NEGOTIATING COMMERCIAL AGREEMENTS

Introduction

Commercial transactions – most commonly the buying and selling of goods and services – involve the negotiation of the terms and conditions which are to regulate the roles and obligations of each party carrying out and completing the transaction. Some matters to be considered are obvious, such as what amount of money is to be paid, and what is the exact nature of the goods or services being exchanged.

However, there are other matters which should also be determined to ensure that the parties’ rights are clear, thereby minimising the possibility of disputes arising under the terms of the agreements.

When you submit a draft contract to us for consideration (drafted by the other side) or ask us to prepare a contract to cover the transaction, we would ask you to consider the matters referred to below and provide as much detail and information as possible. This will put us in a better position to respond to your request quickly and accurately as we will have a clear understanding of what it is that the parties intend to achieve as the result of the project.

Checklist of Agreement Terms

Whilst different matters apply to different types of agreements, the following issues frequently arise during commercial negotiations, and should be considered by you when you are negotiating on behalf of the University:

  1. Fees to be paid;
  2. Specifications for goods or services to be provided;
  3. Ownership of present intellectual property (and of any new intellectual property to be created);
  4. Confidentiality;
  5. Licensing of intellectual property;
  6. Marketing, restrictions on use of names and logos;
  7. Privacy of personal information;
  8. Compliance with Trade Practices Act and other relevant legislation;
  9. Period of the agreement;
  10. Default, force majeure and termination;
  11. Exclusivity;
  12. Restraint in dealings with similar bodies;
  13. Insurance;
  14. Each party to indemnify the other side for breach;
  15. Restriction on assignments;
  16. Restriction on sub-contracting;
  17. Dispute resolution;
  18. Key personnel to perform services;
  19. Notices to parties;
  20. Warranties;
  21. Reporting Obligations;
  22. Special conditions applicable to each project.

Where you have been provided with a draft contract from the other party, please make sure that you read the agreement thoroughly, to ensure that the agreement reflects what has been agreed to by the parties. If, for example, it has been agreed that the parties will have joint rights in respect to intellectual property created as a result of a project, please ensure that the contract states that this is the case.

Template Agreement

For your assistance, the legal office has prepared a “generic” or “template” agreement (and explanatory user notes) which can be completed and used in many commercial transactions. The agreement may be a useful starting point when determining what are the appropriate terms for a particular commercial arrangement.

Note that the template agreement will not be suitable in every situation (e.g. software licensing) so it is always a good idea to check with the legal office if you intend to use it. The final form of agreement should always be settled with the legal office before sending it to the other party for comment.

Business Plan

Consideration should always be given to preparation of a business plan for commercial arrangements in which the University is involved. The attached Business Plan Outline should be of some assistance in this regard.

Obviously the scope/application of the business plan will depend upon the size and monetary value of the project involved. Small matters may simply require a rudimentary cost/benefit analysis.

Other Negotiation/Agreement Tips

  1. Name of University

The proper name of the University for the purpose of entering into agreements is “Royal Melbourne Institute of Technology a university established under the Royal Melbourne Institute of Technology Act (1992) Vic”. The University may subsequently referred to in the agreement as “RMIT University”. Individual Faculties, Departments and Centres are not separate legal entities and cannot enter into agreements in their own name. Please ensure that the University’s name (usually appearing at the beginning and in the signing clause of agreements) is correct.

  1. Signing of Agreements

Most agreements entered into by the University must be signed by the Vice-Chancellor, a Deputy Vice-Chancellor or Pro Vice-Chancellor. Other documents must be signed under the seal of the University, whilst some require Council approval. Please refer to the University’s Delegations Authority for further details. In instances where the Vice-Chancellor or a Deputy Vice-Chancellor or Pro Vice-Chancellor is to sign the agreement on behalf of the University, the following signing clause should be included in agreements:

SIGNED for and on behalf of ROYAL MELBOURNE INSTITUTE OF TECHNOLOGY by a duly authorised officer
in the presence of: / )
)
)
) / ......
Signature
......
Name & Title
......
Witness Signature
......
......
......
Name & Address of Witness
  1. Tenders

Where a contract is to be considered as part of a tender process:

(a)Where RMIT is a tenderer and the tender document contains a form of contract which the University is expected to sign, it is extremely beneficial if you provide the legal office with a copy of the tender documentation prior to responding to the tender. In replying to the tender, RMIT should state which terms and conditions are to apply to the transaction and provide a schedule of departures for matters which you would like to see amended in the agreement. It is very difficult to seek amendment to agreements after the tender has been awarded where the University has not objected to terms and conditions as part of its response to the tender. It is certainly preferable to put the party issuing the tender on notice if the University does not wish to be bound by all of the proposed terms and conditions.

(b)Where RMIT is the party issuing the tender, you should contact the legal office to discuss the project and we can provide a set of terms and conditions which we will require the successful tenderer to be bound by. Those terms and conditions should be included in the tender documentation sent out to tenderers.

Providing a copy of our own terms and conditions (where RMIT is issuing the tender) or responding early to the terms and conditions provided by the other party (where RMIT is the tenderer) allows the University to take a position early on in respect of the terms and conditions to apply to a transaction. This greatly reduces the chances of the other party merely imposing its terms and conditions on the University with no room for negotiation.

  1. Creditworthiness – How to make sure we get paid

Where a party is to pay RMIT under an agreement or where that party agrees to be bound by ongoing obligations to the University (for example, the party gives warranties in respect of its goods and services), it is essential that you are satisfied with the creditworthiness of that party. There is no point in obtaining a warranty in respect of products, if the party become insolvent and is not able to honour any commitment it undertakes to compensate the University if there is a breach of warranty.

Where the party we are dealing with is a proprietary limited (Pty Ltd) company, you can obtain a company search (or instruct our office to obtain one on your behalf) which will provide limited details in respect of the organisation of the company (for example the directors, the share structure and shareholders). Other searches can also be obtained – for example, Dun & Bradstreet reports – which collate publicly available information on companies and assign that company credit risk ratings. When in doubt as to the financial viability of a company, the directors of the company should be required to give personal guarantees in respect of the obligations to be met by the company. Creditworthy enterprises should be happy to provide you with information which supports the financial viability of the organisation (subject to the University agreeing to keep the information confidential).

  1. Year 2000 Problem

You will all be aware of the Year 2000 problem relating to computer equipment and software. You should always consider the implications of that problem when negotiating agreements to ensure that the University is properly protected should computer equipment provided by other parties fail as a result of the turn of the Century. Ideally, goods and service providers should warrant that their goods and/or services (where applicable) will be Year 2000 compliant, and should be prepared to give an indemnity in respect of any breach of that warranty.

  1. National Competition Code

When negotiating agreements, you should also bear in mind the repercussions of the Trade Practices Act (Commonwealth) and Fair Trading Act (Victoria) which prohibit unfair and restrictive trade practices in commercial negotiations.

When we submit a tender, it is important to ensure that the tender complies with the competitive neutrality provision of the National Competition Code.

For further details refer to the Competition Code and Corporate Governance Compliance Manual.

  1. Intellectual Property

In all matters concerning issues of intellectual property, you should ensure that you are familiar with the University’s Intellectual Property Policy so that your negotiations do not conflict with the University’s stated position. In particular, you should be aware that only the appropriate Deputy or Pro Vice-Chancellor can waive any of the policy’s requirements and you may need to take steps to obtain approval for any divergence from the policy.

  1. Insurance

Insurance provisions and requirements should be checked with the University’s Insurance Officer to ensure that any requirements can be met.

  1. Companies, Partnerships and Joint Ventures

Note that under section 39 (14) of the Royal Melbourne Institute of technology Act 1992, formation of any company, joint venture or partnership requires the consent of the University Council. Therefore you should if possible avoid creating such relationships (but note that an agreement whereby parties agree to co-operate with each other does not necessarily create a partnership or joint venture).

  1. Don’t be frightened to negotiate!

The attitude you should adopt when dealing with other parties in respect of agreements is “negotiate not capitulate”. You should recognise the University’s value and what it can offer to clients and customers (where it is to be the service/goods provider). All terms and conditions are capable of negotiation, and if you keep the legal office advised of what you require in an agreement, and where the negotiations are at, we can work together to achieve the best possible outcome for the University.

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