Making Sure Your Commercial Contracts Protect Your Business
By Rhian Osborne
Posted: 11th November 2015 10:22
Commercial contracts are key to making sure your products and best interests of your business are protected. Terms and Conditions of Sale (T&C’s) and Master Service Agreements (MSA’s) are the most commonly used commercial contracts in the pharmaceutical and biomedical supply chains.
Knowledge of the content of these documents is crucial to effectively negotiating the terms of the contract with clients and suppliers alike. Rhian Osborne, director at Greenaway Scott provides a brief overview of typical terms generally found in these agreements.
MSAs v T&Cs
MSAs are used when parties agree to overarching terms specific to their relationship that will govern future transactions. Having an MSA in place allows the parties to swiftly negotiate future sales or services as they can rely on the terms of the MSA. An MSA helps to create consistency between various transactions the parties enter into and helps to maintain mutually beneficial business relationships.
T&Cs are the default position setting out the company’s normal terms of trading. T&C’s should be attached to order forms and purchase confirmations to ensure that the party the company is contracting with does so on terms favourable to the company. This will not always be possible – if your company is purchasing goods, materials or services the supplier will usually insist on their T&C’s being applicable. Having your own bespoke set of T&C’s allows you to govern terms such as where and when delivery of goods will take place, how acceptance of goods will happen and others.
Clauses of interest in both MSAs and T&Cs
The duration of the contract is at the parties’ discretion. You should always pay attention to the term specified in the contract. Some suppliers will seek to enforce a specific term if there is a risk to them at the outset. In certain instances there may be fees or costs payable on early termination.
The contract may include a notice mechanism setting out how the contract may be terminated which usually specifies a notice period. The inclusion of a notice period gives the parties a set date on which their obligations will be complete and to make post termination arrangements.
If we consider medical devices being purchased, one company shall be transferring goods from one destination to another. If you are the seller of the goods in question you should ensure that ownership of the goods in question does not pass until payment has been made in full of all monies owed by the buyer to the seller. There are legal drafting considerations here concerning retention of title but essentially the seller should seek to include this clause and the buyer be aware of the fact that unless all monies are paid to the seller they may not legally own the goods in their possession.
Insurance, Risk and Liability – who is responsible?
Often, there is disagreement between the parties to a contract as to who should bear the risk and liability for the product in question. For example, as the owner of a pharmaceutical product your company will have invested heavily in its development. Should you require the services of another, which involves handling the product, it may seem to be clear that the company providing the service should bear the risk and responsibility for the product whilst in their possession. This is not the case. The company providing the service is paid for the services it provides, it does not, at any time, have the eventual benefit of the ownership of the product in question. For this reason, service providers usually will not accept the risk whilst the product is in their possession.
Product owners would also be well advised to insure their product so that should something happen whilst the product is in the possession of the service provider, the owner is able to recover the value of any product lost.
What happens if the Service Provider does not perform its agreed obligations or is negligent?
Failing to store clinical products at the correct temperature, packaging them incorrectly or labelling them incorrectly can all lead to a termination of a contract and basis for a claim. In this instance, if product is lost the owner would be expected to limit its liability by effecting its insurance policy mentioned above; the owner is then able to claim for (depending on the wording of the contract in question) any direct loss suffered as a result of the breach of contract.
Payment and delivery
When is payment due?
The contract should always state when payment is due to be made. If you are selling a product or services you should try to ensure that time for payment is of the essence of the contract. This means that your payment terms are material to the contract allowing you to terminate if the buyer fails to make payment when it ought to.
The parties can agree a date and place of delivery between them. If you are providing services or delivering goods you would be well advised to try to make sure that delivery times are not of the essence of the contract. Agreeing to this would expose the provider to the risk of the contract terminating for a small delay in delivery. A good compromise is that the provider agrees to use its best endeavours to ensure that delivery is made at a particular time or date. The best endeavours wording means that the provider should take measures above those reasonably necessary to ensure delivery takes place on time.
Whilst the provider may have access to and use of the owner’s IP rights during the term of the agreement, the contract should be drafted to state that all IP rights are to remain vested with the owner and should not pass to the provider by virtue of the agreement. IP also needs to be carefully considered if there is any element of development service being provided under the contract - who owns the background IP, who owns the foreground IP and who can do what with the foreground IP.
Contracts should be drafted to protect trade secrets, sensitive commercial information, customer lists, scientific and technical information and business know how which is not already in the public domain both during the course of the agreement and for a period of time thereafter.
Governing law and jurisdiction
The contract should state which countries laws will apply in case of a dispute. When negotiating governing law consideration should be paid to the laws governing the company providing the service or supplying the goods and the clinical regulations it has adhered to in manufacturing and trialling the product.
The parties may also choose which country a dispute can be heard. When deciding on jurisdiction consideration should be paid to factors such as the length of proceedings in a country, costs of instructing local lawyers, translators and travel costs.
It’s important to seek legal advice when reviewing how to protect your business as legal experts will be able to identify the key commercial contracts that you need to ensure your business is not vulnerable to any legal disputes.
Rhian Osborne is a director of commercial law firm Greenaway Scott. Achieving a BSc in neuroscience before moving into a career in law, Miss Osborne heads up the firm’s healthcare and life sciences division. Miss Osborne specialises in commercial contracts in the technology and life sciences sector.
For more information call 02920 095500 or visit www.greenawayscott.com