Reviewing Contracts for Content and Approval

Frequently contracts for adding products, services and for changing service providers must be processed. The ability to read, understand and negotiate such contracts is essential to becoming an effective manager.

First, it is absolutely necessary to become comfortable reading contracts and understanding their meaning. Certainly contract language is not the same as that which one might use with friends or family. And it’s hardly typical of many office conversations either. But it is what it is, so just get over it. Many of the commonly used terms and phrases in contract law are the result of years of accumulated court decisions and previous contract experience. These days many contracts are the Frankensteinian products of unbridled copy and paste. (Try comparing your various roaming agreements for similarities.)

Next, in the US there are many commonly used phrases and sections in telecoms contracts with which one should become familiar. And please remember, IANAL.  Consult with your company’s legal team to answer any specific questions.

Force Majeure. Think “act of God.”  In other words, things outside of the control of the parties to the contract, or anything reasonably unforeseeable.  This is a get out of jail card for the vendor or service provider, letting them off the hook if the unthinkable happens.

Assignment.  Describes recourse for one party to the contract if the other party gets bought, sold, merged or bankrupted.  Normally notice to the other party must be provided, and if the other party must approve or agree, language such as “such agreement will not be unreasonably withheld”or similar should be included.

Governing Law.  If the parties get in a spat over any aspect of the contract and head to court to resolve the dispute this clause determines the laws under which the case will be heard. If both parties are based in the same state there should be no question.  But if not, a neutral 3rd state is selected, often Delaware as so many companies are incorporated there. We’ve also seen a “home court advantage” clause, which dictates that the party bringing the suit must do so in the jurisdiction of the other party. This tends to act as a disincentive to frivolous lawsuits and encourages the parties to work out their differences between themselves.

Term.This answer the question “how long is this contract is in force?”, and probably includes language for an automatic renewal if no action is taken.  For example, if a T1 is leased on a 3 year term, it will likely automatically renew for another year if not discontinued.  One should be careful of this, though, if plans are in place to discontinue a lease in lease than a year.  In such cases a month-at-a-time auto-renewal would make sense.Breach.  I mention this not because every contract will have a clause so labeled, but because every CEO or senior manager will want to know what are the terms dictating the failure of the other party to perform, or the terms under which the relationship can be ended.  In other words, which actions or inaction constitute breach of contract?

Liquidated Damages.  If a material breach of the contract were to occur, and if costs are imposed upon one party by the other party’s breach or failure to perform then a liquidated damages clause spells out the penalty imposed upon the offending party.

The above list of commonly used legal clauses is certainly not exhaustive and says nothing about costs, quality and service levels.  Those issues are likely to be more important and much more specific to each individual contract.  Negotiate well, and good luck.

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