CWS 3.0: October 31, 2012


Drafting a Contract: Sample Clauses

Contingent workforce managers often leave such issues as liability, indemnification and insurance to the attorneys, but they often craft the commercial terms (pricing, discount language and increase language) themselves. And a well-drafted contract may one day just save your job.

We have compiled some sample clauses that should not be overlooked in drafting your contracts. Today, in part 1, we will discusses overtime discounts, renegotiations and favored customer clauses. As always, you should seek advice of counsel before entering into any legal agreement.

Overtime Discounts
Clear language on overtime should be included in any agreement based on time and materials. This clause can be included in scope of work agreements as well as staff augmentation contracts. It is based on a multiplier being applied to the bill rate to keep profitability level as pay rate increases with overtime. If you don’t address overtime, the vendor would see a 50 percent margin increase as an employee reaches overtime thresholds.

The question of what multiplier to apply should be based on your own circumstances. I have seen these rates range from 1.15 to 1.48. As always, the level of discount should be based on your own requirements and the relationship you have with your current supplier.

"Overtime discount: "Overtime" hours shall be defined as those hours which satisfy at least one of the following three conditions: (1) hours worked in excess of eight hours in one workday ("workday" shall be defined as any consecutive 24-hour period commencing at the same time each calendar day); (2) hours worked in excess of 40 hours in any one workweek ("workweek" shall be defined as any seven consecutive days, starting with the same calendar day each week or as a fixed and regularly recurring period of 168 hours, seven consecutive 24-hour periods); or (3) the first eight hours worked on the seventh day of work in any one workweek. If work is performed by a temporary worker hereunder in a state in which the state labor code definition of "overtime" hours conflict with the above definition, the state labor code definition shall supersede and govern for determining overtime hours worked by said temporary worker in such state. Overtime pay rate hours shall be payable at a rate of no less than 1.5 times the straight time hourly pay rate. The overtime bill rate payable by company to vendor will be calculated by applying a multiplier of 1.15 to the corresponding straight time bill rate for the applicable temporary worker. For example, a straight time bill rate of $20.00 would be multiplied by 1.15 to yield an overtime bill rate of $23.”

A renegotiation clause can benefit both parties in its application. It takes into account the fact that things often change over the life of a given contract term. And in the event that the contract proves to be uneconomical for you, this clause formalizes the process by which your company can come to the table to create a more equitable situation. This is helpful if your volumes have been exceeding forecasts or if your requirements change and you don't want to leave yourself in a bad situation. This clause can become bidirectional by substituting "either party" for "company" and "vendor."

"Renegotiation: In the event, and not more than once during any twelve (12) month period, that company believes that the compensation or requirements of the agreement no longer represents an appropriate cost for the services rendered or the scope of services, company may request in writing a meeting to be held within 30 days of the request to enter into good faith negotiations to resolve such beliefs. In the event that these negotiations do not result in a mutually agreeable resolution within 90 days of vendors receipt of a written request for renegotiations, either party may terminate this agreement for convenience with a 30 day notice."

Favored Customer
A "most favored customer" clause is often one of the more difficult ones to negotiate because it requires your vendor to declare formally that your contract represents the best possible pricing for the volumes and customer profile you present.

Most vendors will push back pretty hard on this point and it is often watered down by narrowing the application. But it is a good starting point and should appear in some form in any contract you negotiate.

"Most favored customer: If any other customer of vendor obtains aggregate pricing and/or rebate terms with respect to any product of vendor which is more favorable (taking into account all credits, discounts, rebates, adjustments, bonuses, allowances or any other incentives offered) than those terms provided to company at any time during the term of this agreement, Vendor will retroactively adjust the pricing and/or rebate terms under the appropriate company agreement for each such product or service to conform to the more favorable terms and vendor shall promptly pay company any amounts owing company there from. Company shall have the right to conduct periodic reviews of vendor's books and records with respect to such products to confirm vendor's compliance with the provisions of this paragraph."

These are just a few of the contract wordings that should be considered as a part of any well-sourced services or product agreement. They are good starting points, but your attorney should be able to work with you to apply these to your own contract situation and process.

See Part 2 next week for more examples of clauses.


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