NET(net), Inc.


Response to 50 Tips by jigordon
September 30, 2009, 9:32 am
Filed under: contract format, contract management, process

James Martin, an attorney in St. Petersburg, Florida has an article on his website regarding 50 tips for writing contracts that stay out of court.  Most of the suggestions are good… a few are a little dated.  This is my response to the dated things on his list:

3.  Ask your client for a similar contract. Huh?  If your client has a similar contract, they probably don’t really need you.  Now, I’m not advocating reinvention of the wheel.  If there’s a pre-existing solution to the problem, by all means, use it.  But I’m guessing that someone’s coming to you to draft the agreement because you have the skills.  More importantly, however, is that their template/sample probably contains a LOT of issues.  So it’s usually 110% easier to start from scratch (or from your form) and customize it to your client’s specific needs.

4.  Check the form books and treatises for a contract form. and  5.  Buy forms on disk or CD-ROM. I don’t know who first created form books, but they’re not as good as one might think… and they’re not necessarily battle tested, either.  You’d be better off getting a template from someone else you know if you don’t know where to start.  There are exceptions, of course, but still – be careful (see the second part of my advice for #3 above).

6.  Don’t let your client sign a letter of intent without this wording. Actually, my advice is to NEVER sign a letter of intent, regardless of the wording.  As I’ve said before, a Letter of Intent is usually just a poorly written contract.  Don’t get caught up in that mess.

9.  Identify the parties by nicknames. This isn’t a hard-and-fast rule.  Use nicknames only if it actually makes things easier to draft AND read.  Be careful about using descriptive terms as nicknames (customer, vendor, consultant, etc) because other forms of that word could appear in the agreement.  Use the “Find” feature of your word processor to discover if this is true.

12.  Include recitals to provide background. I know a lot of people love these.  But I hate them.  I hate reading them and I hate writing them.  On the other hand, for complex deals where the agreement could apply to many different things and you want to be clear on what the contract is really covering, this is the place.  But for a standard software agreement, the place to list the products is in a product schedule… that way you can use the same license and only add additional product schedules w/o having to amend the agreement itself to modify some “Now therefore, the parties agree to license Word Processing application.” type of language.

17.  Title it “Contract.” Actually, the better advice is to simply make sure that it doesn’t say “proposal” or some other transient contract type (like “letter”).  Granted, I like document titles “Software Licensing Agreement” or “Amendment to Master Services Agreement”.  But putting “Contract” in bold at the top of the first page is silly and WAY outdated.

24.  Write number as both words and numerals: ten (10). I agree with Ken Adams on this one.  Use the standard rules for numbers: words for zero through ten and numerals for 11 on up.

25.  When you write “including” consider adding “but not limited to.” Not worth adding.  Ever.

26.  Don’t rely on rules of grammar. WHAT!?!?! OK.  Look.  Use plain English wherever possible.  Write clearly.  Using superior grammatical skills.  If you don’t have such skills, don’t draft contracts.

29.  Be consistent in grammar and punctuation. Well, at least Mr. Martin shows consistency in his inconsistency regarding grammar.

30.  Consider including choice of law, venue selection, and attorneys fee clauses. Consider?  Absolutely include choice of law and attorney’s fee clauses (though in some cases attorney’s fees won’t ever be granted… but it doesn’t hurt to ask).  On the other hand, you’ll almost NEVER get venue if the other side understands it well enough to ask for a different location.  But if you’re both in the same location, it never hurts to add it in to make sure you won’t be dragged out of state.

32.  Define a word by capitalizing it and putting it in quotes. and 33.  Define words when first used. No and No.  Define words in a definitions section up front.  Unless you only have an average of one defined term per section.  Then you can define “in line”.  Otherwise it just gets too ornery to try to make sure you define the term the FIRST time you use it.  This is especially true when definitions end up getting used in the definition of other defined terms.

34.  Explain technical terms and concepts. If you’re using terms that laypeople can understand, the only technical terms that should appear should be in a statement of work or other descriptive document regarding the work.  As such, it should be written so as to be understandable by the people that have to abide by the contract.  Judges and lawyers can find technical people to explain technical terms.  The only time you should explain technical terms is if there’s a reasonable disagreement in the technically-educated community as to the usage of the term.

35.  All contracts should come with a cover letter. Not necessary.  If your contract is so difficult as to not be able to understand how to sign it, you’ve got a problem.  The best thing I’ve seen so far?  “Sign Here” tape flags that you put on the side of the document they’re supposed to sign for each signature line.  Then paperclip your business card to the front with a post-it note attached thanking them for their help and asking them to sign and return one of the two originals.

38.  Use your word processor’s spelling and grammar checker. Yes, but don’t rely on it.  Two, to, too, toe.  Their, there, they’re.  Through, thorough.  Notice anything?  They are all real words and spelled correctly.  Spell checker isn’t going to flag any of these.  Grammar checker is no better: “A parakeet is not a bluebird.” is grammatically correct.  But if you intended to say that a parakeet isn’t blue, the prior sentence is not correct but won’t be flagged.

42.  Save the drafts as multiple files on your computer. Yes, but not how it was recommended.  Unfortunately, using periods in your filename is still problematic for some operating systems.  Weird abbreviations for drafts, comparisons, etc are also hard to decipher.  Instead, try this:  “filename vX date initials.doc”.  So if you have a file called MasterService and it’s the 4th iteration being saved on September 29, 2009 by Jeffrey I. Gordon, the filename would be:  “MasterService v4 092909jig.doc”  Why do I do it this way?  Well: a) it keeps the files in draft order in virtually all file systems (Windows, Mac, Linux); b) it notes which version it is (saves on confusion about which document is the latest); c) notes the date it was created; d) notes who created the draft.  Sometimes I’ll substitute my company’s TLA instead of my name… but usually, I like my initials better to let me know that I was the author of that version of the document.  When I get the last version that becomes the final, I change my initials to FINAL – so the name would now be: “MasterService v10 101509FINAL.doc”.  This lets me know that v10 was the final and which version was signed.

44.  Print the contract on 24 pound bond paper instead of 20 pound copier paper. Not worth the cost of paper.  Especially if you want the other side to sign first – ask them to print two originals, sign both and send to you… you can’t control the paper it’s printed on.  Besides, if you’re using a contract management system, you’re going to scan and forever more look only at the digital version, so the paper is irrelevant and not worth the added expense.

47.  Initial every page of the contract. Wholly unnecessary unless you don’t trust the other side and you’re signing first.  But as I’ve said before, if you don’t trust the other side, you shouldn’t be doing the deal in the first place.

48.  Identify the parties and witnesses who sign by providing blank lines below their signature lines for their printed names and addresses. and 50.  Add a notary clause that complies with the notary law. Witnesses and notaries aren’t necessary unless required by law for the specific type of contract you’re closing (usually for real property, but I’m not sure it’s required for any other type… anyone know for sure?).  Many businesses have a notary on staff, but unless the document is required to be signed “under seal”, this also is usually not a requirement and is an added expense to some (and added time/effort for everyone).

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This Week on The Web 2009-09-28 by jigordon
September 28, 2009, 9:32 am
Filed under: copyright, current events, insurance, negotiation, TWoTW

These are the discussions that happened around the web this week – maybe you already read about them, maybe you need to again.  Come join the party on twitter (follow me here and you’ll participate in the conversation live.)

I also realized that many of you might have no idea what you’re seeing below.  Sorry.  These are “tweets”, 140 maximum character messages sent via Twitter.  Within the Twitterverse individual users follow others and have followers (think of it like overlapping Venn diagram circles).  To read a tweet, you have to wade through a bit of jargon used to make the most of the 140 character limitation.  “RT” for example, is shorthand for “Re-tweet” and the @____ is the username of some other individual on Twitter.  Combined together, then, “RT @_____” means that someone else wrote a tweet that I found important and I now want to forward along to my followers.  The URL’s are then also shortened by shortening services like bit.ly to make the most of the character limitation, too.  Lastly, you might see “hash” identifiers “#______” which are ways to tag tweets of a particular flavor for easy searching later and “<” which means that I am commenting on what came before it.



Insurance Basics by jigordon
September 23, 2009, 9:32 am
Filed under: insurance

Over the span of my career, I’ve seen thousands of insurance sections in various contracts.  At the beginning (and at certain employers), I would have to run this section by the insurance people in the event of any changes to our template language.  But as time went on (and with a different employer), we really only paid attention to the need for insurance certificates and the actual amount of coverage listed.  Then one day, I found myself in charge and needed to set the policy for how we were going to handle this oft-ignored/misunderstood area of the contract.  So I brought in the insurance folks to talk with me about this interesting topic.  [Note:  What I’m about to tell you is what I’ve learned as a result of countless deals and several discussions with dozens of insurance agents.  But if your insurance folks advise you differently, just remember where your bread is buttered.  Hint: it’s not by me.]

Insurance Types

There are five basic types or categories of insurance policies: Commercial General Liability, Professional Liability (errors and omissions type), Excess or Umbrella Liability, Workers’ Compensation, and specific liability policies for particular types of work (auto, boating, construction, etc).  Your contract should at least list the first four and optionally include reference to any other policies necessary based on the work you (or your vendor) are performing.  There are, of course, some caveats.

  1. Not all professional services will qualify for Professional Liability policies.  It’s conceivable that you (or your vendor) will not be able to provide this type of insurance because of the nature of the work completed.  However, many insurance companies will interview the insured organization and “create” a Professional Liability policy for that service – the key is to simply ask.
  2. Excess or Umbrella Liability policies can’t exist without a primary Commercial General Liability policy on which to hang (hence the term “excess”).
  3. Workers’ Compensation is MANDATORY.  In fact, in most contracts, you’ll see this called out as statutory Workers’ Compensation.  In other words, if state law requires it, the insured must have it.  If the insured is a sole-proprietorship (ie: they are their only employee), this policy probably won’t apply.  Again, however, it’s based on the state’s law in which the work is being performed.
  4. Specific Liability policies aren’t always easy to determine up front.  Who today can guess that you’ll need “boater’s insurance” five years from now?  If you don’t list these policies in the master agreement, simply remember to add them to a particular Statement of Work when needed.

Insurance Limits

Typically, when talking about Insurance Limits, we’re really talking about the maximum dollar value of each policy.  Some organizations love to go for broke on this – asking for $10M minimum aggregate and $5M per occurrence, etcetera.  Lets break down the distinction and then talk about dollars.

  1. “Minimum aggregate” refers to the total amount of money recoverable under the specific policy regardless of the number of claims for the entire life of that policy.  If a $1M aggregate policy is claimed upon by 1000 people equally (over the span of the policy’s life), the most each person would get is $1000.  ($1,000,000 / 1000 = $1000).  But things don’t usually work out that way.  Rather, these same 1000 people might claim at different times during the life of the policy.  If the first of those thousand people recovers $900,000 from the $1M aggregate, there will only be $100,000 left to satisfy the other 999 future claims.
  2. “Per occurrence” then is a limit on the per-claim reimbursement/coverage.  The per occurrence limit is usually 1/2 the value of the minimum aggregate.  So if you have a $1M aggregate policy, you will then typically see a per occurrence limit of $500,000.  This partially helps with the problem from the end of the last section, where the first claimant receives an abundance of the value of the policy, leaving little remaining value to any other aggrieved party.
  3. Excess or Umbrella Liability policies usually only list a “not less than” amount which is almost always 2x the minimum aggregate of the Commercial General policy.  For our example here, if the CG had a $1M minimum aggregate, the Excess or Umbrella limit would be not less than $2M.
  4. Statutory Workers’ Compensation almost never lists an actual dollar limit.  Again, because it’s based on different state laws (which could change like the tides), most contracts simply state that the insured will meet the requirements of the law, whatever they happen to be at the time.

Dollar limits on insurance policies can get really interesting in a hurry, partially because of the nature of the work that many professional services organizations perform and partially because of the nature of insurance policies in general.  In most cases, I ask for insurance dollar limits that are far and above what I would ever expect the value of the work performed to be.  This freaks out my vendors – they worry that they won’t be able to get a $10M policy (or, more accurately, won’t be able to afford it).  But I have to remember something that they would rather I didn’t – that their single insurance policy is covering the work that they do for EVERYONE.

That’s right, the nasty little insurance secret that no one really wants to discuss is that almost 100% of the time, the policy that covers your work is also covering 100+ (or 1000+) other jobs.

But wait, you say, I am named as an additional insured.  That bumps me to the head of the line.  Not so fast.

Insurance Certificates and Additional Insureds

In almost all cases, the customer is able to get the insured to provide them an insurance certificate directly from the insurance company as proof of the existence of the policy.  And in many cases, the customer (as well as its officers, employees and agents) can also be added as additional insureds to the Commercial General Liability policy only (even if you want to be an additional insured on the other policies, most insurance companies won’t allow it).  The customer then asks to have the insurance certificate even state that the customer is a named additional insured entity.  What you don’t see, however, is all of the other additional insureds.

What you’re really looking for, then, is to find a way to make sure that the policy limits are going to cover the work that the vendor is performing for you – and making sure that you’re going to be able to fully recover that amount in the event a claim is properly brought.  The solution?  Ask the vendor to get a specific policy just for you – on a “primary and noncontributing basis” and including a waiver of subrogation in favor of you.  The vendor might still balk at this – you’re asking for an individual insurance policy.  But you can now decrease the policy limits to be more manageable because now you know that this policy is just for you.  So the overall cost to provide insurance to you for the work performed might actually be less than if you required the vendor to increase the policy limits to extraordinary heights.

Oh, and don’t forget that you want the certificate of insurance to indicate that the Excess or Umbrella Liability policy is a “following form policy”.  This means that if the excess or umbrella policy has terms or conditions that conflict with the Commercial General policy, the CG policy terms will control.  But there is some controversy given current insurance practices which may make this difficult.

Insurers

Many customers also want to be certain that the insurance company providing the policy is reputable.  There are different ratings institutions, but I prefer A.M. Best with a rating of no less than A-, Class X.  The A- means that they’re still in the Excellent rating category and the “Class X” is an indicator of their financial health (X is actually a Roman numeral) with an adjusted policyholder surplus of $500-750M.  This is to ensure that the money actually exists to cover the upper limits of any potential claim.

Policy Changes

Relatively speaking, insurance is easy to obtain.  It’s not always cheap, though, so there have been times where insureds have made financial decisions to decrease policy limits or change coverage types as a cost-savings method.  If you’re a customer, you want to know about this as it’s happening (and not at the start of the next year when the next insurance certificate arrives with lowered limits, leaving you to wonder when the change actually happened).  So always remember to include language in your insurance section that requires the insured party to notify the other of any changes to the policy within 30 days of any adverse change (you really don’t care too much if limits are increased).



This Week on The Web 2009-09-20 by jigordon
September 20, 2009, 9:32 am
Filed under: copyright, document assembly, negotiation, revenue recognition, TWoTW

These are the discussions that happened around the web this week – maybe you already read about them, maybe you need to again.  Come join the party on twitter (follow me here and you’ll participate in the conversation live.)

I also realized that many of you might have no idea what you’re seeing below.  Sorry.  These are “tweets”, 140 maximum character messages sent via Twitter.  Within the Twitterverse individual users follow others and have followers (think of it like overlapping Venn diagram circles).  To read a tweet, you have to wade through a bit of jargon used to make the most of the 140 character limitation.  “RT” for example, is shorthand for “Re-tweet” and the @____ is the username of some other individual on Twitter.  Combined together, then, “RT @_____” means that someone else wrote a tweet that I found important and I now want to forward along to my followers.  The URL’s are then also shortened by shortening services like bit.ly to make the most of the character limitation, too.  Lastly, you might see “hash” identifiers “#______” which are ways to tag tweets of a particular flavor for easy searching later and “<” which means that I am commenting on what came before it.



Contracting as a Specialty by jigordon
September 18, 2009, 9:32 am
Filed under: negotiation, Professional Development

I have written before on how a contracts professional can justify their position within an organization.  One of the hardest groups to convert to your way of thinking, however, can be lawyers.  It’s interesting when you can get the lawyers to admit this because they are well aware of the value of specialization and the nature of what is taught in law school.  For those of you not graced by the opportunity to spend at least three years of your life burrowing into the method of how to “think like a lawyer”, please allow me to explain.

Law school creates generalists.  Your curriculum usually spends 1.5 years on the 10 basic classes: Criminal Law/Procedure, Civil Law/Procedure, Constitutional Law (usually long enough to require 2 separate courses), Torts, Evidence, Legal Writing and Contracts.  The rest of that second year and part of the third is usually focused on electives: tax, business, alternative dispute resolution, intellectual property, etc.  The last part of the third year (distributed in part of the second and third years, actually) is almost always some sort of practicum or clinic experience along with some trial advocacy skills and legal ethics.

So at the end of this endurance test, newly minted lawyers have had exactly ONE class on most of the various subject matters that they’ll encounter in practice.  This is pretty frightening to some if you consider that some new lawyers immediately hang their own shingle and go into practice for themselves.  Contrary to the educational system of the past, then, these lawyers now have to learn on the job with live clients.

This is true of contracting.  If they took an elective on contract drafting, then fine, they had two classes.  But still – a sum total of 1 academic year of discussion on contract theory and drafting is not a lot when you consider the vast nature of the space.  Software licensing, hardware purchase agreements and other tech-related contracts are but one type of contract.  Services agreements, nondisclosure agreements, regulatory-related agreements and others add to the mix (and we haven’t even talked about things like Statements of Work or other more business-y agreements).

Add to this the fact that contracting doesn’t happen in a vacuum.  Contract negotiations are the method by which two or more parties come together to agree on the needed and acceptable language.  Negotiation is but one facet of alternative dispute resolution – and again, unless taken as an elective, hasn’t necessarily been formally taught to a law student.

All this is to say that it makes sense that contract professionals exist in this world as a specialty service.  In fact, some contract professionals even only specialize in one type of contractual agreement.  Lawyers should therefore: a) not assume that their law degree grants them the knowledge to automatically operate in this space without additional training; and b) remember that specialization is a hallmark of the law business – so they shouldn’t be afraid of seeking assistance from contracting specialists when they’re approached for this type of service.

Lawyers in the crowd may be booing me at this point, but wait!  All is not lost.  There is VALUE in using specialists to do this work for you:

  • First, is that top-tier contract professionals aren’t cheap.  We don’t bill at the rate of a DC Partner, but we’re not giving work away, either.
  • Second, contract professionals are efficient.  It takes me, on average, about an hour to read and redline two-to-four pages of dense material.
  • Third, contract professionals have their eye on the prize.  We’ve seen enough deals (because this is what we do) to know what’s really important and what can be passed over.  We know when to fight and when to concede.

Combined together, this means that your average specialist takes less time to produce more quality work – and what’s billed is still “acceptable” to both sides.  Lawyers and law firms alike should remember that they don’t need to go it alone (regardless of whether they’re in-house or out in the world).  Contracts professionals aren’t trying to be lawyers (even if a contract professional or two happens to be one) – they just want to be contracting specialists… and they can help a lawyer spend their time more efficiently and effectively, too.



Business Continuity by jigordon
September 16, 2009, 9:32 am
Filed under: source code

A lot of conversations have been going on recently regarding source code escrow and business continuity: here, here and here.

Wow.  Regardless of whether you’re talking about on-premise applications or SaaS “hosted” apps, business continuity is a pretty important issue.  Many organizational leaders are extremely worried about making sure that their infrastructure is stable enough to allow them to sleep well at night.  So they sink a lot of cash into various potential solutions in hopes that they’ll create a safety net.  Right now, for most customers and vendors, this safety net is built out of four potential components (some solutions aren’t conducive to all options):

  1. source code escrow (vendor out of business)
  2. insurance (vendor causes damage)
  3. warranties (solution doesn’t work as advertised)
  4. IP indemnification (solution infringes on rights of others)

Like any net, though, it has a lot of holes – gaps in the netting where stuff can slip through.  Even if you try to cinch the net tighter, it’s not a solid material – there are ALWAYS going to be gaps.  This is a hard lesson to learn, especially in the game of risk management and mitigation.  You’re not going to protect it all.  [It’s an imperfect analogy, but look at the Secret Service detail for the President of the US – he doesn’t walk around all day completely enclosed in bullet-proof material.  Rather, he’s protected by agents all around.  Once and awhile, something slips through, even after extensive diligence and effort.]  At the end of the day, therefore, you protect against what you can with the understanding that the only way to obtain 100% protection is to restrict operations by 100% as well.

The goal, therefore, is to find a way to mitigate the biggest risks, not just the low-hanging fruit and those that are most obvious – but those that can cause the most damage.  Which brings us back to losing access to software used to run a business.  This could be your desktop operating systems… it could be your word processing applications… it could be your CRM (customer/relationship management) application.  The key is to determine which applications are mission critical and then figuring out strategies to make sure that you have options available in the event you lose access.

This does not mean you need source code escrow for every application.  Microsoft Word, as pervasive as it is, isn’t the only word processing application available in the world.  It’s also not using a file format that is wholly unreadable by any other word processing application.  So if Microsoft Word becomes suddenly unavailable tomorrow, even if it was a hosted application (which it currently is not), having spent money on source code escrow will have been wasted.  You could probably more cheaply (and with greater efficiency) simply buy a new word processing application.  And guess what?  This is true for almost ALL of the applications that your business uses!  As Apple has been saying for their iPhones, “there’s an app for that.”  In fact, there are usually a dozen.  What you move to might not be your favorite, but it will get the job done in a cost effective manner.

So where did you need escrow?  In the past, it was for customized applications or those that required substantial and pervasive integration and implementation – something so ingrained in your environment that its failure would immediately and irreparably cripple your business.  Many CRM tools used to be of this nature.  They were so customized… so specialized… so deeply modified for your particular use that it wouldn’t be as simple as just grabbing a new one off the shelf and porting the data over.  But that’s not really how it is these days.  Data is no longer held in proprietary databases, it’s held in more generically available database architectures (like Oracle or SQLServer).  Competitors now are even building their apps using similar data structures to encourage customer poaching.  You can thus port your data efficiently and quickly if necessary.  Thus escrow has become an almost non-starter.  Eventually, you’ll have to move to a new app regardless – but with an on-premise solution, you can keep using the software until you migrate.  Source code isn’t going to get your data moved to a new application any quicker.

For hosted apps, however, the added risk is that you no longer have control of your data.  Even a daily backup doesn’t get you the application.  Source code escrow in this scenario was hopefully going to give you access to the code to bring up at your own site if the hosted vendor went away.  But wait!  It’s not OBJECT code escrow, it’s SOURCE code escrow.  Additionally, you’re not getting the support applications, either.  We need another option.  A way to provide a SaaS customer continuity in software use.

It’s brainstorming time.  I put out my suggestion in the comments of Frank Scavo’s post.  Now it’s your turn.  Speak loudly – get creative – no idea is too outlandish.  The comment area awaits your input!



Web 2.0 – What is all the hype? by garysa
September 14, 2009, 10:57 am
Filed under: Hardware, Microsoft, Oracle, SaaS, SAP, Software, Subscriptions

There appears to be a significant amount of buzz around Web 2.0, what it is and how do you get some…  If you do a Google search on Web 2.0, you are using Web 2.0 technology!  Just by the fact you are reviewing this blog post means you are using Web 2.0 technology. 

Why would a professional optimization firm write about Web 2.0?

The newest versions of applications, services and hardware touted by companies like IBM, Oracle, Microsoft and others are being sold as Web 2.0 necessities.

So what is Web 2.0?

If you click on some of the results from your “Web 2.0” Google search, many people say Web 2.0 is nothing more than a marketing spin on the natural progression of Internet technology.  So why then are Enterprises being encouraged to pay premiums based upon marketing and hype?  Continuing a tradition among technologists to buy the latest and alleged to be the greatest?  Beyond that, we have no clue!  But, we can try to put some context around what is Web 2.0?

Quite simply, one can look at a website or application as being Web 2.0 if it contains any of the following characteristics:

  1. A user centric customizable interface (i.e. use of widgets to customize pages)
  2. Community updates like those found in Blogs or Wiki pages
  3. Uses the Web as its delivery platform and is entirely browser accessible
  4. Allows for collaboration like that found in Instant Messenger or other Social Networking sites
  5. Utilizes user generated “Dynamic Content” for updates
  6. Software as a Service (SaaS) by definition, uses the Web as its delivery platform
  7. Provides for a rich use experience

Who can argue with those, almost like motherhood and apple pie (all good).  Those characteristics are so all encompassing, almost all software fits into at least one of the categories above.  Still, by using the latest buzz word and labeling products “Web 2.0”, technology companies are jumping at the opportunity to capitalize on the ambiguous definition of “Web 2.0”  and trying to use it to compel buyers to pay a premium to obtain it.  At NET(net), we consistently rally against hype and focus on business value received relative to financial investment expended.  This is where Web 2.0 falls flat (in our humble opinion).