3 Essential Contracts Business Managers Must Understand

September 6, 2019

As a business manager, you might be signing contracts daily that have been passed down from your lawyers or in-house counsel. It is therefore crucial that you understand precisely what you are signing and how they will affect your business. Three very common contracts within larger businesses are:

non-disclosure agreements;
services agreements; and
contractor agreements.

This article will explain what each of these contracts are and what you must look out for within them.

Non-Disclosure Agreements

Non-disclosure agreements (NDAs) are an essential document that businesses use to keep their information confidential when dealing with third parties.

For example, you may need to use an NDA if you are discussing potential business opportunities with other businesses. You may also need one if you are presenting an idea for a product to a manufacturer.

NDAs will ensure that you can talk freely with these third parties without worrying about them potentially stealing your ideas and beating you to the market.

It is essential to have two types of these documents on hand:

mutual NDA; and
one-way NDA.

You should use a mutual NDA if both you and the other party are disclosing confidential information to each other. These documents typically ensure that both parties are treated equally and have the same obligation to keep the other party’s information confidential. You should use this type of NDA if you are having any discussions about potential joint ventures.

On the other hand, you should use a one-way NDA if you are disclosing confidential information to a party that is not revealing anything confidential themselves. These documents will ensure that you are protected if the other party steals your information or copies your idea. You should use this type of NDA when discussing a new product with a potential manufacturer.

Reviewing Your NDA

NDAs all have clauses which you will need to consider. This table sets out a few of those clauses and what you should ask yourself when reading them. If you are unsure about any of these considerations, you should approach your lawyer to better understand your legal position.

Clause	Consideration
Term	Will the obligation to keep the information confidential be limited to a specific period of time? Or, will it be ongoing?
Disclosure	When will a party be able to disclose the confidential information? For example, is a party able to disclose the information to other companies within its corporate group?
Indemnities	Will the parties compensate each other for a breach of the NDA or for an inadvertent disclosure?
Definition of Confidential Information	What is considered to be confidential information? Is it all documents and conversations on a particular topic? Or, are only specific financial documents confidential?

Services Agreement

A key aspect of any business is the agreement that you have with your clients. Depending on your type of business, this can take many forms.

For example, for an online store, this document will be your terms and conditions of sale.

For an advertising and media agency, this could be an order form for advertising with attached terms and conditions.

Wherever you are providing services to your clients, it is important to have a services agreement on hand that you can tailor to your specific needs.

Services agreements should be specific to the services you provide. But, also broad enough that you won’t need to change the document every time you provide services to someone new.

When dealing with small businesses, you will need to ensure that your services agreements do not contain any unfair contract terms. If they do, you will be breaching the Australian Consumer Law (ACL).

Reviewing Your Services Agreement

Services agreements will have key clauses that you need to consider. Here are just a few:

Clause	Consideration
Price & Payment	What price will you be paid for providing your services, and when will your client pay it? You can also include what happens if they don’t pay on time, such as charging interest or ceasing to provide the services.
Services	What services will you be providing? It is important to draft this clause narrowly, so that you only provide the services you are being paid for. You should also ensure you are not required to provide services that may be secondary to your core business.
Liability	How will you limit your legal responsibility? Typically, a liability clause in a services agreement will cap your legal responsibility to only having to provide a refund of the price paid by your client for the services.
Intellectual Property	Who owns the intellectual property (IP) in the work that you do? Depending on the type of services, it may be appropriate for the IP to be owned by either you or your client. Additionally, if the client provides you with their IP to use when performing the services, you should ensure that they still have rights over that IP.

Contractor Agreement

A contractor agreement is a counterpart to a services agreement. You should use this document when engaging third parties to perform work for you. Although it is referred to as a contractor agreement, this contract is not restricted to being used by independent contractors (such as consultants or labourers). Instead, you should use a contractor agreement any time you are receiving work from a third party.

Although third parties will often provide their own agreement to use and for you to review, it is beneficial to use your contractor agreement. Having your own contractor agreement protects your business’s position on issues such as:

liabilities;
indemnities; and
payment terms.

This way, you will not have to review and amend every document that different third parties provide.

Similarly to a services agreement, a contractor agreement can range broadly in terms of being commercially balanced and being in your favour, depending on your position on a number of items.

Reviewing Your Contractor Agreement

Here are some key clauses to consider within your contractor agreement:

Clause	Consideration
Price & Payment	As with the services agreement, you should ensure that you know what you need to pay, and when you need to pay it.
Services	This clause should be drafted as broadly as possible, to make sure that you receive all the services that you pay for.
Liability	You should seek to include the contractor’s legal responsibility for consequential loss and remove any caps on their responsibility for breaches.
Indemnity	It is beneficial to receive compensation from the contractor for any losses that you may incur as a result of their failure to properly provide the services. This needs to be detailed in an indemnity clause.
Intellectual Property	You should ensure that you own any IP that the contractor creates when performing the services. This is particularly important when receiving creative services, such as graphic design.

Key Takeaways

As a business manager, it is crucial that you completely understand the key contracts that you deal with every day. When reviewing your NDAs, services agreements or contractor agreements, you must ensure that the documents reflect your business’ key interests. However, if you don’t properly understand the contracts, it is crucial that you discuss them with a lawyer. If you need assistance reviewing any business contracts, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

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