Many legal battles in the construction industry revolve around contract interpretation disputes. Care in contract drafting is a valuable way to avoid disputes, writes Michael Wilson in Greensfelder, Hemker & Gale’s Construction Law Blog.

“A fundamental principle of contract interpretation is to ascertain and give effect to the parties’ objectively expressed intent. What a party was trying to say, without accurately expressing it, does not count. Contract terms are usually given their ordinary (i.e., dictionary) meaning unless the contract specially defines them or the industry has adopted a special meaning known to both parties,” Wilson writes.

In his article, he discusses at length the principle of identifying and interpreting ambiguity, and the tools that can be used to improve a contract.

Read the article.

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By Keli Johnson Swan
Scott & Scott LLP

Mergers and acquisitions typically require extensive financial and legal disclosures, due diligence, and complex contract language to protect buyers from legal issues that may arise from the purchase. Potential liability arising from intellectual property issues is a significant factor to consider in any M&A transaction.

There following are a few key considerations to negotiate during any corporate transaction.

(1) Transferring Ownership of Existing Trademarks, Copyrights, and Patents.

Often a purchaser will acquire a company that will continue to operate as it was, continuing to use its existing trademarks, copyrights, or patents. Each of these intellectual property rights must be evaluated carefully and negotiated as part of the transaction. The purchaser should investigate any existing infringement claims against the seller prior to acquiring ownership of any marks or IP rights. Additionally, the purchaser will be required to appropriately register the transfer, and continue enforcing these rights with take-down notices and any other necessary legal means or risk losing the ability to enforce them.

(2) Transferring Ownership of IT Assets, Including Copyrighted Software

Depending on the nature of the transaction, the purchasing company may choose to dissolve the target company and dispose of its assets. In some instances, the purchaser chooses to retain the assets.

If the purchaser chooses to retain the IT assets, it assumes the responsibility of ensuring that all software complies with the relevant licensing agreement or risks potential copyright infringement liability. There are a number of steps the purchaser should take to mitigate potential exposure, including conducting an internal audit of the new IT assets, evaluate any existing licenses, and determine whether any remediation is required in order to become compliant.

Some larger companies have Enterprise agreements with Microsoft and other software publishers that may include affiliates that are acquired after the agreement is signed. The purchaser will need to determine whether the software on its newly acquired assets fall within the scope of any Enterprise agreement and take the appropriate steps to ensure the software is included in the user counts for any true-ups required pursuant to the agreement.

Even if a diligent audit and assessment of the company’s network reflects no potential claims for copyright infringement, the purchasing company may still face hurdles to properly transferring ownership of the copyrighted software.

Many software publishers include a provision barring the transfer of ownership of a software license in the license agreement. Others allow the transfer, subject to written consent from the software publisher. This final step is key to ensuring the assets acquired during the transaction are properly licensed. In the event of a software audit, the purchasing company will be required to prove ownership of the software installed on all of its computers and servers. Therefore, it is important that the transfer of ownership is documented with the software publisher for recordkeeping.

Alternatively, some purchasing companies choose to avoid the time and expense of a full audit of the newly acquired assets, and instead reformat the computers and install a predetermined set of software. Although this method can be effective if properly managed, it is important to verify that there are sufficient licenses for all of the installations.

(3) Indemnification Against Existing Claims

In addition to various potential legal issues that may arise in a transaction, an M&A contract should contemplate any potential claims or include who will be responsible for any existing intellectual property claims. Depending on the size of the company and the scope of non-compliance, copyright infringement damages could soar into the 7 figures.

If a copyright (or trademark or patent) infringement claim is known at the time of the purchase, it is critical to obtain an independent valuation of the potential exposure by an expert. Correctly calculating estimated damages is incredibly complex. The most prudent approach is to engage an expert to conduct its own analysis of the raw data, licenses, or legal issues and prepare an independent estimate for resolving the claims.

(4) Escrow Accounts To Resolve Claims

Once the purchaser is aware of the estimated liability of any potential or existing claims, it may choose to require that a specific sum of money be placed in escrow in order to resolve the matter. Escrow contracts may be a valuable tool for a purchaser seeking to mitigate risk and liability from intellectual property liability or any unforeseen risks arising from the sale.

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Employers may think their noncompete agreement or restrictive covenant prohibiting departing employees from taking a similar job at a competitor is ironclad, but that’s not always true, warns David B. Ritter, a partner in the Chicago office of law firm Barnes & Thornburg.

Ritter participated in a question-and-answer exchange with SHRM Online about the enforceability of restrictive covenants, what to consider when crafting them and which states limit enforcement of these agreements.

The discussion covered such questions as: What should HR know about the enforceability of restrictive covenants? What else should employers consider when crafting these measures? Which states are particularly limiting when it comes to restrictive covenants?

The discussion is on the site of the Society for Human Resource Management.

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One of the more litigated issues in transactional law is whether parties to a writing evidencing preliminary intent to proceed with a proposed transaction actually contracted and, if so, to what extent, writes Glenn West in Weil’s Global Private Equity Watch.

His article discusses two recent cases, one from England and one from New York, that illustrate the difficulty this issue can present to deal professionals and their counsel.

“In some sense, the term ‘preliminary agreement’ is an oxymoron,” West writes. “If the so-called agreement is truly preliminary, in the sense that it does not evidence a fully-baked deal, with agreement on all the essential terms, it really isn’t an agreement at all.”

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Above the Law has started a multi-part series on contract management tools and services in the alt.legal world.

The first installment features a question-and-answer exchange between Above the Law’s Ed Sohn and Steve Obenski, chief commercial officer at Kira Systems, a startup focuses on contract analytics.

Topics include how far contract lifecycle management (CLM) technology has progressed in recent years, where the market is headed in 2017, how companies like Kira are moving lawyers to adopt contract analytics, where the technology is headed, and how organizations will behave when everyone is equipped with CLM tools.

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By Lisa Spathis

The demands on today’s general counsel are many, complex, and unfortunately often in conflict with the wider business. Corporate counsels are their company’s traditional guardians, expected to protect the business against unnecessary risk from poorly thought out plans, regulators, unscrupulous partners, class-action lawyers, bad business processes and more. But with this traditional approach, business silos are as prevalent today as they were 20 years ago. As CEOs and business directors look to destroy them, the General Counsel becomes the fall guy, often getting the bad rap for inhibiting progress in areas of business development — an area criticized for not being taught in law schools today.

But in the modern age, General Counsels and their legal departments are increasingly expected to be business partners, collaborating with executives and functional experts in finance, HR and marketing to drive bottom-line results. Legal is being elevated into the C-Suite alongside other functional leaders like the Chief Financial Officer, Chief Human Resource Officer, Chief Strategy Officers, and others to help CEOs break apart silos that prevent rapid-business decisions. In this regard, General Counsels are also expected to become innovators—or at a minimum not preventing innovation—by helping their colleagues and IT test new ideas and technology at a rapid pace.

Technology Can Help Lawyers Lead the Way

The truth is, the corporate legal world has been much slower to embrace technology to help solve business problems and break down silos. Take the bread-and-butter tool for General Counsels and front-line legal team: the business contract. Even at some of the most sophisticated organizations, contracts are still created in Microsoft Word and set in stone through PDF documents. Email is the primary means of conveyance and inboxes function as contract storage system. In the case of PDFs, templates are still fixed and any change requires intervention by a lawyer—who must edit the source word-processing document before handing it back to the business user waiting for it. This lawyer, by the way, is usually juggling a wide range of other demands, from regulatory meetings to HR issues, and the last thing they have time for is deleting a sentence from the document.

In fact a few weeks back I was talking to a sales executive of a leading B2B services provider the other day, and he was lamenting at his contracting process. Not only did he have too many contracts for a similar solution, but these contracts were too long, too complex, and they were only available to his sales force in, of course, in PDF format. This is a company with 25,000 customers, both large and small businesses, and the sales force needs a more flexible contract than a PDF. Even small changes to the pre-approved contract require getting the attention of the shared-service legal team—something that can add days to the sales process.

These and thousands of other examples out there represent the opportunity facing legal leaders, to shift toward a business-driven mindset and embrace technology where they can exert the most influence. In this area, they can follow the lead of their functional-area colleagues. Human Resources departments in deploying HR systems, or sales teams in deploying CRM. Organizations are increasingly adopting Software-as-a-Service (SaaS) solutions in the cloud to rapidly adopt and create change in their organizations. For legal, the opportunity is ripe for making an impact on contract management by becoming the leaders of the digital transformation of contracts. This revolution is not just the effort of making contracts digital in a searchable repository, but in the revolution of enabling self-service workflows with legal counterparts for transforming business processes in the use of contract management lifecycle (CLM) solutions.

How corporate legal departments can adopt this innovation into their organizations can be exemplified in the transformation of everyday consumer technology that we often take for granted today.

The Airline Industry Example: Pioneers of the Self-Service Digital Contract
The airline industry issues tens of thousands of contracts to consumers every day in the form of airline tickets. There used to be a time, not that long ago, when every purchase had to assisted by an airline employee, and then validated in person by another airport-based employee. All tickets (aka contracts) were paper based and had to be received or validated by gate agents (think of them as front-line corporate attorneys). American Airlines rolled out its first self-service kiosk at airports about 15 years ago to speed up the pace of business for their consumers.

Today, most passengers manage their own ticketing without having to see a gate agent at all. To initiate a ticket, consumers open their smartphone and search for flights on their airline’s app. After selecting the flights, they can purchase a ticket with a few clicks from anywhere in the world with cell service or Wi-Fi. Most consumers opt for digital tickets, show it to security, and proceed to their gate.

For consumers who need assistance they can interact directly with employees. It’s not just airlines that have moved toward digitally enabled self-service business models. Today, just about everybody pays at the pump, and fills their car with gas. Zipcar, car2go and Maven have transformed the rental car business into a do-it-yourself experience. An article last year in the Harvard Business Review entitled How Self-Service Kiosks Are Changing Customer Behavior highlighted scores of other businesses that are embracing the self-service model—from McDonalds to your neighborhood bank. The goal is to remove what the author called the “social friction” that happens when people get involved in a transaction.

The Journey Towards Self-Service Contracting
The idea of self-service in CLM is still fairly new in the corporate world, but it’s rapidly starting to take hold, and the process is easy for lawyers to embrace and trust while preventing unnecessary bottlenecks for tens or hundreds of business users who need to get a contract executed.

Self-service contracting means giving employees the tools to initiate contracts (say laptops, desktops or mobile devices) with pre-approved language and the ability to make slight modifications to contracts or provide input on necessary areas, while still giving senior executives and legal teams the control they need. Business teams can do their jobs, while lawyers can efficiently review and validate contracts. Just as important, self-service contracting frees up corporate attorneys to do the more sophisticated, and strategic assignments that can drive business goals and break down business silos.

The ability to enable the automation is based on technology in the CLM system that allows the system to be pre-configured with contract templates that allow specified users to add or remove specific clauses based on their functional role in the organization. The logic in the system also is able to monitor the number of changes being made, where similar to the self-service kiosk of the airline ticket example, legal and other business executives can be notified and actively involved in the contract authoring / editing process of a specific business when too many changes are being made.

The benefits to the enabling self-service create a new empowerment for General Counsels, providing them an outlet to be more involved with the ability to transform the contract management process within their organization. As the overseer of contracts, General Counsels and their teams can be active participants in the deployment of CLM technology and begin playing the business partner role so crucial in the modern age. Moreover, through the active deployment of technology, the organization also can realize new efficiencies and controls in the process of initiating contract requests and approvals. Through the digitization of the contracts, organizations have a newfound level of insight and control that empowers users, but still providing legal the ability to protect the business against unnecessary risk through innovation.

But transitioning to self-service contracting is not something that can be done overnight with the flip of a switch. While the investment in time pays dividends in the future, there are key elements that need to be in place for self-service contracting to work. These include:

• Contract Templates. For a purchasing department, for example, this could mean creating templates for purchase contracts, statements of work, change orders, leasing agreements and technology purchase agreements. For sales this could mean creating bills of sale or SLAs. Other common agreements that are easy to template include mutual non-disclosure agreements.

• Editable language. A key to giving business leaders the ability to conduct business rapidly through contracts is identifying which clauses are sacrosanct and unchangeable, and which ones can be altered.

• Digital contract repository. One challenge with contracts is that they exist in many areas in a company including laptops, file cabinets and email inboxes. Lawyers and executives need a central repository where contracts and templates can be stored, secured and accessed.

• Mobile functionality. Business is done on the fly today—at all hours and locations—and business executives and lawyers alike need to be able to access documents from their mobile phones and tablets.

• Workflow Triggers. Self-service doesn’t mean going it alone. When it comes to infrequent contracting users, legal teams need to be available to provide assistance. Successful legal departments create automatic triggers—based on user edits—that require their review before final approval.

• Electronic signatures. There are multiple solutions on the market today that track the execution of contracts, enabling these documents to travel across companies and departments at digital speed.

For those of you who remember the first airline self-service, you’ll remember that it took time for users to embrace new technology. At first, even frequent fliers opted to see a gate agent to check-in and print a boarding pass. Today, frequent fliers pride themselves on their ability to zip through airports faster than anyone else. The challenge for today’s legal departments is to help their organizations implement and deploy the right digital contracting tools so that a business’s early adopters can move quickly—the rest of the company will follow.

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In a recent client alert, Reed Smith offers tips for dealing with audit provisions involving payment of a license fee or royalty.

Audit provisions are commonly found in commercial contracts, write Carolyn E. Pepper and Matthew Y. Kane.

“They are often not the clauses which attract the most attention during contract negotiations. However, they are important clauses which warrant careful consideration,” according to the authors.

They then list 10 points that need to be considered when dealing with such clauses.

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Barry Moltz, writing in Nextiva’s blog, warns that too many small business owners gloss over important terms in contracts they sign.

This can cause a problem later in the relationship if they are not properly negotiated, Moltz writes. He discusses the areas that all companies should look for to protect themselves before signing any agreement.

The areas involve: dollars and timing of payments, non-competes, ownership of work, actual contracted parties, penalties if things go wrong, and liability and indemnity.

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Much Shelist, P.C. has published an article reviewing the three most commonly used payment mechanisms in construction contracts and the benefits and drawbacks of each.

David A. Eisenberg discusses at length the benefits and drawbacks of fixed price, or lump sum payments, which he calls “perhaps the simplest and most commonly used payment mechanism.” Then he examines cost-plus contracts, in which the owner agrees to pay the contractor for its actual costs incurred in performing the work, plus a predetermined fee.

Finally, the covers the guaranteed maximum price, in which the owner is responsible for paying the contractor’s costs up to a certain cap. It is essentially a cost-plus contract with a cap.

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The 8th U.S. U.S. Circuit Court of Appeals considered who was the actual “party” to a contract where one of the original parties assigned all of its economic benefits arising from the contract to another entity (without that entity becoming a substituted or an additional party), and the contract was thereafter terminated by the other party to the contract.

In an article in Weil, Gotshal & Manges’ Global Private Equity Watch, Glenn West writes that there are definite lessons to be derived from this case by deal professionals and their counsel.

He explores the case of ACI Worldwide Corp. v. Churchill Lane Associates, LLC, No.16-1736 (8th Cir. Jan. 27, 2017), which involved a licensing agreement between Nestor Inc. and ACI Worldwide Corp.

“When obtaining an assignment of rights under a contract, it is imperative that the contract, with respect to which those rights are assigned, is carefully reviewed to determine any amendments that may be necessary so that the assignee is the ‘party’ that matters for any subsequent modification or termination of that contract that could in anyway impact those assigned rights,” West writes.

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Companies looking to waive class action rights of employees may instead be waving goodbye to provisions in their employment contracts, warns David Heck in Proskauer Rose’s Minding Your Business blog.

He discusses two recent decisions in California — one administrative and one in the 9th Circuit — that recently found that class action waivers in employment contracts were unenforceable as a matter of law and public policy, resulting in the removal of entire or partial contractual provisions.

“Together, these rulings make clear that class action waivers in employment agreements are subject to a high level of scrutiny, even if such waivers are not explicit and signing of the agreement was voluntary,” Heck writes.

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When dealing with contracts, new relationships, or even old ones a little extra scrutiny upfront can save significant amounts of money in the long-run, warns Jennifer McKevitt, writing for Supply Chain Dive.

“While some contract disputes can be settled easily, others erupt once bankruptcy enters the picture. Such was the case between GM and Clark-Cutler-McDermott (CCM), a longtime supplier of GM parts including acoustic insulation and interior trim,” she explains.

She discusses the case, in which CCM claimed to be losing $30,000 per day as a result of damaging contracts initiated by GM.

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Peter C. Vilmos of Burr Forman writes in an article published by JDSupra Business Advisor that contractors have several reasons to require that their high-level employees (e.g., C-Level) enter non-compete agreements.

“Non-compete agreements, or non-competition agreements, are contracts into which an employer and an employee enter that restricts the work the employee can perform for another company when the employee’s tenure at the employer company ends,” Vilmos explains. “Typically, it’s illegal to intentionally restrain trade; however, some states allow employers and employees to voluntarily enter into agreements with future employment restrictions.”

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A new JPMorgan Chase & Co. a learning machine  called COIN, for Contract Intelligence, is parsing financial deals that once kept legal teams busy for thousands of hours, according to a Bloomberg report.

The company uses the technology to interpret commercial-loan agreements that formerly consumed 360,000 hours of work each year by lawyers and loan officers. The software reviews documents in seconds, is less error-prone and never asks for vacation, writes Hugh Son.

“Made possible by investments in machine learning and a new private cloud network, COIN is just the start for the biggest U.S. bank,” Son explains. “The firm recently set up technology hubs for teams specializing in big data, robotics and cloud infrastructure to find new sources of revenue, while reducing expenses and risks.”

Read the Bloomberg article.

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Determine Inc. has posted a complimentary on-demand webinar titled “Getting Global in Your View of Contracts.”

The webinar features Tim Cummins, CEO of the International Association for Contract & Commercial Management. Other speakers are Kal Patel, senior director CLM Professional Services of Determine, and Constantine Limberakis, vice president of product marketing with Determine.

On its website, Determine says the webinar discusses what impacts the coming year will have, including how best-in-class companies use contract management to prepare for the increased volatility of an ever-changing global business environment.

The webinar covers:

• Changes impacting contract management and improving collaboration
• Addressing what organizations have done to pave the path for change
• The role technology plays in managing uncertainty

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Contract Logix has published a research study, “Contract Management at Manufacturing Companies: Roles, Tools, Challenges, & Obstacles,” and made the study available for downloading.

On its website, the company says the study involved 550 contract management professionals across multiple segments of the manufacturing industry.

It covers:

• The management tools they most often use to manage contracts
• The most frequent challenges in contract management
• The biggest obstacles to obtaining a purpose-built solution for Contract Lifecycle Management (CLM)
• And many more insights about the roles and responsibilities of those who handle contracts at manufacturing companies

Download the research study.

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New York-based Hogan Lovells is contemplating using blockchain technology to execute Smart Contracts, reports Eastern Daily News.

The story refers to reporting by The Wall Street Journal, which says the law firm is reviewing how this technology can eliminate many of the manual steps required to execute legal contracts. “This will have a positive impact on the firm in that it will be able to cut down its operation costs and at the same time be able free up lawyers’ time,” writes Peter Ngigi.

He continues: “Smart Contracts are technical in nature and hence will require lawyers who are professionally qualified and at the same time with the technical expertise to understand the code within the contract and figure out how they can work together.”

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Under California law, a provision of a contract found to impose a penalty is unenforceable as a forfeiture and contrary to public policy, explains Giselle Roohparvar of Miller Starr Regalia.

“The characteristic feature of a penalty is the lack of proportional relation between the forfeiture compelled and the damages or harm that might actually flow from the failure to perform under a contract,” she writes in the article posted by JD Supra Business Advisor. “Whether a contractual provision is an unenforceable penalty is a question of law subject to judicial determination. When parties are not careful, they risk having a bargained-for condition in their contract struck down as an unenforceable penalty.”

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The recent California appellate ruling in Glen Provost v. Regents of the University of California sheds significant light on judicial views of written settlement agreements, writes Robert S. Luft in the JAMS ADR blog.

“For corporations, whether or not a settlement agreement can be enforced depends on who signs it. A corporation acts through its employees and agents and that raises the question of what employee or agent can bind the entity to Judgment enforcement.  This issue was partially answered in the Provost case.” Luft explains.

It’s best to err on the side of over qualification of a corporate employee representative to sign a settlement agreement to ensure it will be enforceable, advises Luft.

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Delays are an all too common occurrence on construction projects. And they almost always cost money, points out Eugene Polyak on the website of Smith, Currie & Hancock LLP. So who pays for the increased costs caused by delays?

“This is one of the most durable issues in all of construction contract law. The answer is — it depends,” writes Polyak. “It depends first on whether the risk of delay is addressed in the parties’ contract. Owners and contractors frequently use No Damage for Delay clauses to push down the risk of delay costs. It may also depend on the law of the state where the project is performed. No Damage for Delay clauses are not uniformly enforced in different jurisdictions.”

He gives some examples of no-damage-for-delay clauses and discusses some exceptions.

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