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Assuming the project or service reveals any trade secrets or confidential information of either party,
there needs to be an agreement that that information will not be released to any third party without the
express permission of the parties.
The contract should also have specific language that requires that the personnel who were promised
to be working on the project not be removed. The company should have the right to approve, at least,
the key personnel assigned to the project. Do not allow a key person to be reassigned without
permission. Also, if appropriate, list the specific minimum skill sets and competencies required of the
personnel working on the project or providing the service. Last, it is not unusual to have a clause in
the agreement that the company will not attempt to solicit any of the vendor‟s employees without the
vendor‟s permission.
What warranties is the vendor offering? Usually the vendor attempts to offer as little as possible.
The Uniform Commercial Code, which governs commercial contracts for the sale of goods and
services, does not require that either implied or express warranties be part of the bargain. It does
require that if they are disclaimed there must be specific language used to disclaim them. Express
warranties are those that the vendor is willing to provide regarding issues such as product quality and
the willingness to repair or replace the product for a period of time. Implied warranties are those of
merchantability and fitness for a particular purpose. It seems obvious that when a company contracts
for an accounts payable service that the company providing that service should warranty that the
service qualifies as an accounts payable service and is fit for that purpose. However, although it
sounds counterintuitive, the vendor could disclaim that implied warranty as part of the contract. The
contracting company must ensure that the warranties reflect the understanding between the two
parties.
There is usually a significant amount of contract language that seems unnecessary but is equivalent
to a prenuptial agreement. It reflects the two parties‟ understanding of what will happen if things go
awry or significant changes occur in one or both of the parties. For example, if the company is sold,
what obligations does the vendor have to fulfill the contract? If the vendor is sold to a third party, must
the company allow the acquirer to assume the fruits of the contract without the permission of the
company? If the company does not want the third party to provide the service, must it grant
permission if that occurs? In some cases, there is language that requires the vendor or company to
grant permission, unless there are significant reasons not to. Permission to assign a contract by either
party is a point of negotiation.
If there is a disagreement, where do the parties settle their differences? Normally, this is in court. In
recent years, though, there has been a movement toward required arbitration, typically with
representatives of the American Arbitration Association (AAA). In the most common form of AAA
arbitration, each side picks an arbitrator, and the two arbitrators pick a third neutral arbitrator. The
three hear the case and render a decision that is binding on the parties. This is a faster and less
expensive method of dealing with conflict, but it sometimes produces results that are not amenable to
at least one of the parties. In most cases, the results cannot be appealed to a state or federal court. This
option should be negotiated. If this provision is left out of the contract, both parties can still select the
arbitration or mediation route.
If there is a breach of the contract, what happens next? In many contracts there is a provision that
allows the party breaching the contract to cure the breach. For example, if the vendor has not delivered
the product by an agreed-upon date, there might be a provision that allows the vendor an additional 30
days to deliver the product. This again is a point of negotiation. If a vendor is constantly breaching the