In today’s dynamic marketplace, few marketing research firms have the core competence to “do it all.” Consequently, firms routinely rely on third parties to help deliver research deliverables to end clients. Third parties can run the gamut from providers of research sample to analytics and even to software-as-service (SaaS).
Whatever the service, these providers can go by any number of names: vendor, supplier, contractor, subcontractor, collaborator or strategic ally. For purposes of this article, the phrase “supplier” will be used.
In the rush to get the deliverable to the end client, important items can be overlooked. At or near the top of that list is the failure to review the terms of the boilerplate agreement your research supplier gave you or, even worse, failure to put an agreement into place at all.
Why should we care?
In the vast majority of circumstances, even when using a supplier’s form agreement (or operating without a formal agreement of any kind), nothing bad happens. The supplier provides us with an acceptable and timely deliverable. We incorporate that deliverable into the services to our client who is happy and pays us on time. We pay our third party supplier. Everyone is taken care of.
However, it is for those rarer instances when things go sideways that we count our blessings in having a solid contract with the appropriate contractual protections. Think of it as insurance. The likelihood that you will get into a major car accident may not be high, but that does not mean it is reasonable to go without car insurance.
From a client-relations perspective, your supplier’s screw up is your screw up. You may be doing everything perfectly from a project execution perspective, but if your sample provider has provided you with bad or incomplete sample, it will be of little solace to you that you were not the source of the problem. Your client will still see it as an issue...and a negative reflection on your organization. And as much as you may try to deflect attention, the bulls-eye will still be on you.
From a legal perspective, your supplier’s incompetency is also your incompetency. Whether it is in writing or not, once you agree to do a project for a client, you have a “contract.” Failure to deliver on what was promised exposes you to potential breach of contract action. No matter the extent to which your “service failure” is the result of faulty third party supplier contribution, you remain liable; they can still come after you. Your likely – and primary – recourse is to go back to your supplier and seek some kind of recovery.
In every agreement with a supplier, you should be mindful of including the following terms:
- Description of Project Deliverables. A clear and accurate description of project deliverables, with corresponding milestones and service level requirements, is an absolute must.
- Fees. A clear and accurate statement of fees is essential. Under no circumstance should you pay for all or even a large chunk of the fees prior to the date of delivery of the services. Ideally, you want to hold back most or all of the fees until services are delivered to your satisfaction.
- Term/Termination. Most agreements should have a fixed term, with a start and end date (i.e., 12 months, etc.). All agreements should have mechanisms for early termination in the event of a breach by either party. In the context of supplier agreements, it is strongly suggested to have what is known as a “termination for convenience.” Such provisions mean that, even though you may, for example, have a two-year agreement, you can at any time cut the supplier loose with, say, 30 days advance notice. This gives you the flexibility as the “client” of the supplier to make adjustments as circumstances may change.
- Confidentiality and Data Security/Privacy. Your supplier should keep all confidential information that you share with them strictly confidential. Additionally, contractual protections are required to ensure all personally identifiable information that is handled by the supplier is adequately protected and that the supplier has reasonable and proper data security measures in place. Given the high costs associated with addressing data breaches, negotiating strong provisions in this area is essential.
- Representations and Warranties. Often referred to as “reps and warranties,” these are statements wherein the supplier lists a series of things it does or will do such as “I am complying with all applicable laws, rules and regulations.” These are valuable to have since the supplier is contractually listing all the items they adhere to. To the extent the supplier says they are doing something but fails to actually do it, they are in breach of contract.
- Indemnity. This essentially functions as a “guarantee” of sorts. That is, the party providing the indemnity is agreeing that, if there is a claim against you, they will pick up your legal fees and pay for any claim settlement or damage award. An indemnity, therefore, can be a highly valuable thing to receive. The frequently negotiated point lies around the scope or parameter of the indemnity. In terms of the indemnity one seeks from their suppliers, it is beneficial to go as broad as possible, obtaining indemnities for claims arising out of any act or omission by supplier related to the agreement.
- Insurance. It is essential that all of your suppliers carry liability insurance. General Liability policies are held by most companies, but the insurance that is probably most relevant is an Errors and Omissions (E&O) Policy. A certificate of insurance should be requested and you should ask to be added as an additional insured.
- Limitation of Liability. From a risk management perspective, it is essential to limit as much of your financial liability as possible. As its name suggests, a limitation of liability clause contractually specifies an aggregate “cap” or limit of liability under the contract. As a purchaser of research services, you will want to limit your liability as much as possible (perhaps to the amount of fees paid under the agreement) but have a much larger cap (or even no cap at all) with respect to your supplier’s conduct.
- Choice of Law/Venue. Contracts typically specify which state law will govern the agreement and, if a dispute occurs, the location of courts where a case would be heard. This becomes relevant if, say, you are a company based in New York, but the contract you signed is governed by Alabama law and requires you to adjudicate in Alabama if there is a dispute. Needless to say, wherever possible, you want to have the agreement governed by a body of law that you are most familiar with and want cases to be heard in your “home court.”
The above list is by no means comprehensive, but rather a checklist with some basic summary information that can help keep you out of trouble. It is preferable to have your own standard form, but you can use this checklist to review and possibly modify terms in any agreement your supplier provides. It is perfectly appropriate as a “client” to present your supplier with a form and request them to use your agreement. Any type of further analysis of these legal terms should be reviewed by your own independent legal counsel.