Form contracts should be reviewed at least annually to determine if any “tweaking” is necessary because a lot can happen in a year. Sometimes developments in your business – changes in the way you do things – can necessitate contract changes. Sometimes changes in the industry itself or the law can necessitate contract changes. Unless you review your contracts annually, your contracts may simply be out of date.
This Firm is often called upon to review contracts that have been prepared by other firms that have not been updated in years. The outdated nature of those contracts becomes obvious, not always because the law firm that drafted them did not do a good job initially, but more often because the contracts were treated as static documents that never needed to be reviewed and revised.
Work with your business and legal teams to determine if there were any problems that arose during the course of the year based on language in your contracts. For example, if you have failed to include a termination clause at all in your contract with a customer, and you want out of the agreement due to the customer being “difficult” – or an independent contractor you are relying on wants to terminate with little or no notice, and there is no termination provision requiring a specified notice period in your independent contractor agreement – perhaps you should consider including a termination provision in those contracts. If a customer claimed that you were not performing, and the customer wanted to terminate for “cause,” did you include a notice to cure, so that you might have a chance to make things right with that customer and keep that customer and the revenues that flowed from that relationship? If not, this may be the time to make the edit.
We recently reviewed an independent contractor agreement that a client had not updated in years. The client had experienced problems with quality of service from independent contractors that were providing services to its customers, as well as some level of “customer pilfering” from some of those seemingly “greedy” independent contractors. Whatever forms the client had used – whether developed by another lawyer or taken from some on-line contract service or otherwise found on the internet – were woefully lacking in terms of covering the issues that had become important to our client’s business. We interviewed the President of the company to make sure we understood the way the business works with its independent contractors and revised the form agreement to include language to address those issues (and more) when we revised the form contract. The company was very glad to have new protections in that important form agreement, as customers don’t grow on trees, and a business needs to deter people in its circle of trust from diverting customers’ business whenever possible.
Sometimes a form can be used for five or even ten years without any significant problems, but then suddenly, the deficiencies are revealed. This Firm once developed a new form consulting agreement for a consulting firm that was illustrative of this situation. That company had been using a very simple two-page letter of engagement for years without incident. There were no boiler-plate terms whatsoever in that letter agreement. A lot of clients think there is no reason to bog down agreements with boiler-plate terminology (or what some people call “legalese”). The reality is that some of that so-called boiler-plate is really important. In the particular case, choice of law, jurisdiction, venue and force majeure clauses were absent. The client was faced with non-payment of not only the fees for the services it had provided, but also reimbursement of substantial expenses that the client had advanced for its customer when – due to unforeseen events – visas were not issued for the employees that were coming from overseas for business in the U.S. for which all the services and expenses had been incurred. Where to sue, what law would apply to the contract, whether performance was excused in respect of payment due to our client’s customer’s inability to enter the country could have been addressed in the contract. Rest assured, these issues were addressed on the rewrite since, as it turned out, the majority of our client’s business was international.
Once the revisions have been completed to your form contracts, make sure that everyone who works with the form contracts in your organization is made aware of the changes and that the old forms are replaced with the new forms. And just remember: Mark your calendars for the annual review so that you don’t do this contract review only once and then go back to waiting until a problem arises to review your contracts again.