• Carigali Hess Operating Company Sdn. Bhd.
Hi, I do think it is not advisable especially during tender negotiations where references and cross references are essential. A bad habit by some is to overdo numbering which makes the referencing a nightmare.
• Contract Glue Ltd.
I also agree that numbering brings ease of reference / identification and is important for clarity of which element of standard terms are being amended (both the start and end of a term). I expect that all but your most simple customer agreements contain numbering... why should standard terms differ?
• Marsh & McLennan Agency
I have seen some success when trying to prove up a more readable set of terms and conditions - (and I am referencing to terms and conditions that would be posted on a website or printed on a purchase order or receipt) where the original is drafted with numbers, but the final posted product uses titles instead of numbers. As noted below, it is difficult to cross reference without numbers, but I feel that "more readable" might actually eliminate many cross references. Good luck!
I agree with the previous two comments, in addition, numbering ensures that there are no terms and conditions that are inadvertently left off the final negotiated documents. If there are no numbers, it is more difficult to ascertain whether a certain provision is missing.
• Rolls-Royce North America
Hi. Are these intended for B2B transactions or consumer transactions? If the latter, then I think this could work as part of creating a set of terms that are easier to read and understand, and less intimidating for the consumer. However, for B2B, I would recommend keeping the numbering, especially if you anticipate some degree of negotiation on the terms as your note suggests would be the case. That said, improved readability and being more customer friendly would also benefit your B2B contracts.
Do you mean something like this? "Failure to submit the SOV within five days of signature to the Agreement, or an updated SOV with the Pay Application shall be a material breach of this Agreement. EPC Contractor shall be entitled to withhold [mybe insert a percentage you'll withhold here unless you mean the entire payment] payment until the applicable SOV has been received."
• Outotec GmbH
I agree with the below phrase and would recommend to set it also a precondition for the advance payment, if applicable. Being the Client you get to decide on its timing, type, format, etc. which is very important for your cost analysis, internal reporting and further submission of the same to your Client (sorry, little bit deviated).
However my question is for the previous stage as i am also in EPC sector. How do you even execute the agreement before you receive the SOV?
• Forsythe and Long Engineering, Inc.
Thank you both for the responses. I already have similar language in the Subcontract Agreement that is very similar to the suggested language. I was hoping there were some other ways to tie this into a material breach, but after spending more time on this I am not sure it is possible to be a material breach. At worst case it seems be more of a minor breach.
Erman, to answer your question the SOV does not come until the contract is awarded and executed. At this point our contract allows us to tell the subcontractor exactly what format we are looking for and the required breakout. The SOV is not to be submitted until after execution because the contract tells the subcontractor the breakout you are requiring. However, if you are using the SOV detailed breakout for cost comparison, I handle this within my RFP Packet. I call this form the Lump Sum Breakout or Cost Breakout form. I require each subcontractor to submit this form during bid submission. For example, I may require to see labor, material, equipment for Process piping, the same for large equipment install etc. The breakout I require on this form usually mimics the breakout for the SOV, but it does not have all the line items the SOV has such as previous payments, materials stored onsite, etc. I then compare the Lump Sum Breakout to the SOV that is received after contract execution to make sure the subcontractor is not trying to front load the Project with costs on the SOV. I also use the Lump Sum Breakout form or Cost Breakout form to evaluate and determine what areas the subcontractors are high and low with their costs. This allows me to identify potential risks areas where labor or materials where missed. It also helps me identify ambiguities within our design package if pricing in certain have a high spread between subcontractors. So, essentially I am seeing the SOV prior to contract execution it just looks and is labeled different. Does this answer your question? Do you require an SOV prior to contract award?
Mark - the Australian Coomonwealth, through the Defense Materiel Organisation, has been leading a number of efforts in the area of Relational Contracting - which is gaining great uptake as a collaborative approach to contracting.
A key contract component in the Relational Contracting portfolio in known as the Relational Charter. The Charter enables the parties to focus on the key areas in a relationship such as communications, continuous improvement, problem solving, setting mutual objectives, etc.
If you are interested in speaking with some of those in DMO who are leading on these projects, we can certainly make an introduction.
I agree that the terminology here is strange and seems to create potential doubt over an issue like the term. Of course, without knowing more about the specific amendment, comment can only be very general. For example, is the amendment fundamental to the original agreement, or a matter of detail, such as a small additional service? But even so, it appears that the amendment causes all applicable terms (whatever they maybe) to potentially expire in total, not just in respect of this amendment. So unless the amendment is now essentially the entire agreement, it seems confusing!
• Canadian Pacific Railway Company
Amendments varies whether to extend the term, modify a language, delete or add a provisions etc. To answer your question:
1. Yes, amendment can do that just to revert back to the old term, let's assume it will be through Amendment 2 amending Amendment 1;
2. As you've stated "and all applicable terms" - this means that termination doesn't actually terminate the agreement because some provisions survive termination. You need to revisit the Master, and check those provisions that will survive termination
Hope this helps
• Hewlett-Packard Company
I think it would have been better *not* to try making the amendment "expire" and say instead that whatever schedule added to the agreement, or whatever terms were added/changed via the amendment, will expire on the separate clock. I would guess that it's just a case of including boilerplate language without stopping to think of the effect on the agreement.
Hi (Original Anonymous poster, here),
Just to add fuel to the fire, the original agreement term expired long ago (8 years ago!). Each additional amendment (about ten!) merely adds a bit of functionality or expands the use (grant) of the SW License to additional platforms; each of the amendments have a two year term.
Remember, each of the amendments' language is ambiguous stating, "This Amendment, and the applicable terms of the Agreement expire on ____." So there's an 'understanding' between the two parties that the agreement term is extended, but I'm wondering 1) Is the agreement expired (8 years ago) 2) Are the amendments over the last 8 years ago invalid 3) If the agreement is alive, should I amend and remove the language ambiguity 4) Or is the agreement dead (time to initiate a new agreement)?
Thx for your opinion.
• Hewlett-Packard Company
Interesting. I've seen some cases like this before where the will to extend an agreement full stop just wasn't there, but there was a need to cover ongoing use of a legacy system. It occurs to me that there may be some negative aspects of the agreement being extended which are are just not known at this point. The most prudent thing to do before any additional amendments or extensions is to review the agreement for all the commitments contained in it. The other side has at least a very good argument that *all* the terms and the conditions are extended. This could be a problem.
• Canadian Pacific Railway Company
Very interesting. GR: Expired agreements can't be extended, exception, once parties agreed to extend it, that cures the defect.
I highly recommend asking your Legal Dept for assistance. Remember, ambiguity may or may not work in your favor, please seek assistance.
• Karan Builders,Pune,India
Any amendment to contract with an expiry date is generally unheard of.Any amendment,under special circumstances, may be superseded with a new amendment thus making the earlier amendment redundant/void.When the time is the essence of the contract, amendments may get expired and loose contractual & commercial validity being time specific.However, such contracts and their amendments will have an element of uncovered risk leading to displeasure/dissatisfaction/differences/disputes with the passage of time.Hope this helps !
You might consider pursuing a relational contracting model with the supplier as part of the renewal phase of your relationship. One of the eight key enablers of relational contracting success is gain-sharing (some have positioned the approach as "gain and pain sharing"). Under the relational contracting approach, a relational charter would be developed and this would be addressed in that charter (or elsewhere in the revised contract, if a relational charter is not created).
There is a growing number of documents related to relational contracting in the IACCM Library.
Thank you for your suggestions.
• University of Tennessee
"The Vested Outsourcing Manual" provides a great step-by-step guide to establishing collaborative, shared value contracts with strategic suppliers and it contains a very comprehensive chapter on pricing models. I also recommend a whitepaper by the University of Tennessee and the Sourcing Interests Group, titled "Unpacking Pricing Models." The book is available to order on the Vested Way site (www.vestedway.com/the-vested-outsourcing-manual/) and the whitepaper is a free download (www.vestedway.com/vested-library/).
• AD Supply Chain Group Pty Ltd
There also more to it than dividing up the savings. You also need to consider how you are going to deal with the 'downside' as well. This Podcast on Supply Chain Brain (again featuring Kate Vitasek) discusses the issues around price setting. Also links to a really good whitepaper.
• Australian Taxation Office
We built a contract with provisions in it around "Gain Share Principles". In essence, these provisions say we'll jointly develop the business case for the proposed changeand work out how to share the gains based on how much each party invests; how much risk each party accepts, how much benefit each party expects to get (and not just financial) and any other factors we agree are relevant. However, we haven't used these provisions yet, so I can't tell you how they've worked out (but we have built an excellent collaborative relationship with the service provider, so I expect they will work well when we do try them)
There are several books to provide guidance on this readily available from Amazon. There are even model templates you can download - for example, itlaw.wikia.com/wiki/Outsourcing_Agreement_(No._1) - though I would use them more for guidance than in practice. You will also find articles in the IACCM member library that can assist with things like SLAs or KPIs, as well as discussion of clauses that need particular attention.
• Hewlett Packard Co.
ITO outsourcing has a lot of unique provisions that have to be taken into consideration. Ie. data privacy / confidentiality; site locations; security to name a few.
IACCM member and drafting expert Ken Adams has written on this topic and actually recommends use of 'non-trivial' within contracts (see www.adamsdrafting.com/rethinking-material-and-mac/).
It seems to me that non-trivial should be seen in a context similar to de minimis. It relates to scale - and we must recognise that the parties may see that in different ways. For a mega-corporation in B2B, $100 is probably trivial and not worth collecting, whereas for a small business it may be seen as material. AB2C company, on the other hand, is likely to pursue a customer for $100. And in the event that an employee is found to have stolen $100, that is somehow always significant, though the employee would probably argue otherwise.
Ken Adam's suggests that the definition of non-trivial should include defining from whose perspective, which (based on the examples above) seems wise advice. And unfortunately, for you, it seems the only way to decide is to illustrate why the amount involved is not trivial. Ultimately, if the client claims it is trivial, I guess they should have no objection in paying.
Whether we use material or trivial as the term of art, the fact remains that it is not a fixed reference point. Whenever a reference point is not fixed, the parties must make reasonable efforts to agree. If the customer here insists that all but the most egregious variance is merely trivial, the seller really has no specific protection in the contract. The resolution of these issues typically comes down to the quality of the relationship between the parties. Is the relationship collaborative and productive? If so, you can expect basically acceptable results.