Author: joshbarrett

In Praise of Simple Contracts

Nice post from Mark Anderson over at IP Draughts (UK):

To make the terms [of standard contracts] suitable for a variety of factual situations, and to minimise the need for negotiation, the terms should be clear, straightforward, middle-of-the-road, and reasonably protective, while recognising the other party’s legitimate interests. Terms that are based on these features are easier for a supplier to accept and easier for a purchaser to impose, using low-cost administrative staff. Deviate from any of these features and there will be an increase in transaction costs.

Competing with the desire for a simple, inexpensive process is another objective – to minimise legal risk. Some organisations take an aggressive approach to this subject, which is manifested in very ‘protective’ contract terms. These typically include one-sided warranties, liability clauses and indemnities. Often, those clauses are difficult to understand. Sometimes they are not understood by the representatives of the large organisation that is imposing them on a supplier. This becomes apparent during negotiations. Vast amounts of time are spent across the world negotiating these complex provisions, except in those cases where the terms are just imposed.

I couldn’t agree more with this post. When drafting standard service agreements for my clients, I strongly encourage balanced terms, simple language, and an acknowledgement of the other sides needs. While this approach may forgo the most protective position possible, much more is gained in transaction trust, amplification of service values/brand, savings from low (or no) negotiation cost, and the speed with which documents are signed.

The “AS-IS” Clause: What it Does and How To Use It

You have probably seen an AS IS clause in many of your creative services agreements, typically in bold or ALL CAPS. What are they for and how should you approach them?

A typical AS IS clause might read as follows:

Except as represented in this agreement, all work product by Developer is provided “AS IS”. Other than as provided in this agreement, Developer makes no other warranties, express or implied, and hereby disclaims all implied warranties, including any warranty of merchantability and warranty of fitness for a particular purpose.

Warranties are simply promises about quality or features. For example, in software development a client might ask for a warranty that the code contains no viruses. Or in design, a client might ask for a warranty that the work is original.

Despite the formal and cumbersome language, the purpose of this clause is pretty straightforward. It simply means that the only warranties about the work are the ones written in the contract.

Admittedly, the typical “AS-IS” wording is off-putting for clients. It sounds as though the service provider is just dumping its work on the client and washing its hands of the whole thing: as-is, take it or leave it. And that’s too bad because it often leads to a negotiation about whether to include the clause at all when the proper discussion should be about what types of warranties are appropriate for the client to request and a service provider to give. And that’s the real point of any contract: to get everyone on the same page before work begins.

So, some takeaways:

  • Contracts for design and development services should generally include a warranty disclaimer.
  • Use the clause above or something simpler like: “Except as written in this agreement, Developer’s work product is provided “AS IS”.
  • The warranty disclaimer must be bold, in CAPS, or otherwise conspicuous to be effective.
  • It is reasonable for a client to ask for certain warranties, though what is reasonable depends a lot on the circumstances.
  • If a client resists the “as-is” statement, start a discussion about what types of warranties the client is expecting and try to find agreement there.
  • Head off the need for negotiation about warranties by including in your contract those promises that you are willing to stand behind.
  • Ask your lawyer for help to draft any standard warranties you want to offer.

So get right with your clients by including a warranty disclaimer and having a meaningful discussion about what really is expected by the client and promised by the service provider.

Learn about more common provisions in our (ongoing) series, Anatomy of a Services Agreement.

Key Considerations in Drafting Retainer Agreements

Retainers can be great for the studio or agency but they are prone to disputes. Longer terms lead to forgotten discussions, evolving needs, and unmet expectations. So next time you are drafting a retainer provision, ask yourself these questions and be sure the answers are addressed in your contract.

  • Does the retainer cover all types of services or particular services? Any you want to specifically exclude? Consider defining concepts such as Included Services and Excluded Services.
  • Are there any specific rules on requesting Excluded Services? How are they billed? Do they need a separate SOW (typically, yes).
  • If the retainer is essentially a retained hours arrangement, what happens when client requests exceed retained hours? Are additional hours available? At what rate?
  • If the client underutilizes an hours retainer, what happens to the leftover? Can the client get cash back? Credit for future work? Credit to Excluded Services? Use it or lose it?
  • If the client can carry over certain unused hours, is there a cap on carryover?
  • If carry over is allowed, is there a cap on single month accumulation / use?
  • Is carry over handed differently on a month to month basis vs unused hours at the end of the retainer term?
  • What assumptions are there about utilization. How will end of month dumping be handled (client making a month’s worth of work requests in the last few days of the month)?
  • Does the retainer automatically renew for the same term? Is there an opportunity to adjust rates or scope?
  • How are the kill fees calculated if the client bails on a retainer early? Have you structured your billing such that you will have some dollars available to cover early termination?
  • Does the retainer bill in advance (like rent) or in arrears (like a utility bill)? For longer retainers, consider advance billing with “first and last” being paid the first month.

Every retainer is different. Answering these questions will help you make sure your contract manages client expectations and puts you in the best position to deal with any questions that come up during the relationship.

Learn about more common provisions in our (ongoing) series, Anatomy of a Services Agreement.