Master Contract Mysteries

A well-drafted contract is key to establishing the material terms of a logistics relationship. Here are tips on what to look for.

Each party involved in a contract should take an active role in helping the drafter ensure that they capture the nuances of the business deal accurately.

Standard contracts typically include boilerplate provisions. While insurance requirements and indemnity provisions are obviously important boilerplate provisions, specific types of contracts have unique nuances that should be recognized, addressed and revised appropriately. Accordingly, some parties choose to utilize a standard form of contract that they draft in conjunction with their attorneys to ensure that each unique nuance will be effectively included.

For example, David Pulling, logistics leader at Sonoco, requires each motor carrier that transports Sonoco’s freight to sign a standard form of carrier contract that includes specific provisions related to the motor carrier’s operating authority, Federal Motor Carrier Safety Administration safety ratings and insurance coverage amounts. Pulling estimates that approximately twenty-five percent of motor carriers mark-up the standard contract. Whether he will accept all or some of a motor carrier’s contract mark-ups depends entirely on the motor carrier’s revisions. For instance, Pulling is willing to accept certain revisions related to payment terms but will not likely accept any revisions to claims or indemnifications sections.

When reviewing contracts with independent contractors, Tory Bass, chief financial officer of Eagle Transportation, is most concerned with ensuring that confidentiality and “works made for hire” provisions are included. Under counter-intuitive copyright laws, a company that hires an independent contractor to produce a deliverable may not own the related copyright unless they include a “work made for hire” provision in a contract between the parties. When a work is set into words or other tangible form by an independent contractor, the copyright becomes the property of the independent contractor who created the work and not the company who commissioned such work on their behalf. However, if a work is “made for hire” and defined as such in a contract, then the copyright immediately becomes the property of the company and not the contractor.

Ensuring the inclusion of nuanced provisions in a contract often requires making persuasive arguments to the counterparty. Tracy Pellerin, president of Apex Freight Services, noticed that larger customers tend to use their economic leverage to play hardball when negotiating provisions. In order to create a fair contract, Pellerin makes a value proposition argument to his customers by differentiating his company from competitors and reasoning that such differences drive value back to the customers which, in turn, justifies their executing a fair contract.

Ultimately, the process is simple. First, two or more parties must negotiate and agree to mutually acceptable business and deal terms. Using a term sheet at this early stage can help save time and money by encouraging the parties to think about the transaction’s material terms and identify any potential deal-breakers before drafting any definitive documentation.

Second, the parties must agree as to whose attorney will draft the contract and the related ancillary documents, if any. From a strategic standpoint, it is extremely advantageous for a party to have their attorney draft the contract and ancillary documents as such attorney can easily include favorable terms and conditions in initial drafts that were not contained in the applicable term sheet or discussed during the parties’ original negotiations. Thus, if possible, insist on sending your documents for a deal.

Third, the attorney must review and discuss the business and deal terms with his client.

Fourth, the attorney must analyze any applicable law and conduct related research or consult with experts if necessary.

Finally, the attorney must artfully integrate the business deal, credit terms and applicable law with standard contract concepts such as covenants, representations, warranties and conditions precedent.

In sum, taking a proactive approach with your attorney, or with whoever is charged with drafting and revising a contract on your behalf, will enable you to favorably capture your business deal in a protective and artful fashion.

Enan Stillman is an attorney with the law firm of Graham & Penman LLP (www.grahamandpenman.com). He practices in the areas of transportation and logistics, insurance, mergers and acquisitions, debt and equity financing, fund formation and investment management, land use and general corporate law and governance. He may be contacted at (404) 842-9380.

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