Essentials of Contracting

Getting the most “bang for your buck”

MK Gaedeke RolandLorraine Duthe

Key contract provisions

Confidentiality

Governing Law

Indemnification

Insurance

Term and Termination

Warranties

Payment Terms

Key contract provisions

Software and hardware“Requirements” contractsRecord retentionAudit or record reviewBusiness Associate agreements

Confidentiality

Why do vendors want confidentiality clauses?

Confidentiality

Courts have ruled that strict confidentiality provisions prohibit hospitals from sharing pricing information with consultants, their lawyers, or any third party.

Guidant Sales Corp v. Aspen Healthcare Metrics

Confidentiality

Always carefully search for confidentiality provisions

If present, insist on removing.If you can’t remove it, make sure the language permits us to share information with external counsel and consultants.

Confidentiality

St. JudeKaleida “shall not disclose such pricing, terms or conditions to any third party, unless required to do so by law.”This language prohibits Kaleida from disclosing pricing information to its lawyers, consultants, etc.

ConfidentialityLiquidated damages

The “Parties recognize and agree that a breach of the confidentiality provision above would significantly and monetarily damage St. Jude Medical and that said damage cannot be adequately measured. Consequently, the Parties agree that the sum of the list prices for the EnSite system and the initial disposables stocking order provided for in the Agreement are a reasonable good faith estimate of St. Jude Medical’s damages and therefore a valid and reasonable sum for breach of the provision.”

Confidentiality

StrykerConfidential information may be used “solely for the purposes of performing your obligations under, and pursuant to the terms of, this letter agreement, and not for any other purpose or in any other manner whatsoever.

Confidentiality

Synthes“Disclosure to any other party [of the terms of the agreement] may result in termination of this agreement at the option of the aggrieved party.”

Governing Law

Governing law provisions address which state’s contract law will apply to the agreement.Venue provisions address which courts will hear a case.We must have NY law govern because the contract is being performed in New York and Kaleida Health, licensed by NYSDOH, must obey NY laws.

Governing Law

Ideal language:

Kaleida Health has been granted an operating certificate by the NYS Department of Health and must abide by the laws of the state of New York.Therefore, this Agreement, which is executed, delivered and performed in the State of New York, shall be governed by, interpreted, and construed in accordance with the laws of the State of New York without reference to its conflicts of law principles. The Parties agree to submit to the personal and exclusive jurisdiction of the courts located in Erie County, New York.

Governing Law

Why would a vendor not want New York law and Erie County as the venue?Why is it fair to ask for this?

Indemnification

To indemnify is to cover the losses of another, generally because a party has incurred costs through the fault of another. What contracts are you reviewing now?What risks to Kaleida do they present?

Indemnification

Indemnification must be mutual. Contracts that Vendors give Kaleida often only require Kaleida to indemnify the Vendor.

IndemnificationEach Party shall defend, indemnify and hold harmless the other Party against all actions, suits, claims, losses, liabilities, and demands whatsoever, including costs, expenses, and attorneys’ fees, resulting from or claimed to have resulted from any intentional or negligent acts or omissions of the indemnifying Party or its employees, agents, or independent contractors engaged in the work under this Agreement at the time of the event or occurrence upon which such actions, claims, or demands are based. The provisions of this Section will survive termination of this Agreement. Each Party will promptly notify the other of any claim asserted against it for which such indemnification is sought.

Insurance

Insurance language is critical to assure the Vendor has adequate funds to indemnify Kaleida.Stephanie Burgess and Christine Cutrona in risk management must review all contracts for insurance language.

Term and Termination

Avoid automatic renewalsInclude 60 or 90-day “no cause” termination languageGenerally the term should be 3 years or lessConsider carefully the relationship between pricing and the term

Warranties“Our warranty is in lieu of all other warranties, expressed or implied, including any implied warranty of merchantability.”

Merchantability: Warranty that guarantees that goods are reasonably fit for their ordinary purpose. Fitness for a particular use: Where at the time of contracting a seller has reason to know that the buyer requires the goods for a particular purpose and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, the law implies a warranty by the seller that the goods are fit for that purpose.

Payment Terms

These are negotiable. The vendor needs the business.Payment must not be due sooner than 45 days after delivery.What challenges do you face now regarding payment terms?

Software and Hardware

Licensing agreements have very special language needs.Consider installation time-line and “go-live dates.”Critical clauses.

Warranties – both content and timing.Ownership of software, license, and source and object codes.

“Requirements Contracts”

Contracts that require Kaleida to buy all of its needs of a particular product from one vendor

PitfallsPluses

What “requirements contracts” do you have now?

Record Retention

Vendors must agree to keep records necessary to verify the cost of services until 4 years after the date the services are provided. Furthermore, if the Vendor carries out any of its duties through a subcontract having a value or cost of $10,000.00 or more over a 12 month period, it must assure the subcontract contains the same requirement.

Audit Records

Vendors must agree that within 3 business days of Kaleida’s request, it will provide Kaleida with any and all of its business records that Kaleida needs to (a) assure compliance with federal or state laws and regulations, (b) substantiate amounts Kaleida owes to the vendor, or (c) substantiate amounts the vendor owes to Kaleida.

Business Associate Agreements

Determine if vendor is a Business Associate

Best resource is Nancy Pawlowicz

If so, Kaleida expects its own BA to be usedWe negotiate very little

Amendments

Before we can review an amendment, we need to have the master document in hand.Amendments are an excellent opportunity to add, drop or clarify critical content

Contract Review

We depend upon you to review the document to be sure it captures your business needs.We review the document to minimize the potential for legal problems. We don’t make your business decisions for you!

Context, context, context

The legal department needs to know:

The business objectives of the agreementWhether agreements relate directly or indirectly to each other The future direction

Contract Review

Turn around time of at least 7-10 days.Use Legal Services request form.Please have electronic format so we can “red-line” the changes. Please provide us with copies of final executed agreement.

Questions and Discussions

What should I know?What have I missed?How can we make this easier and better?