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Putting you on Notice by jigordon
March 26, 2009, 9:32 am
Filed under: contract terms, process

The concept of notice seems fairly simple.  In advance of a particular date, usually by some multiple of 30 days, a party is required to send the other party a letter (“notice”) of their intent to take some form of action.  Notice can be required for extending or terminating an agreement, asking for price increases or decreases, a desire to perform an audit, or any number of other contractual possibilities.  Notice usually comes in two parts – the date by which notice must be provided and the form in which notice must be given.  Let’s start with the format first.

In almost all cases, notice must be provided in writing.  This is important as it creates a permanent record.  It’s quite hard to track down a conversation, obviously, but a letter or an e-mail can easily be later referenced to show that notice was actually given on time.  But what about the means of transmitting the writing.  I just said it could come via letter or e-mail – that should seem self-explanatory.  But the truth is that there are still arguments over the method by which it’s sent.  US Postal Service, UPS, FedEx, e-mail, fax … these are all methods you can currently use.  If both parties have access to the method, then it would at least seem reasonable that such a method could be used.  In 2009, it’s no longer a real excuse to say that you don’t “check your e-mail” on a regular basis.

But what’s the main difference between these transmission modes?  Yup, time.  On average, a letter sent via the USPS is going to take 2-5 days to reach its destination when sent and received in the continental US – longer if international.  UPS and FedEx now offer ground service of the same length of time (so it’s a little cheaper to use), but in the “old days”, the bonus for using couriers was that you had second-day or next-day delivery.  And, of course, fax and e-mail are virtually instantaneous.  This is why you still see notice language in contracts that talks about the “effective date” or “deemed delivery date” of the notice – that you can reasonably expect that one party will have received the notice in a given amount of time given a specific transmission mode.

Why is this important?  Well, that gets us to the second part of notice – the notice date.  Again, the obvious purpose of notice is to provide the other party advanced warning that a party intends to take some form of action.  If you’re a vendor and you want to terminate a contract, for example, the customer might need to find a new service provider.  Giving them the advanced notice means that they might have enough time to find a new provider so as to effect a smooth transition without service interruption.  If you send notice close to the notice date, it’s conceivable, depending on the transmission mode, that an entire week could be lost during transmission.  So where most contracts will talk about the “deemed delivery date” of the notice, it’s important to also watch the effective date.

More specifically, pay attention to notice dates as it relates to headaches that may be caused by receipt of notice.  The bigger the potential headache (or more work involved to deal with the effect of notice), the longer the notice period should be.  For most contracts, notice for termination is going to be about 30 days.  Notice for an intent to audit is going to be 5-10 business days.  But for multi-year, large service contracts, it’s not unreasonable to have notice requirements 6-12 months in advance of termination.

If and when you receive notice from the other side, please remember to actually take action and tell the various internal stakeholders that notice was received.  If you’re the contracts person for your organization, make sure that you’ve provided a quick instruction sheet to your business owners on what to do with contracts-related communications (ie: give a copy immediately to you).  Granted, if you have a contract management system you’ll already know these event dates are coming up and you’ll be talking with your business owners in advance… but if you don’t, and a notice letter arrives, you may need to encourage action on their part.

Lastly, remember that notice periods are contractual requirements and that missing a notice opportunity can have dire consequences.  Invariably, long notice periods are missed on multi-year, seven-figure renewals.  This is another reason to always think twice about long-term renewal periods on agreements… and the effect than an evergreen clause can have on your organization.  My personal recommendation is to never have agreements more than 3-5 years in initial length, with renewal periods of more than 1 or 2 years.  I still like the long notice periods and I use a contract management system that gives me advanced notice of notice.  So if I have a 12/31 termination date, with a six month notice period (6/30), then my contract management system can give me an e-mail reminder any amount of time I want prior to 6/30 (usually 45-60 days).  That way, I have plenty of time to talk with my business owner about renewal or termination.

What’s in your contract?

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2 Comments so far
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I’m leery of notices by fax or email. The issue is that those methods of delivery make actual receipt of the notice less likely.

Emails are OK, but that means that no one else in the organization has any knowledge of the notice coming in. Usually notices are to important people, like presidents and general counsels. They get hundreds of emails a day. If they have the temerity to take a week’s vacation, they return to a thousand or more emails. Do you think they see the termination notice right away? And, since they are senior executives, they probably get several weeks of vacation.

Faxes in most organizations come in one of two ways. Either they go to a real fax machine, where they pile up until some administrative assistant sorts it and throws away your all-important notice. Or they go to a fax server that delivers it to an email address if the email address still exists or drops it into a log that no one checks.

One way to solve the email problem is to set up a special email address for formal notices, like “notices@xyz.com” and allow several people access to that inbox.

But I also like getting a paper notice because the additional formality means that I don’t have to worry about how a clever lawyer on the other wise will, after the fact, construe one of the thousands of emails that employees of my company exchange with suppliers and customers every day as a notice of some breach or other that is only significant with hindsight. If it’s important enough to call for formal notice, it’s important enough to spend 5 cents for a sheet of paper and $20 bucks on overnight delivery.

Chris Lemens

Comment by Chris Lemens

Recent Scottish case

http://wardblawg.com/2010/06/27/contractual-notice-requirements-education-4-ayrshire-ltd-v-south-ayrshire-council/

@Chris, good idea re notice-specific email address. Certainly email is a good idea for notices in 2010. Whoever thinks fax is a good idea for notices and acknowledgments needs to have a serious look at the world around them

Comment by WardblawG




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