As China continues transitioning from factory to the world to world’s largest market, our China lawyers are getting an increasing amount of work from foreign companies providing services to Chinese companies. Service agreements are, in many ways, more complicated than product sales agreements in that they typically involve an ongoing and more amorphous relationship. It is easier to write a contract to sell 1000 widgets with xyz specifications for delivery within 6o days via common carrier than it is to write a contract involving a two year project involving 60 people.
This blog has for many years been a member of the LexBlog Network. LexBlog is a Seattle-based company that helps law firms (mostly) blog. It does this by handling or helping with the design of the blog, the technical aspects of getting a blog online and then operating it, and on the content side through consulting advice. I always describe its CEO, Kevin O’Keefe (with whom I have been friends for many years) as knowing more about blogging than anyone else. But I digress.
But I digressed for a reason. One of the many advantages of our blog being a LexBlog blog is that whenever I go to the backend of our blog to write a post, I am confronted with a list of ten blog posts “featured” that day on the LexBlog Network. I love it because it is a great way for me to instantly stay in touch with what other law bloggers are doing. Equally importantly, it often gives me ideas of what to blog on here.
Today’s LexBlog top ten list linked to Five Things to Review in Your Environmental Consultant’s Contract, by the Ohio Environmental Law Blog. What does Ohio environmental law have to do with China? Not much. But the core aspects of a consulting contract are the core aspects of a consulting contract, be it a purely domestic Ohio focused environmental consulting contract or a cross-border computer consulting contract between a US company and a Chinese company. And so I followed the link to see whether there might be some China relevant information and there was. The post listed out “some clauses that may appear in an environmental consulting contract that are worth close review” and what I found interesting about them is that they all apply to a China consulting agreement as well. Here are the five (note that the following was written for the benefit of the company hiring the consultant):
- Limitations on Liability. Most contracts will place a cap on potential recoverable damages if a claim is made under the contract. Not all such caps are unreasonable. However, I regularly see caps that state the recoverable damages cannot be any greater than the fees paid under the contract. With environmental work, claims related to negligence or breach of the standard of care can result in hundreds of thousand or even millions in damages. Limiting recoverable damages to the fees paid is unreasonable.
- Indemnity. Similar to caps on liability, many contracts include “one way” indemnity clauses. Meaning the client must reimburse for damages the consultant suffers as a result of client’s negligence, but no indemnification is provided if the consultant is negligent.
- Ownership/Use of Document. Many contracts state that any documents prepared by the consultant remain the sole property of the consultant. Such language can be broad enough even to include drawings and sampling. If you pay for the documents, you should have rights to use the documents. It is fair for the consultant to include a disclaimer that reuse without their consent is at the client’s sole risk, but an absolute prohibition on reuse is problematic.
- Payment. Pay close attention to the terms related to payment. It is not uncommon for a consultant to quote a price for services, but the contract terms allow them to exceed the quote without getting prior approval. Also, if you expect the consultant to be paid from grants or a special fund, pay close attention to the terms that govern submissions for reimbursement.
- Termination. Standard consultant contract language can try and limit the client’s right to terminate the consultant. Sometimes the language limits a client’s right to terminate only if there is a breach of the agreement. The client should have the right to terminate the contract without cause. If you are unhappy with the consultant’s performance for any reasons, you need the right to get out of the contract.
In most circumstances, it would behoove you to put all of the above provisions in any consulting agreement you do with a China company, whether you are the company hiring a China consultant, or the more common situation where you are the company providing consulting services to a China company. If you are a foreign consulting company doing business with a China-based company, probably the most critical aspect of that deal is making sure that you get paid. For how to accomplish that, I urge you to check out Service Companies In China. How To Get Paid.