trade secrets and proprietary information. This provision generally provides a definition of what is considered to be confidential information, when the parties are required to keep the information confidential, when the parties may disclose the information, and under what circumstances and what should happen if there is a breach of this provision. 
8. Ownership of the Intellectual Property – Often times, in service agreements one party is expected to create a product and provide materials for the other party to use. This provision should address who owns the product/ materials at the end of the performance of the agreement, whether a license is granted, whether the work is considered a work made for hire, etc.
9. Indemnification and Hold Harmless – This provision should address what should happen if one party is found liable to third parties based on the breach, negligence or willful misconduct of the other party. It should also include the parties who are being indemnified and if the breaching party is responsible for the representation and/or attorney’s fees of the non-breaching party. 
10. Force Majeure – This provision should address what should happen if one party is unable to perform due to acts of God or other circumstances beyond the party’s control that would make it impossible or impracticable to perform. Recently, with the development of COVID-19, this provision has been looked at more closely by many practitioners and, in some cases, have been expanded to include pandemics. 
11. Amendment and Modification of the Agreement – This provision will address how a written agreement may be amended by the parties once the agreement has been signed by both parties and is binding. 
12. Severability – This provision addresses what should happen to the remainder of the agreement should a court decide that a provision in the agreement is found to be invalid, illegal, unenforceable and should be stricken from the agreement. 
13. Entire Agreement – This provision should state that the parties may not look to representations and statements made outside the terms of the agreement for the interpretation of the agreement. The expectation is that any such representations or statements that are material to the agreement should be made a part of the agreement.
14. Restrictive Covenants (Covenants Not to Compete or Not to Solicit) – Often times, clients are concerned that service providers may learn concepts and ideas from working with their company that they may use to their advantage or replicate for their own benefit. Sometimes, the concern is that the service provider may attempt to take their customers, employees and/or vendors. These provisions may be used as an attempt to restrict the service providers use of the client information, clients and employees during or after termination of the agreement. These provisions generally must be reasonable. 
15. Dispute Resolution – This provision should address what should happen if a party is determined to be in breach of the agreement, how will the dispute be resolved and what type of damages the parties can expect to receive. It generally addresses whether the parties need to go to court or to arbitration and, if arbitration, the agreement should list where the arbitration will occur. 
16. Limitation of Liability – This provision generally limits the party’s liability to either a specified (agreed upon) sum, the agreement’s compensation sum or insurance coverage. 
17. Governing Law – This provision should address which states laws will govern the term of the agreement. 

While this is not an exhaustive list of agreement considerations, as there are several other provisions that a party to an agreement might consider, the terms that may be included in an agreement will depend on the situation. When drafting an agreement or presented with one, it is always best to consult with an attorney for advice on how to make sure that the agreement will best protect your interests. Utilizing an attorney to make sure that you have a well-written agreement can help you to minimize the risks, avoid common pitfalls, and avoid potential lawsuits in the future.

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