DRAFTING SERVICES AGREEMENTS IN BUSINESS (60 ...profile class actions against Uber and Lyft, as well...

DRAFTING SERVICES AGREEMENTS IN BUSINESS

First Run Broadcast: September 2, 2015

1:00 p.m. E.T./12:00 p.m. C.T./11:00 a.m. M.T./10:00 a.m. P.T. (60 minutes)

Most businesses today provide services to their clients, whether “hard or “soft” services. The

age of manufacturing tangible goods for distribution and sale has been eclipsed by clients who

provide “hard” services like managing a physical plant or “soft” services like sales, management,

engineering, customer support, or other services. The contracting needs f service businesses are

unlike those companies that make something tangible. There are subtle issues of defining the

scope of an engagement – often the source of conflict in these contracts – records and reporting,

quality assurance, indemnification, conflicts of interest, and more. When these major provisions

of services agreements are not carefully drafted, they generally lead to strife among parties,

unnecessary costs and a loss of value. This program will provide you with a practical guide to

drafting the major provisions of services agreements.

Drafting services agreements for “hard” and “soft” services

Defining the scope of services provided, processes for changing the scope, and

relationship to fees

Performance standards and timeliness of delivery of services

Drafting fee structures

Access to recordings, timely reporting, and quality assurance

Ensuring ownership of key files, records, “know how,” customer lists, and trade secrets

Issues related to sub-contracting, designation of agents, and assignment of the contract

Conflicts of interest, limitation of liability, and indemnification

Speakers:

Joel R. Buckberg is of counsel in Nashville office of Baker, Donelson, Bearman, Caldwell &

Berkowitz, P.C., where he has more than 30 years’ experience in corporate and business

transactions. His practice focuses on corporate and asset transactions and operations, particularly

in hospitality, franchising and distribution. He also counsels clients on strategic planning,

financing, mergers and acquisitions, system policy and practice development, regulatory

compliance and contract system drafting. Prior to joining Baker Donelson, he was executive vice

president and deputy general counsel of Cendant Corporation. Mr. Buckberg received his B.S.

form Union College, his M.B.A. from Vanderbilt University, and his J.D. from Vanderbilt

University School of Law.

Alson R. Martin is a partner in the Overland Park, Kansas office of Lathrop and Gage, LLP,

where he has a national practice focusing on business law, taxation, health care, and retirement

plans. He is a Fellow of the American College of Tax Counsel and the American College of

Employee Benefits Counsel. Mr. Martin is the author of "Limited Liability Companies and

Partnerships" and the co-author of "Kansas Corporation Law & Practice (Including Tax

Aspects)." He is the president and a director of the Small Business Council of America. Mr.

Martin received his B.A., with highest distinction, from the University of Kansas, and his J.D.

and LL.M. from New York University School of Law.

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Drafting Services Agreements in Business

Teleseminar September 2, 2015

1:00PM – 2:00PM 1.0 MCLE GENERAL CREDITS

PAYMENT METHOD:

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Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: September 2, 2015 Seminar Title: Drafting Services Agreements in Business

Location: Teleseminar - LIVE Credits: 1.0 MCLE General Credit Program Minutes: 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.

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BUSINESS-TO-BUSINESS CONTRACT ISSUES

PROFESSIONAL EDUCATION BROADCAST NETWORK

Alson R. MartinLathrop & Gage LLP

10851 Mastin BoulevardSuite 1000

Overland Park, KS [email protected]

Table of Contents

Page

-i-

I. OVERVIEW – JOINT EMPLOYER; WORKER CLASSIFICATION;EMPLOYEE VS. INDEPENDENT CONTRACTOR ISSUES........................................ 1

A. Leased Employees; Professional Employer Organizations (PEOs)....................... 1

1. Employee Leasing Company (PEO) Can Be Responsible ForPayroll Taxes; PEO Officer Liable For 100% Trust Fund PenaltyFor PEO’s Failure To Pay Tax................................................................... 1

2. Leased employees are often treated by IRS as common lawemployees of recipient employer, not the PEO ......................................... 1

3. New IRS Rules For New Category Of PEO In 2016 – the CPEO............. 1

4. Labor Department’s 2015 Guidance On Worker Classification &Independent Contractor Misclassification Under Fair LaborStandards Act; New Emphasis On Economic Dependence(Working For One Employer) & Strict Reliance On 6-Factor Test........... 2

II. DEFINING THE SCOPE OF SERVICES PROVIDED AND CHANGE ORDERPROCESS .......................................................................................................................... 4

A. Government Contracts & Change Orders .............................................................. 4

B. Different Governmental Entities Have Different Rules......................................... 5

C. When is a Change Order Within the Scope of the Contract? ................................ 5

D. Written Versus Oral Change Orders .................................................................... 10

III. ACCESS TO RECORDS; TIMELY REPORTING....................................................... 10

A. Monthly Statements; Inspection Of Recipient’s Records .................................... 10

IV. OWNERSHIP OF INTELLECTUAL PROPERTY, KNOW- HOW, & TRADESECRETS ........................................................................................................................ 11

A. Intellectual Property Ownership .......................................................................... 11

1. Intellectual Property................................................................................. 11

2. Trade Secret ............................................................................................. 13

3. Reverse Engineering ................................................................................ 14

4. Independent Discovery ............................................................................ 14

B. Know-How........................................................................................................... 14

V. NON-SOLICITATION OF EMPLOYEES AND NON-CIRCUMVENTION............... 14

A. Non-Solicitation................................................................................................... 14

B. Non-Circumvention ............................................................................................. 14

VI. LIMITATION OF LIABILITY & INDEMNIFICATION.............................................. 15

Table of Contents(continued)

Page

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A. Limitation of Liability.......................................................................................... 15

B. Indemnification .................................................................................................... 15

1. Common Law Indemnification ................................................................ 15

2. Implied Indemnification........................................................................... 15

3. Statutory Indemnification. ....................................................................... 16

4. Contractual Indemnification. ................................................................... 16

VII. ADDITIONAL MISCELLANEOUS BUT IMPORTANT PROVISIONS .................... 17

A. Termination.......................................................................................................... 17

B. Relationship Between Parties .............................................................................. 17

C. Binding Effect ...................................................................................................... 17

D. Execution; Counterparts; Electronic Copies........................................................ 17

E. Notices ................................................................................................................. 17

F. Modification......................................................................................................... 17

G. Waiver.................................................................................................................. 17

H. Severability .......................................................................................................... 17

I. Final Agreement................................................................................................... 17

J. Governing Law. ................................................................................................... 17

K. Consent to lawsuit in state of __________ ...................................................... 17

L. Dispute Resolution; Mediation & Arbitration ..................................................... 17

M. Nonassignability .................................................................................................. 17

N. Confidentiality of Agreement’s Terms ................................................................ 17

O. Confidentiality of Customer Records .................................................................. 17

P. Disposition of Records; Access to Records ......................................................... 17

Q. Offset.................................................................................................................... 17

R. Noncompete ......................................................................................................... 17

S. Legal Fees ............................................................................................................ 17

T. No Third Party Beneficiaries ............................................................................... 17

U. Warranties ............................................................................................................ 17

V. Survival of Obligations, ....................................................................................... 17

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BUSINESS-TO-BUSINESS CONTRACT ISSUES

I. OVERVIEW – JOINT EMPLOYER; WORKER CLASSIFICATION;EMPLOYEE VS. INDEPENDENT CONTRACTOR ISSUES

A. Leased Employees; Professional Employer Organizations (PEOs).

1. Employee Leasing Company (PEO) Can Be Responsible For PayrollTaxes; PEO Officer Liable For 100% Trust Fund Penalty For PEO’sFailure To Pay Tax.

Chief Counsel Advice 200916024 concludes that the IRS can assert the Code § 6672 trust fundrecovery penalty against an officer of an employee leasing company (a professional employmentorganization (PEO) that failed to remit its clients’ trust fund taxes to IRS where the PEO filed theclient companies’ employment tax returns under the PEO’s name.

2. Leased employees are often treated by IRS as common law employees ofrecipient employer, not the PEO.

The Tax Code does not recognize co-employment as such. For federal employment tax purposes,whether an employer-employee relationship exists is determined under the long-standingcommon law test based on all the facts and circumstances, of which the most important is theright to direct and control the worker’s actions. Thus, a service recipient that supervises anddirects workers typically is considered the common law employer. This classification isimportant because, unless an exception applies, the common law employer is liable for thecollection, payment, and reporting of payroll taxes and is subject to tax assessments and penaltiesfor failures. There are two basic exceptions: agents and statutory employers.

3. New IRS Rules For New Category Of PEO In 2016 – the CPEO.

The Tax Increase Prevention Act of 2014 (“TIPA”) was enacted in December 2014. One of thechanges made was a change in the Internal Revenue Code to create a new category ofprofessional employer organizations, referred to as “certified professional employerorganizations” (certified PEOs or CPEOs). These provisions take effect on January 1, 2016, butthe IRS has announced that it will begin accepting applications for PEO certification beginningJuly 1, 2016.

The significance of being characterized as a certified PEO is that a CPEO is treated as being theemployer of designated employees of its customer (“worksite employees”) for federalemployment tax purposes. CPEOs will have exclusive responsibility for paying worksiteemployees’ wages and for collecting, depositing, and paying federal employment taxes. TheCPEOs’ customers will continue to be treated as the actual employer of the worksite employeesfor other purposes, including other tax purposes, e.g., will be allowed to claim tax credits foremployment of the worksite employees if applicable conditions are satisfied.

Classification as a CPEO is not automatic. Effective in 2016, a PEO will be able to voluntarilyapply to become a certified PEO by:

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• Meeting tax status, background and audit requirements that will be established byTreasury regulations that are yet to be issued, and

• Agreeing to:

○ satisfy bonding and independent financial review requirements;○ satisfy reporting obligations imposed by regulation;○ use an accrual method of accounting to compute its taxable income (unless another

method is approved by the Secretary of the Treasury);○ verify its ongoing compliance with the various CPEO requirements; and○ notify the Secretary of the Treasury of the occurrence of any changes that affect the

accuracy of previous agreements or information provided.

4. Labor Department’s 2015 Guidance On Worker Classification &Independent Contractor Misclassification Under Fair Labor Standards Act;New Emphasis On Economic Dependence (Working For One Employer)& Strict Reliance On 6-Factor Test.

The DOL’s new Interpretation and the Labor Department’s prior enforcement policy andreclassifying purported independent contractors as employees is a greater emphasis on the“economic dependence” of the workers on the business that has engaged their services. The July15, 2015 policy update at http://www.dol.gov/whd/workers/Misclassification/AI-2015_1.htmstates that if a worker paid on a 1099 basis willingly chooses to provide services to only onecompany, the Labor Department apparently will regard that individual as an employee,concluding that he or she is “economically dependent” on that business.

This 2015 “Administrator’s Interpretation No. 2015-1” signals a renewed emphasis by the LaborDepartment on cracking down on companies that it believes are misclassifying employees asindependent contractors. Coming on the heels of a number of recent court decisions in high-profile class actions against Uber and Lyft, as well as a June 2015 $228 million misclassificationsettlement of a California lawsuit by FedEx in involving classifying its drivers as independentcontractors, companies that utilize independent contractors as part of their business models or tosupplement their workforces have more reason to be concerning about misclassifying employeesas independent contractors.

The July 15, 2015 Administrator’s Interpretation notes that, under the FLSA, the test that hasbeen applied by the courts in deciding cases involving alleged employee misclassification is the“economic realities” test, not the common law “control” test used by the courts in interpretingother federal laws, such as the Internal Revenue Code. The Interpretation notes that this test“focuses on whether the worker is economically dependent on the employer or is in business forhim or herself.” The guidance then concludes that a “worker who is economically dependent onan employer” satisfies the test for employee status. This position is reinforced by theInterpretation’s statement that the administrative goal is to determine “whether the worker iseconomically dependent on the employer (and thus its employee) or is really in business for himor herself (and thus its independent contractor).” This is where the Administrator’sInterpretation, however, departs from existing court decisions.

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Although economic dependence is undoubtedly an important factor used by the courts indetermining employee status under the FLSA, it is not the critical part. However, if a workerpaid on a 1099 basis willingly chooses to provide services to only one company, the LaborDepartment will regard that individual as an employee because the worker is “economicallydependent” on that business.

This 2015 Interpretation sets forth six factors that the Labor Department includes in its“economic realities” test. These are essentially the same six factors that the Labor Departmenthas used for decades. However, the biggest difference between the 2015 Interpretation and the2014 Fact Sheet is the Interpretation’s reliance on six factors to the virtual exclusion of all othersand the emphasis on the economic dependence factor. While that is contrary to Supreme Courtdecisions on the issue, it nonetheless sets forth the Labor Department’s position with regard to itsenforcement initiatives.

The first factor in the new Interpretation is whether the work is an integral part of the employer’sbusiness. “If the work performed by a worker is integral to the employer’s business, it is morelikely that the worker is economically dependent on the employer.” The Interpretation, however,adds something new, stating, “A true independent contractor’s work, on the other hand, isunlikely to be integral to the employer’s business.” Courts may well take issue with this add-on.There are many situations where a company retains a small firm with a few employees toperform work that is integral to its business — yet few would argue that the small business isanything other than an independent contractor. Should the result be any different if the smallbusiness is a one-person operation? Evidently, the Labor Department believes it should be. Asnoted in a footnote to the Interpretation, however, some courts do not consider this factor indetermining a worker’s status as an employee or independent contractor.

The second factor is whether a worker’s managerial skill affects the worker’s opportunity forprofit or loss. The 2015 Interpretation states that a worker’s ability to work more hours and theamount of work available from the employer “have nothing to do with the worker’s managerialskill.” Examples of what is regarded as significant to the Labor Department are “a worker’sdecision to hire others, purchase materials and equipment, advertise, rent space, and manage timetables.”

The third factor is how the worker’s relative investment compares to the employer’s investment.“[T]he worker’s investment should not be relatively minor compared with that of the employer.”As a practical matter, though, it is rare that the investment of even the most genuine ofindependent contractors will ever compare favorably to the investment by the business thatretains him or her. Presumably, the courts will examine investments in light of the relative size ofthe company and the worker classified as an independent contractor.

The fourth factor is whether the work performed requires special skill and initiative.

The fifth factor is whether the relationship between the worker and the employer is permanent orindefinite. However, “a lack of permanence or indefiniteness does not automatically suggest anindependent contractor relationship.”

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The sixth factor is the nature and degree of the employer’s control. While the Labor Departmentnoted in its 2014 Fact Sheet that this factor includes who sets the pay rate and work hours, whodetermines how the work is performed, and whether the worker is free to work for others andhire helpers, the new Interpretation takes a different view. It states that “workers’ control overthe hours when they work is not indicative of independent contractor status.” This is a changefrom the Labor Department’s past enforcement position, and it also goes against most courtdecisions that treat the worker’s setting of his or her own hours as a factor favoring independentcontractor status. The new Interpretation also does not mention whether a worker’s ability towork for others or hire helpers will be considered in determining independent contractor vs.employee status, yet these facts have historically been treated as important by the courts.

II. DEFINING THE SCOPE OF SERVICES PROVIDED AND CHANGE ORDERPROCESS.

A. Government Contracts & Change Orders.

The “changes” concept—the concept that a governmental entity should have the right toorder/approve changes to the contract work on payment of additional compensation to thecontractor—has been a part of the government/public contracting process for many, many years.

Contract “changes” can occur for a variety of reasons:

• unclear/not well defined Scopes of Work (SOWs)/specifications;• The governmental agency underestimates/overestimates its needs;• differing site conditions;• The agency or contractor needs to make a change.

Changes “within the scope” of the contract were defined by the Supreme Court decision inFreund v. United States, 260 U.S. 60 (1922):”Work within the general scope of the contract isthat work that should be regarded as fairly and reasonably within the contemplation of the partieswhen the contract was entered into.”

Best practice procurement requires that if the change is outside the general scope of the contract,it should be subject to competitive bidding unless there is an urgent and compelling reason to addthe effort to the existing contract.

Because the government’s needs change from time to time, government contracts contain aclause authorizing the contracting officer to unilaterally order changes in the specifications andother contract terms. The changes must be “within the general scope of the contract.” Thecontractor is obliged to perform the contract as unilaterally changed by the contracting officer. Achange is within the scope of the contract if it can be regarded as within the contemplation of theparties at the time the contract was entered into. The government cannot use a change order tochange the general nature of the contract. The contractor is entitled to an equitable adjustment inprice and delivery schedule if changes are ordered.

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B. Different Governmental Entities Have Different Rules.

For instance, an educational agency has a ruled that a change order that involves rehabilitation,reconstruction of buildings, or other new structures cannot exceed 25% of the original contractprice, without securing new bids, when such a change or alteration is a necessary and integralpart of the work under the contract. Changes exceeding 15% of the original contract price mustbe approved by an affirmative vote of not less than 75% of the members of the Board ofEducation.

C. When is a Change Order Within the Scope of the Contract?

Many federal and state governmental agency contracts contain change order provisions allowingchanges in the products and services over the contract term. In many cases, if the change order isnot within the scope of the products and services, new competitive bidding is required. Amongthese provisions are the familiar “Changes” clause, which allows federal government agencies toorder changes within the scope of the contract, product substitution clauses that requirecontractors to offer state-of-the-art replacements and allow contractors to replace discontinuedproducts, and engineering changes clauses that give the contractor the right to propose, and theagency the right to accept, improved or innovative products or services that become availableduring the contract term. Clauses such as these are used by agencies to satisfy the broadrequirement in subsection 201-20.203-5 of the Federal Information Resources ManagementRegulation (FIRMR), 41 C.F.R., ch. 201, that agencies “determine strategies for maintaining up-to-date FIP [Federal Information Processing] resources and avoiding outdated FIP resources overthe system life.”

Before a federal agency issues or accepts a contract modification is whether the modification iswithin the scope of the original competitive procurement, or instead is a new acquisition thatfalls under statutory competition requirements, and therefore must be separately competed.Contract modifications allowing a change in the products or services, or quantities, to bedelivered, and agency exercise of an option or change order, are all subject to challenge bycompeting vendors. The issue in such cases is whether the modification is so substantial as tochange the nature of the contract, thus requiring a new competition, or whether the option wasevaluated as part of the original competition, and is unilaterally exercisable at a price specified inthe contract, or reasonably determinable from its terms.

A leading case is AT & T Communications, Inc. v. Wiltel, Inc., 1 F.3d 1201 (Fed. Cir. 1992).Wiltel reverses a decision of the General Services Administration Board of Contract Appeals(GSBCA), Wiltel, Inc. v. General Services Administration, GSBCA No. 11857-P, Aug. 4, 1992,93-1 BCA ¶ 25,314. In the GSBCA decision, the GSBCA held that a modification addingdedicated telecommunication services on fiberoptic cable (T3 service) to the ten-year,comprehensive FTS2000 contract was outside the scope of the original competition, and wastherefore a new service requiring a new competition. The statement of work required dedicatedtransmission services, and described these services as analog voice and data at speeds up to 9.6kilobits per second, digital data at speeds up to 64 kilobits per second, and nonchannelizeddedicated telecommunications services on terrestrial copper cable (T1 service). The solicitationallowed offerors to propose additional features, and while both offerors proposed T3 service asan additional feature, GSA did not accept, or evaluate this or any other offered additional feature.

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The GSBCA had looked to a long line of General Accounting Office (GAO) decisions to decidewhether T3 service was outside the scope of the original competition. Id., at 126,110-11.Focusing on a factor announced by the GAO to be considered in these cases, whether theofferors would have anticipated such a modification, the GSBCA concluded that since GSA hadnot accepted, or even evaluated, offers of T3 service, the offerors would not have expected thatT3 service could be purchased. Id., at 126,111. While the GSBCA recognized that the FTS2000contracts include a “Service Improvements” clause allowing the contractors to proposeimprovements to offered services or features, the GSBCA concluded that T3 service was a newor additional service, and not an improvement. Id., at 126,112.

On appeal, the Federal Circuit held that the GSBCA had erred in its reading of the ServicesImprovements clause, and that the “sweeping language” of this clause allowed the contractors tooffer “any service advantage.” 1 F.3d at 1206. The Federal Circuit looked to a previous GSBCAdecision on modifications within the scope of the FTS2000 contracts, MCI TelecommunicationsCorp., GSBCA No. 10450-P, Feb. 28, 1990, 90-2 BCA ¶ 22,735, and noting the GSBCA’sconclusion there that “all of the offerors . . . believed that the successful vendors would providevirtually all commercially available intercity telecommunications services,” held that theGSBCA should have similarly concluded in Wiltel that the offerors would also have believed T3service to be within the scope of the contract. Id., at 1207. The Federal Circuit went on to holdthat GSA’s nonacceptance, or refusal to evaluate offers of T3 service under the solicitation, wasnot a rejection, nor the sort of disapproval that would have led a reasonable offeror to concludethat offers of T3 service were outside the scope of the proposed contract. Id.

In Wiltel, the Federal Circuit recognizes that the Competition in Contracting Act of 1984 offersno guidance to decide when a modification of a contract requires a new competition, else fallswithin the scope of the original competitive procurement. Id., at 1205. The Federal Circuit couldhave looked to the Federal Acquisition Regulation (FAR), 48 C.F.R., ch. 1, but there it wouldhave learned only that contract modifications “within the scope of the contract” are exemptedfrom competition requirements, FAR 6.001(c), just as are exercises of options that wereevaluated under the original competition, and can be exercised at prices “specified in orreasonably determinable from the terms of the basic contract . . . .” FAR 17.207(f).

There are many GAO cases that consider the issue whether a subsequent contract modification iswithin the scope of a competitive procurement. GAO has viewed any analysis of this issue asone:

to be determined by examining whether the alteration is within the scope ofthe competition that was originally conducted. Ordinarily, a modification fallswithin the scope of the procurement provided that it is of a nature whichpotential offerors would have reasonably anticipated under the changes clause.To determine what potential offerors would have reasonably expected,consideration should be given, in our view, to the procurement format used,the history of the present and related past procurements, and the nature of thesupplies or services sought. A variety of factors may be pertinent, including:whether the requirement was appropriate initially for an advertised ornegotiated procurement; whether a standard off-the-shelf or similar item issought; or to whether, e.g., the contract is one for research and development,

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suggesting that broad changes might be expected because the Government’srequirements are at best indefinite. American Air Filter Co., DLA Request forReconsideration, B-188408, June 19, 1978, 78-1 CPD ¶ 443, at 9-10.

GAO has expressly rejected the contention that the issue should be decided on “cardinal change”principles. The “cardinal change” doc trine is now only a historical artifact. Once a cardinalchange served to distinguish between those changes in the contract work that could be orderedby agencies under the Changes clause, and those changes so drastic that they resulted inperformance of duties “materially different from those bargained for.” Allied Materials &Equipment Co. v. United States, 569 F.2d 562, 56364 (Ct. Cl. 1978).

It needs to be remembered that the “cardinal change” doctrine was important only before theContract Disputes Act of 1978. A cardinal change was by definition a breach of the under lyingcontract, and back then claims arising under the contract were decided by agency boards ofcontract appeal, and breach claims, claims outside the contract, were decided in the United StatesCourt of Claims. The Wiltel court recognized that the case before it was a different one from thecases that produced the cardinal change doctrine: “The cardinal change doctrine asks whether amodification exceeds the scope of the con tract’s changes clause; this case asks whether themodification is within the scope of the competition conducted to achieve the original contract.” 1F.3d, at 1205.

GAO thought any analogy to the cardinal change doctrine was inappropriate because it allowedthe introduction of self-serving evidence. Wiltel rejects GAO’s view that the issue whether asubsequent contract modification is within the scope of a competitive procurement shouldproceed from an analysis of that which potential offerors reasonably would have expected. TheGAO analysis is unworkable for the same reason that GAO concluded an analysis on cardinalchange principles is unworkable, viz., both depend on self-serving evidence.

The terms of the solicitation and the contract that resulted from the solicitation are the onlyreliable sources for a determination of the contract’s scope, particularly so in federal systemsintegration contracts when the issue whether a modification is within the scope of the originalcompetitive procurement is likely to arise years after the original procurement was concluded.This view of Wiltel is confirmed in recent GSBCA decisions.

Consider Pacific Bell v. National Aeronautics and Space Administration, GSBCA No. 12814-P,June 29, 1994, 94-3 BCA ¶ 27,067. At issue here was a modification issued late in 1993 to atelecommunications systems contract awarded in 1987. The contract provided for installation andmaintenance of a digital telecommunications system (a system of lines and private branchexchanges (PBX’s)) at NASA’s Ames Research Center (Ames). The contract required that thesystem be expandable from the 4,000 lines installed at cut-over to a minimum of 15,000 lines.The contract required that the contractor engineer, furnish, and install any required expansionswhen ordered.

Since it was not possible to anticipate just what technologies might become available over theten-year systems life, the contract did not specify the methods or equipment to be used for anyrequired expansions, and instead required the contractor to submit engineering change proposals

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when necessary to provide a required expansion. The contract contained no geographic limits orprohibitions as to possible expansions. Id., at 134,871.

Ames is located at Moffett Field, also the site of the former Moffett Field Naval Air Station. Fiveyears after contract award, Moffett Field Naval Air Station was closed, and Ames became thehost activity for all federal activities located at Moffett Field. Ames expanded into areas vacatedby the Navy, and so it became necessary to expand the digital telecommunications system to10,000 lines. NASA contracting personnel unfamiliar with the particulars of the competitionconcluded five years earlier decided that it was necessary to conduct a new acquisition for theexpansion into the vacated areas. They did so because they viewed it as “inconceivable,” fiveyears earlier when the competition was conducted, that the Navy would have closed itsoperations at Moffett Field. Id., at 134,87172.

These contracting personnel did not review the contract, and apparently were unaware that itcould be modified to add equipment not included in the price tables when doing so wasnecessary for expansion purposes. It turned out that the expansion required the use of remoteswitching centers (this because the distance between service points in the former Navy areas andthe host PBX’s exceeded the length of the local loop that could be reliably electrically drivenfrom a host PBX). This requirement for remote switching centers was yet another reason NASAcontracting personnel concluded that the expansion was outside the scope of the originalcompetitive procurement. Id., at 134,87273.

NASA modified the contract under a written justification for other than full and opencompetition, and this was protested as an illegal sole source procurement. Although it recognizedthat the original requirements on which the contract was based did not contemplate expansioninto areas vacated by the Navy, the GSBCA decided the contract modification was nonethelesswithin the scope of the contract, this based on a reading of the contract terms, rather than on anydetermination of the offeror’s expectations in the original competition:

We do not agree with the protester that in order to prove the work undermodification 66 was within the scope of the contract, respondent must showthat at the time of the contract, the offerors contemplated that [Ames] wouldexpand into the Navy areas of Moffett Field during the ten-year contractperiod. Offerors were not charged with knowing how [Ames] might grow.While it may not have been possible to predict how [Ames] might expandover the next ten years, the contract was to provide a [system] with aminimum expansion capacity and provide expansion as needs arose. Inperforming the work under modification 66, Nortel will not exceed thatexpansion capacity. The [system] as configured, after the work is per formedunder modification 66, is within the parameters of the contemplated expansionas set forth in the contract, and therefore, by the very terms of the solicitationand the contract, within the contemplation of the offerors. Id., at 134,785(emphasis added).

Given the rationale in Pacific Bell, that it is the terms of the solicitation and the resultingcontract, and not some determination of offeror’s expectations at the time of the competition, thatcounts in deciding whether a contract modification is within the scope of the original competitive

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procurement, the result in a subsequent case, AT & T Global Business Communications Systemsv. Department of the Army, GSBCA No. 12937-P, Nov. 22, 1994, 95-1 BCA ¶ 27,379, is not atall surprising. At issue there was a June 1994 announcement in the Commerce Business Dailythat the Navy would satisfy its needs for a replacement PBX at the Cherry Point, North Carolina,Marine Corps Air Station by placing an order against an Army contract awarded in 1991 forintegrated services digital network capable PBXs.

The Army contract required the contractor to engineer, furnish, install, test and cut-over PBXs atup to thirty-nine selected sites over a systems life of ten years. The contract contained nogeographical limitations, and to provide flexibility needed to respond to changing priorities andfunding, contemplated the substitution of sites throughout the systems life. Id., at 136,451. AT &T elected not to compete for the contract because it sold little telecommunications equipment tothe Army, and while it sold significant quantities of this equipment to the Navy, it did not expectthe program to extend other than to Army activities its experience in such instances was that if anagency planned to acquire supplies and services for other agencies, the solicitation would say so.Id., at 136,453.

It turned out that base closures and realignments resulted in a substantial reduction in Armyrequirements for upgraded PBXs, and when the Navy learned from the contractor that systemswere available, the Army sought and obtained an amended delegation of procurement authorityallowing all DoD activities to place orders under the Army’s contract. Id., at 136,45557. WhenAT & T learned that Cherry Point Marine Corps Air Station and other Navy activities wereplacing orders under the contract, it protested, arguing that the contract allowed only for systemsfunded by the Army.

The result was predictable. Whether or not AT & T had reasonably expected three years earlierthat only Army activities could place orders under the contract, the GSBCA held that it was thecontract language, and not anyone’s reasonable expectations, that controlled its decision on theissue whether the subsequent contract modification was within the scope of the competitiveprocurement: “Here, the solicitation specifically contemplated the substitution of different sitesfor those listed on the upgrade list, and there was no explicit restriction that replacement sitescould only be Army sites,” Id., at 136,459.

Provisions of the Federal Acquisition Streamlining Act of 1994 that authorize civilian agenciesto enter into multiyear contracts and encourage interagency and intra-agency acquisitions underthe Economy Act ensure future controversies over whether a particular contract modification iswithin the scope of the original competitive procurement. Multiyear contracting raises many ofthe same issues as does the “systems life” concept required for federal information technologyacquisitions, including the likelihood of contract modifications to accept improved or innovativeproducts or services that become available during the contract term, and, as in Wiltel, whethersuch modifications are within the scope of the original competitive procurement. Interagency andintra-agency Economy Act acquisitions will make for contract management issues like thoseencountered in Pacific Bell (many agencies lack experience as servicing agencies and areunaware of the broad sweep of their current contracts), and will require, as in AT & T GlobalBusiness Communications Systems, that offerors carefully consider just where particular contractrequirements may originate.

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D. Written Versus Oral Change Orders.

Most construction contracts provide that the contractor shall not proceed with any extra orchanged work until a written change order has been issued. It is not uncommon, however, forcontractors, in an effort to keep the project on schedule, to perform extra work after receivingoral authorization and assurances that a written change order would be forthcoming. Mostcontractors have heard this: “Please go ahead with the extra work so as not to delay the projectand we will send you a written change order when we have time to complete the paperwork.”This practice of performing extra work based on an oral authorization may be common, but itcan also be very risky for the contractor, especially on a public contract.

In a California case, a California appellate court ruled that any oral authorization to performextra work was insufficient because the contract required all changes to be in writing. P&DConsultants, Inc. v. City of Carlsbad, 190 Cal. App. 4th 1332 (4th Dist. 2010). The owner’sprior actions in approving verbal change orders was of no avail for the contractor. The courtruled that any oral authorization by the City’s project manager for extra work beyond the workcontemplated by the contract or the parties’ conduct in which they supposedly modified thewritten change order procedure based on the handling of Amendment Nos. 1 through 5, wherethe contractor commenced work as directed by the city project manager before receiving awritten change order, was insufficient to bind the city. The court reversed a jury verdict for thecontractor and stated that the plain language of the contract limits the City’s power to contract tothe prescribed method. By relying on oral authorization or direction to begin or perform extrawork without a written change order, the contractor acted at its peril. The purpose of including awritten change order requirement in a municipal works contract is obviously to protect the publicfisc from the type of situation that occurred here.

III. ACCESS TO RECORDS; TIMELY REPORTING.

A. Monthly Statements; Inspection Of Recipient’s Records.

Sample Provision. Recipient shall submit to each Consultant monthly statements of the fee dueand payable to each Consultant under the terms of this Agreement, with reference to the specificorders on invoices on which the fees are being paid. Consultants shall have the right, at their ownexpense and not more than once in any three (3) month period, to authorize Consultant’sindependent auditors to inspect and copy, at reasonable times during Recipient’s ordinarybusiness hours, Recipient’s relevant accounting and business records to verify the accuracy ofthe fees paid by Recipient hereunder. This provision shall survive the Termination of thisAgreement as long as fees are payable to Consultants under this Agreement.

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IV. OWNERSHIP OF INTELLECTUAL PROPERTY, KNOW- HOW, & TRADESECRETS.

A. Intellectual Property Ownership.

1. Intellectual Property.

Ownership interest by an individual or entity in creations of the human mind that may beprotected under the law. Ownership of intellectual property cannot be defined as clearly as canreal or personal property because the property itself is intangible; it cannot be held, touched, ordefined by physical boundaries. Instead, “intellectual property” is the ownership interest that aperson or entity may have in creations of the human mind. Ownership of intellectual propertymeans ownership of a concept or idea rather than ownership of a parcel of property or object. Ofcourse, as with real and personal property, intellectual property can be sold or otherwiseconveyed.

Intellectual property is usually initially owned by the person who thought of the concept or ideathat is the subject of the intellectual property, although it can often be transferred or releasedthough agreement, transaction, operation of law, or simply the passage of time. While it is held,ownership of intellectual property allows its owner to exclude other people from using the ideasor concepts that comprise the intellectual property at issue. Depending on the type of intellectualproperty at issue and governing law, this right may be limited to preventing other people fromusing the intellectual property at issue for commercial purposes.

a. Copyright. Protection provided by the law to an individual orentity for original works produced by that author. Copyright law protects the authors of originalworks and gives them the right to exclusive use. Copyrights provide protection for works thatwere authored by the copyright holder. Those works can be in any form and can be deliveredthrough any medium. Thus, copyright protection can protect written essays or books, songs,paintings and other works of art, movies, computer software, etc. See 17 USC § 102. Copyrightprotection for any original work is automatic and it arises immediately upon completion of awork. Still, the protection afforded can be greatly enhanced by registering the copyright with theCopyright Office.

Copyright ownership usually allows the owner to prevent dissemination of the work and itprevents any other person from copying elements of the copyrighted work for his or her owncommercial benefit.

The copyright begins when the work is created (not published) and lasts 70 years after the deathof the creator. If the creator is a corporation, then the copyright lasts 120 years from the timecreated or 95 years from its publication, whichever is shorter.

(i) Who owns the copyright for works created by anemployee? The employer automatically owns the copyright to any works created by anemployee as part of employment. This is known as the “Work Made for Hire” doctrine and is anexception to the general rule that the creator owns the copyright. A written agreement betweenthe parties is not needed for the employer to own the copyright under this doctrine.

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(ii) Who owns the copyright for work created for an employerby a consultant? The consultant owns the copyright unless the parties specifically agreeotherwise in writing. For example, the Academy’s standard “Assignment of Rights” contractspecifies that the Academy is the owner of the copyright and not the consultant. After theassignment has been made, the Academy is the sole owner of the work and the consultant creatorno longer has any ownership rights in the copyright. In other contracts with consultants, it isimportant to include the statement that the work created by the consultant is a “work made forhire,” owned by the company that hires the consultant.

b. Trademark. A distinctive word, phrase, logo or other graphicsymbol that is used to distinguish one product, company or organization from another.Trademarks seek to protect against customer confusion. Trademarks are words or symbols thatare used by a manufacturer or seller of an item that serve to identify and distinguish the goods ofthat proprietor from those of all others. Trademark protection arises automatically upon the usageof the trademark in commerce. However, as with copyrights, trademarks may be registered withgovernment authorities. Taking this step affords the holder of the trademark much greaterprotection than would be available in the case where the trademark is not filed.

Trademarks can apply to slogans, mottos or logos and can even apply if the goods of a particularmanufacturer or seller are packaged in a unique way. However, it must be noted that marks,designs or logos must be unique or at least be very distinctive before they will be offeredtrademark protection. The effect of trademark protection is that other companies may not use thatdesign or any designs that are “confusingly similar” to the trademarked design on their products.

Example. Petals ‘r Us is a nationwide flower delivering company whose motto has, for the past20 years, been “We bring fresh flowers to your front door for very reasonable prices.” A newflower delivery company, “1-900-FLOWERS” starts employing the slogan “We bring freshflowers to your front door or your back door for low low prices.” Even though the 1-900-FLOWERS slogan has changed some of the words from the Petals ‘r Us slogan, a court may rulethat the slogans are confusingly similar. Thus, it may rule that 1-900-FLOWERS has violatedPetals ‘r Us’ trademark if customers are likely to be confused.

Although traditionally trademarks apply to goods only, if services are involved, the “servicemark” performs the same function. Today, the concept of trademark has come to encompassservices as well, including slogans and logos. Having a service mark does not prevent someoneelse from offering the same service; it simply prevents someone offering the same service withthe same or confusingly similar mark.

c. Patent. Protection provided by the law for the inventions ordiscoveries of a person or entity or for the procedures developed by such person or entity.Patents provide protection for the inventors or developers of inventions or techniques that arenew and useful and that are not obvious to the average person. See Nadel v. Play-By-Play Toys& Novelties, Inc., 208 F.3d 368 (2d Cir. 2000). Patents can affect “hard” technologies such asdeveloped products and inventions, and can be applied to designs and methods in which productscan be manufactured and put to use. See 35 USC § 101. Note that, in order to be eligible forpatent protection, an idea or product must be something that does not already exist in that form

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and it must not be something that can be easily deduced from a currently available idea ordesign.

Example. Howard creates a rechargeable 9 volt battery that can be recharged simply by leaving itout in the sun for three hours - as it can be regenerated by solar power. Until that time, allrechargeable 9 volt batteries had to be plugged into an electrical source to recharge. Even thoughrechargeable batteries are nothing new and 9 volt batteries previously existed, the facet ofHoward’s battery that allows it to recharge by allowing it to sit in the sun could be protected by apatent. See United States v. Adams, 383 U.S. 39 (1966).

Unlike copyrights and trademarks, patents are only created and effective once they are appliedfor and granted by appropriate government authorities. While copyright and trademark protectionis strengthened by the proper filings, patent protection does not even exist until the proper filingsare made and approved. The protection granted by patents is very powerful. Such protectionprevents “reverse engineering” by other people and it protects the holder against “independentdiscovery.”

2. Trade Secret.

Confidential information regarding the process, method or design that a manufacturer or selleruses to design, market or otherwise develop a product. A trade secret is information related to theproprietary development of a commercial product that is not generally known to the public. Atrade secret is inherently protected even without any filing with the government. There is no suchthing as filing a trade secret, as trade secrets would be protected as part of a patent that covers aparticular product or idea. Unlike patents, however, trade secrets do not protect its owner againstreverse engineering or independent discovery.

Example. Coma-Cola, a large soft drink manufacturer, adds a secret ingredient to all of its softdrinks that allows its drinkers to feel really good after drinking Coma-Cola products. One day,Jane, a tourist who is touring the Coma-Cola manufacturing plant and who accidentally stumblesinto the wrong room, accidentally discovers that the secret ingredient in Coma-Cola is a smalldose of a tranquilizer. Even if the production of Coma-Cola is not a patented process, Jane maynot make this information public and she may not use this information to produce her own softdrinks that are copies of Coma-Cola.

Example. Steve is trying to devise a way to rid himself of a particularly annoying familymember. Finding a bottle of Fizzy Cola, he experiments with adding different substances in aneffort to find something which will do the trick. One of his attempts leads him to a mixturewhich has the same effect as Coma-Cola, and he realizes that he must have hit upon the secretingredient. He can legally market this independently-discovered formula because patent lawwon’t protect against it.

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3. Reverse Engineering.

The process of taking a product apart and analyzing its components, for the purpose of designingor building a new product that does the same thing as the original one.

4. Independent Discovery.

The occurrence of a person developing a process or product on his or her own that is alreadypatented by somebody else.

B. Know-How.

Know-how means any form of technical information or assistance relating to the manufacture orplacing into operation of the said products. It also means any practical knowledge, techniques,and skill that are required to achieve some practical end. It is considered an intangible propertyin which rights may be bought and sold. Know-how also means the technical skill which largegroups of men acquire through extensively financed experimentation and cooperation.

Know-how is generally defined as factual knowledge not capable of precise, separatedescription. However when used in an accumulated form, after being acquired as the result oftrial and error, gives to the one acquiring it an ability to produce something which otherwisewould not have known how to produce with the same accuracy or precision found necessary forcommercial success. Hooker Chemical Corp. v. Velsicol Chemical Corp., 235 F. Supp. 412(W.D. Tenn. 1964).

V. NON-SOLICITATION OF EMPLOYEES AND NON-CIRCUMVENTION.

A. Non-Solicitation.

Sample Provision. At no time during the term of this Agreement, or within [number] ([xx])years following termination of this Agreement, shall the Contractor directly or indirectly hire orsolicit, whether for the Contractor or for another entity or individual, or assist another in hiring orsoliciting, any person then employed by the Corporation, whether as an employee or independentcontractor, to become employed by Contractor or any other person or entity. This provision shallsurvive the termination of the Contractor’s employment and termination of this Agreement,including any amendments hereto.

B. Non-Circumvention.

Sample Provision. During the Term of this Agreement and as long as any fees are owed byRecipient to Consultant under this Agreement, it is expressly agreed that the identities of anyindividual or entity and any other third parties (including, without limitation, Buyers, suppliers,customers, financial sources, manufacturers and consultants) discussed and made available bythe Disclosing Party in respect of the Purpose and any related business opportunity shallconstitute Confidential Information and the Recipient and any company or associated entity orindividual shall not (without the prior written consent of, or having entered into a commissionagreement with, the Consultant):

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(a) directly or indirectly initiate, solicit, negotiate, contract or enter into any businesstransactions, agreements or undertakings with any such Buyer identified or introduced by theConsultant; or

(b) seek to by-pass, compete, avoid or circumvent the Consultant from any fee by utilizingany Confidential Information or by otherwise allowing another person or entity to exploit orderive any benefit from the names and contact information of the Buyers or any otherConfidential Information.

The Recipient covenants that any financial gain made by it, or any associated party, from abreach of the provisions of this Section shall be held on trust for the benefit of the Consultant andthen be transferred to an account identified by the Consultant, until which time such outstandingamount shall incur interest at the rate of 4% per annum above the Wall Street Journal prime ratefrom time to time. Such interest shall accrue on a daily basis from the due date until actualpayment of the overdue amount, whether before or after judgment and the Recipient shall pay theinterest together with the overdue amount. The provisions of this Section do not affect theConsultant’s ability to obtain damages for violation of this Section or any other provision of thisAgreement.

VI. LIMITATION OF LIABILITY & INDEMNIFICATION.

A. Limitation of Liability.

Liability for damages is limited for a party in some contracts to the fees paid to that party by theother party. This is common in third party administration agreements for employee benefitplans. It may become common for lawyers doing work for individually designed qualifiedretirement plans due to the fact that the IRS has recently announced that it will no longer beissuing favorable determination letters for plan restatements with the exceptions being a newplan or a terminating plan.

B. Indemnification.

Indemnification provisions are quite common in business contracts. Appraisers routinely requirethem. In other cases, their need is not so obvious. Whenever a party undertakes anindemnification obligation, it is creating a potential uninsured liability. Even where anindemnification provision is warranted, it is frequently too broad.

1. Common Law Indemnification.

The term “common law indemnification” is often used in case opinions to refer to the right of avicariously liable tortfeasor to recover from the tortfeasor guilty of the acts or omissions causingthe harm the amount the vicariously liable tortfeasor was required to pay to an injured party.

2. Implied Indemnification.

Courts can complete contracts by implying terms. The American Law Institutehas in Section 3.01 of its Principles of the Law of Software Contracts adoptedin 2009 provided for implied indemnification in that a transferor for money

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must indemnify a transferee if the transferee is named in a third-party suit forinfringement. The transferor will be responsible for costs and damages,including costs of any settlement.

3. Statutory Indemnification.

Government employees in some cases are indemnified by statute for performing their duties.

4. Contractual Indemnification.

Indemnification and hold harmless provisions are often included in various documents.

a. Triggers For Indemnification Obligation To Arise.

(i) Misrepresentation.

(ii) Breach of Warranty.

(iii) Breach of Undertaking in a Contract.

(iv) Tax Related Losses.

(v) Business Sale or Merger Product Liability Claims.

(vi) Escrow and Other Security Devices.

b. Analysis Of Various Terms Used In Indemnification Provisions.

(i) “caused by”

(ii) “in whole or in part”

(iii) “loss” or “losses”

(iv) “direct loss”

(v) “due to” or “solely due to”

(vi) “liabilities”

(vii) “expense”

(viii) “to the extent”

(ix) “any”

(x) “in connection with”

(xi) “relating to,” or “related to”

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(xii) “arising out of” or “arising from”

(xiii) “to the extent of ”

VII. ADDITIONAL MISCELLANEOUS BUT IMPORTANT PROVISIONS.

A. Termination.

B. Relationship Between Parties.

C. Binding Effect.

D. Execution; Counterparts; Electronic Copies.

E. Notices. List each party’s name & address:

F. Modification

G. Waiver

H. Severability.

I. Final Agreement.

J. Governing Law.

K. Consent to lawsuit in state of __________.

L. Dispute Resolution; Mediation & Arbitration. Location of Arbitration.

M. Nonassignability.

N. Confidentiality of Agreement’s Terms.

O. Confidentiality of Customer Records.

P. Disposition of Records; Access to Records.

Q. Offset.

R. Noncompete.

S. Legal Fees.

T. No Third Party Beneficiaries.

U. Warranties.

V. Survival of Obligations,

Business Services Agreements

Joel R. Buckberg

Shareholder

Baker Donelson Bearman Caldwell & Berkowitz, PC

Nashville, TN

[email protected]

615 726-5639

2www.bakerdonelson.com© 2014 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC

The Game Has Changed

• National Labor Relations Board Decision in

Browning Ferris Industries, Inc., NLRB August 27,

2015 - https://www.nlrb.gov/case/32-RC-109684

• BFI and its subcontractor held to be joint employers

under National Labor Relations Act for collective

bargaining unit purposes

• Overrules 30 years of settled law on the issue of

how to determine if joint employer status exists

under NLRA and similar statutes


Game Changer

• Previous test required actual assertion of control

and supervision by Indirect Employer, beyond

establishing by contract with direct employer certain

terms and conditions of employment

• New test is whether indirect employer has the right

to establish any essential terms or conditions of

employment


Game Changer

• The Board may find that two or more entities are

joint employers of a single work force if they are

both employers within the meaning of the common

law, and if they share or codetermine those matters

governing the essential terms and conditions of

employment.


Game Changer

• We will no longer require that a joint employer not

only possess the authority to control employees’

terms and conditions of employment, but must also

exercise that authority, and do so directly,

immediately, and not in a “limited and routine”

manner. The right to control, in the common-law

sense, is probative of joint- employer status, as is

the actual exercise of control, whether direct or

indirect.


Game Changer

• We do not suggest today that a putative employer’s

bare rights to dictate the results of a contracted

service or to control or protect its own property

constitute probative indicia of employer status.

Instead, we will evaluate the evidence to determine

whether a user employer affects the means or

manner of employees’ work and terms of

employment, either directly or through an

intermediary.


Fee Structures

• Fee models:

− Construction Model

Time & Materials – profit built into rates

Time, Materials, Override

GMP Feature

Cost Savings/Sharing

Change order pricing

Rate adjustment mechanism for long term contracts

Premium for higher service levels

− Fixed Price/Piece Work Model

Price per deliverable or schedule of fixed payments


Fee Structures

• Deposit

• Security for payment

• Termination Fee/Opportunity Cost

• Expense parameters

• Billing Cycle, Interest, Stop Work Rights

• Taxes

• Currency

• Most Favored Customer Rate/Price


Fee Provisions

In consideration of the provision of the Services by the Providerand the rights granted to Customer under this Agreement,Customer shall pay the fees set out in [the Initial Fee Scheduleattached to this Agreement, as amended by Provider's thencurrent fee schedule][the applicable Service Order]. Payment toProvider of such fees and the reimbursement of expenses underthis Section shall be in U.S. Dollars delivered to the address onthe invoice and shall constitute payment in full for theperformance of the Services. Unless otherwise provided in theapplicable Service Order, the fee will be payable within[NUMBER] days of receipt by the Customer of an invoice fromProvider but in no event more than [NUMBER] days aftercompletion of the Services performed pursuant to the applicableService Order.


Fee Provisions

Provider may reset the Fee Schedule once each

quarter on 30 days’ advance notice to Customer,

provided that no fee change may exceed __% at each

reset and no more than ___% in the aggregate over a

one year period.


Fee Provisions

Customer shall reimburse Provider for all reasonable

expenses incurred in accordance with the Service

Order [if such expenses have been pre-approved, in

writing by the Customer Contract Manager], within

[NUMBER] days after receipt by the Customer of an

invoice from Provider accompanied by receipts and

reasonable supporting documentation. Expenses do

not include any allocation of overhead or other

expenses incurred by Provider in the ordinary course

of its business,


Fee Provisions

Customer shall be responsible for all sales, use and

excise taxes, and any other similar taxes, duties and

charges of any kind imposed by any federal, state or

local governmental entity on any amounts payable by

Customer hereunder; provided, that, in no event shall

Customer pay or be responsible for any taxes imposed

on, or with respect to, Provider's income, revenues,

gross receipts, personnel or real or personal property

or other assets


Fee Provisions

Provider will charge Customer no more than the best

price [hourly rate] Provider charges to other customers

for the same [employees][deliverables] during the

same billing periods. Provider shall certify to

Customer quarterly that Provider has complied with

this provision within 30 days after the end of each

quarter. Customer’s independent auditors may

perform an annual verification audit of this obligation

and will report to the parties on their findings.


Performance Standards

• Service Standards – how do you measure success?

− Schedule of deliveries/functionality/process

development/steps/error rates

− Timeliness, delay (excusable, absolute)

Penalties, termination rights, remedial rights

− External standards – codes, industry norms

− Internal standards – subjective satisfaction of buyer



Provider acknowledges that time is of the essence with

respect to Provider's obligations hereunder and that

prompt and timely performance of all such obligations[,

including all performance dates, timetables, project

milestones and other requirements in this Agreement]

is strictly required.



a) It shall perform the Services using personnel

having the skill, experience and qualifications to

complete the Service Orders and in a professional

and workmanlike manner in accordance with best

industry standards for similar services and shall

devote adequate resources to meet its obligations

under this Agreement in a timely manner.

Provider represents and warrants to Customer that:



b) It is in compliance with, and shall performthe Services in compliance with, allapplicable laws, regulations, rulings andindustry standards.

c) Customer will receive good and valid titleto all Deliverables, free and clear of allencumbrances and liens of any kind.

d) the Services and Deliverables will be inconformity in all [material] respects with allrequirements or specifications stated in[this Agreement/ the [applicable] RFP


Data Ownership and Security

• FTC v. Wyndham means FTC can determine data

management and security practices are improper

after the fact

• Who has better and more frequently updated data

security?

• Industry standards and state of the art change at

high rates

• Periodic review of data security is imperative


Confidential Information

8.Confidential Information. (a )All non-public, confidential orproprietary information of Customer, including, but not limited to,trade secrets, technology, information pertaining to businessoperations and strategies, and information pertaining tocustomers, pricing, and marketing (collectively, "ConfidentialInformation"), disclosed by Customer to Provider, whetherdisclosed orally or disclosed or accessed in written, electronic orother form or media, and whether or not marked, designated orotherwise identified as "confidential," in connection with theprovision of the Services and this Agreement is confidential, andshall not be disclosed or copied by Provider without the priorwritten consent of Customer. Confidential Information includesall data provided by or to customers and prospective customers.Customer may augment and require additional data securityprocedures for personally identifiable information, and to complywith applicable law or industry standards.


Confidential Information

Confidential Information does not include informationthat is:

(i) in the public domain;

(ii)known to Service Provider at the time of disclosure;or

(iii)rightfully obtained by Service Provider on a non-confidential basis from a third party.

(b)Service Provider shall use the ConfidentialInformation only for the purpose of providing Servicesunder this Agreement.

(c)Customer shall be entitled to injunctive relief for anyviolation of this Section.


Delegation & Assignment Rights

• Designation of particular individuals to perform

services

• Confirmation of employment/contractor status

• Copies of confidentiality and work for hire

agreements with involved parties

• Right to approve those providing services



• How personal are the service personnel on the

Provider side? Is the contract performance talent-

specific, principle specific, or non-specific?

• Would a sale of the customer affect credit

worthiness or deliverables?

• Would a sale of the provider affect the ability to

perform?

• Could the services be delegated or sub-contracted?



• Provider shall not assign any of its rights or delegate any of itsobligations under this Agreement without the prior written consent ofCustomer. Any purported assignment or delegation in violation ofthis Section is null and void. No assignment or delegation relievesProvider of any of its obligations under this Agreement. Forpurposes of this Section, assignment includes any pledge or grant ofa security interest, direct or indirect merger, consolidation, assetsale, primary issuance or sale of equity interests of Provider or anyowner of Provider that results in change in controlling equityownership of Provider.

• Customer reserves the right to terminate this Agreement on 90 daysprior written notice if _____________ and _______________ are nolonger employed by Provider in substantially the same capacities ason the Effective Date and assigned to provide Services under thisAgreement, unless Customer consents to any proposed change inassigned personnel.


Thank You

Contact Information:

Joel R. Buckberg

Baker Donelson Bearman Caldwell & Berkowitz, PC

Nashville, Tennessee

615 726-5639

[email protected]

www.bakerdonelson.com

DRAFTING SERVICES AGREEMENTS IN BUSINESS (60 ...profile class actions against Uber and Lyft, as well...

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