Who's Your Agent?

The second in the series of blogs relating to contract terms and what they REALLY mean. 

WHO'S YOUR AGENT?

Do you know who's acting as your agent?  Do you know who has the authority to enter into contracts on behalf of the company that may have potentially catastrophic financial and legal pitfalls? 

Legally, it may be MANY more people than you anticipate, realize or WANT. 

It is fairly easy to argue that ANY employee has the authority to bind the company if they sign a contract on behalf of the company.  Yes, even the janitor.  It has happened before and the result was a 40K settlement for services that were never needed.  Why?  Because the company failed to have proper processes and procedures in place to effectively monitor employees and reduce unintended actions.   

There are two kinds of authority: 

1) Express or Actual Authority: authority granted as a condition of the employee's position, for example, a purchasing agent has the authority to purchase goods and services on behalf of the company. Implied Authority supplements express authority. 
2) Apparent Authority:  granted unintentionally by actions or conduct towards a third party.  The problems with apparent authority are as follows:

• Company is legally bound
• Terms of agreements are not propertly negotiated
• accounting / delivery/process problems
• may violate existing contracts

DO YOU HAVE PROPER POLICIES AND PROCEDURES IN PLACE?

Pro-active steps towards SUCCESS:

1) Review and update employee job descriptions to include appropriate limits to authority. 
2) Develop a contract approval policy that requires legal review of all contracts (yes, even the small ones).
3) Require dual signatures on any contract.
4) Develop a financial authority matrix that includes monetary caps by employee level and department.
5) Require CFO approval for any contract binding the company to a certain dollar amount and above that is appropriate for the size of your company (50K; 250K; 1M)

WHO IS YOUR AGENT? 

Take these pro-active steps today and you won't wonder any longer. 

Great Article - Do not pay for a law firms overhead!

http://businessfinancemag.com/article/are-you-paying-your-law-firms-overhead-0427?cid=NLBFBFL

Tips to consider PRIOR to negotiating or signing a contract.

A popular belief about contracts (of any type):

Boilerplate language.  Legalese.  Lawyer mumbo-jumbo.  Most of the language doesn't mean anything or have impact in the "real-world" of business - the commercial terms are the essence of the deal.  Focus on rate / payment terms / delivery / length of contract and that's all you need.  The rest is "standard" - get it done, get it signed!

WRONG. 

As the first in a series of upcoming blogs relating to contract terms and what they REALLY mean, here are some down and dirty tips to consider PRIOR to negotiating or signing a contract of any type:

1) In discussions, even preliminary, "feel it out" type discussions, is there any chance that confidential or proprietary intellectual property information will be disclosed?  If yes, then STOP all discussions and get a signed Confidentiality Agreement in place.  Why?  You need to protect the intellectual property and confidential information owned by your company.  If you willingly disclose confidential information without an agreement, it is no longer confidential.  If intellectual property is not protected by a patent, then such information may be free for use by the recipient.  Why give away unknowingly your company's assets?

2) Do you have the "right" players?  To achieve your mutual goals, have you assembled the proper people?  If you have the correct people, have you ensured that they have the proper legal authority to bind their company in contract and for the type of contract that you require?

3) What is the commercial leverage - bargaining positions of the parties?  How can the leverage or lack of leverage impact the negotiations of a contract?  Can this be strategically corrected by "volleying" the first draft of an agreement?  Can historic contracts be used as precedent?  Can potential future business be used as an additional incentive?  Is there a creative way of structuring the deal to level the playing field?

4) What are the tasks to be accomplished?  Are you buying or selling products?  Services?  Are you engaging in development activities, or could you be?  What is the timing?  How will it be marketed and sold?  How will liabilities be assumed between the parties?  The answers to these questions will dictate what type of contract that you need as well as the critical contents of the contract. 

5)  What are possible complications?  Is there an international presence that could mean expensive litigation if a dispute arose?  Is the product going to be covered by express warranties, and those implied under the law?  Could it's use or misuse be dangerous to the public?  Is it technically challenging to manufacture?  Will there be numerous players utilized in the manufacture or assembly?  What if the services are critical and they are not completed in time? 

6)  If it all goes badly, how can your company get out?  Are there alternative sources?  What would exit expenses look like and how will the expenditure affect profitability, launch or your internal budget? Does it impact your company's obligations to customers and are there financial consequences? Does the company have the ability to get its money back?  Can you negotiate a deposit that can be forfeited or secure a letter of credit that can be drawn upon?  Can you negotiate indemnity from a party to the agreement (where they would make your company "whole" for all expenses related to their wrongdoing)?

It is important to consider many questions like those highlighted above and discuss them not only with your commercial team, but with your lawyer.  Careful pre-contractual consideration and planning will result in better negotiations and, more importantly, commercially and legally stronger contracts.  Protect your company by being pro-active!

Is business in trouble? A few signs & some pro-active steps

Some thoughts for businesses that may not be receiving optimum performance financially, operationally or through ineffective leadership and management:

What are some signs that a business may be faltering?

• loss of market share
• declining economic conditions 
• management turn-over
• poor internal culture
• ineffective processes and procedures
• weak capital structure; excessive debt
• significant outstanding accounts payable
• litigation
• uncontrolled costs
• poor inventory management
• outdated tools and equipment
• declining condition of buildings, property, plants

Some ways to assess the situation:

• review financials and benchmark against others in the industry
• review operational and financial performance, procedures and processes
• assess the leadership potential and past performance
• review short and long term strategies, goals and directives
• review footprint for manufacture, distribution and sales

Some proactive steps that can be taken:

• engage financial and legal consultants to assist with the analysis and identification of proper courses of action
• revise short and long term strategies, goals and directives
• tighten operational performance
• assess inventory management to increase turn-over
• assess manufacturing processes to cut costs
• re-evaluate distribution footprint
• consolidate distribution or manufacturing channels
• re-negotiate outstanding debt through repayment agreements; forbearance agreements
• liquidate non-performing divisions and/or outdated / unused business collateral
• tighten accounts receivable efforts; initiate collection actions if necessary
• focus on profitability, pricing and return on assets
• revise internal controls and compensation plans

Strengthening a company's financial and operational performance includes legally protecting the company from creditor claims, employee claims, customer claims, other third party claims as well as preventing unintended violations of federal, state, local or industry specific laws, rules, regulations, certifications, licenses, etc.  It is imperative for a lawyer to assist with the assessment and pro-active steps above not only to protect the company but to provide legal tools that the company can use to pro-actively pursue aging accounts receivable, trademark or patent infringers, suppliers of defective goods and services, etc.

Working hand-in-hand with the right financial and legal advisers can mean a return to better economic times and growth!