Copyright 2008 The Prinz Law Office. Getting Started with Drafting a Services Agreement: A Brief Guide to the Elements and Key Considerations By Kristie D. Prinz Founder, The Prinz Law Office

Copyright 2008 The Prinz Law Office. Elements of the Agreement I.Defining the Services Covered by Contract  What services are to be purchased?  Are there deliverables? Can you describe them specifically?  What is the timetable for receipt of the deliverables? Are there identifiable milestones that need to be met other than the completion/ delivery date?

Copyright 2008 The Prinz Law Office. Elements of the Agreement II. Defining the Payment Terms  Will the payment be a fixed fee or by the hour?  If by fixed fee, is the payment up-front, upon receipt of the deliverable(s), or in installments?  If by the hour, can you cap the total hourly fee?  How promptly is payment due after receipt of an invoice?  Are there any penalties for late payments? Any discounts for early payments?

Copyright 2008 The Prinz Law Office. Elements of the Agreement III.Identifying Intellectual Property  Will intellectual property be created?  If so, which party owns that intellectual property?  Does the non-owner want the right to license that intellectual property?  Should the license be exclusive or non-exclusive?  What would the scope of the license include?  What would be the terms of the license?

Copyright 2008 The Prinz Law Office. Elements of the Agreement IV.Identifying any Confidential Information to be Exchanged  Will there be a one-way exchange of information, or a mutual exchange?  Will new know-how be created through the relationship? If so, whose owns that know-how?  What are the terms of the understanding to protect confidential information/ know-how?

Copyright 2008 The Prinz Law Office. Elements of the Agreement V.Allocating the Risks  What happens in the event of a termination by either party? A breach by either party? A failure to meet the timetable or the milestones?  Is the contract dependent on one person? What happens if that person is unable to do the work for any reason?  What steps, if any, do you want to take to protect against a bankruptcy by either party?  Do you want to cap the total liability?

Copyright 2008 The Prinz Law Office. Elements of the Agreement VI.Resolving Disputes  What governing law applies?  Do you want to resolve disputes between the parties by litigation? Or by mediation/ arbitration?  If so, where should such a proceeding take place and if mediation/ arbitration, what rules apply?  Who bears the costs of any dispute resolution proceeding?

Copyright 2008 The Prinz Law Office. Key Considerations in Services Agreements I.Confirming the Nature of the Relationship  Is this relationship really an employment relationship?  Confirm compliance with IRS rules on contractors.  Who is really doing the work? The contractor or another subcontractor? If so, additional issues may need to be considered.

Copyright 2008 The Prinz Law Office. Key Considerations in Services Agreements II.Does the Contractor Actually Own the Intellectual Property that is Being Created?  If intellectual property is being created under the contract, it cannot be assigned or licensed unless the contractor actually owns what is being created. Requires clean chain of title.  Common problem in a variety of relationships. Contractor may not be knowledgeable of what is required to ensure clean chain of title.

Copyright 2008 The Prinz Law Office. Key Considerations in Services Agreements III.Is the Confidential Information Really Protected?  If sensitive confidential information/ know-how is involved, does the agreement bind all individuals who will have access to information?  Pay attention to entity structure and issue of subcontractors.

Copyright 2008 The Prinz Law Office. Key Considerations in Services Agreements IV.Assessing Clarity of Payment Terms  Do the payment terms require clarification to be understood?  Are milestones triggering payments defined precisely?  Have you addressed what happens if you are not paid promptly?

Copyright 2008 The Prinz Law Office. Key Considerations in Services Agreements V.Assessing the Clarity of Services Terms  Are the services to be performed and the deliverables specified to the extent possible?  Keep in Mind: Vague terms are almost impossible to legally breach, also make relationship look more like employment relationship in cases where you hire individual  Are milestones precisely defined?

Copyright 2008 The Prinz Law Office. Key Considerations in Services Agreements VI.Risk Planning  Have all potential issues that could cause either party to terminate been anticipated and addressed?  Is the termination clause clearly drafted and does it address what obligations remain and end at termination? Have you considered what would likely happen upon termination of either party?  Have you addressed limitation of liability? Indemnification? Dispute resolution?

Copyright 2008 The Prinz Law Office. CONTACT INFORMATION Kristie D. Prinz, Founder The Prinz Law Office P.O. Box 1594 Los Gatos, CA Phone: Fax