Blog

What is the purpose of an indemnity bond?

An indemnity bond (also called a surety bond or fidelity bond) is a form of insurance purchased by one party to a contract as a means of compensating a second party to the contract, should the first party fail to deliver on its promises or perform its obligations.

The bond is guaranteed by a third party (usually a bank) which agrees to pay the second party if the first party defaults.

Under what circumstances would an indemnity bond be used?

There are many scenarios in which an indemnity bond might be required by one or more of the parties to a transaction. For instance, bid bonds are commonly used in situations where projects are offered through a bidding process.

Bid bonds ensure that the successful bidder follows through on the promises set out in its bid. Payment bonds are used extensively in construction projects to guarantee that the general contractor pays all of its subtrades and suppliers, to protect the project owner against exposure to lien claims.

An indemnity bond could be used to avoid double payment by a company redeeming its shares in the event of a lost share certificate, or to indemnify a freight carrier for delivery of a shipment of goods if the bill of lading is lost.

Is an indemnity bond the same as a personal guarantee?

No. These are two different types of obligations.

A personal guarantee (or guaranty) is a promise to pay the indebtedness of a corporation or business if it becomes unable to meet its financial obligations, up to the full amount of the debt.

An indemnity is a promise to protect the indemnified party against any losses it may suffer in connection with the transaction, without limit.

Do I have to get a lawyer to prepare the bond?

No. You can purchase a bond from any financial institution or insurance company. But you should review it with your lawyer so that they can explain exactly what the legal implications are.

Image by Dimitris Vetsikas from Pixabay

What You Should Know When Drafting Your Own Consulting Contracts

If your business hires outside consultants, it's important to learn how a consulting contract is structured. And if you're a consultant yourself, you'll want to know how to prepare your own agreements with clients to cut down on your legal fees.

While people often assume you need to have an attorney draw up your contracts, if you acquaint yourself with the various provisions that are included as standard elements in a consulting agreement, you should be able to confidently draft your own contracts.

The terms of the contract should be discussed and agreed to verbally first, before putting it in writing. It might be a good idea to prepare a Letter of Intent first, to make sure that both parties are on the same page before you enter into a formal written agreement.

The Elements of a Consulting Agreement

1. The Preamble. At the top of the first page you will set out the full legal names and a brief description of each party, and a summary of the parties' intents and the purpose of the contract. This is referred to as the preamble.

2. Services to be Provided or Excluded. Fully describe the scope of the services that the consultant will provide, either in the main body of the contract or in an attached schedule. If certain services are specifically not included, these exceptions should be clearly set out. All deliverables, completion dates and deadlines should be listed.

3. Employees and Contractors. If more than one person will be providing consulting services, identify them and how they are related, i.e. which ones are employees and which ones are independent contractors retained by the consultant to assist with the project.

It may be helpful to include an organizational chart with each person's name, position and job description, and the reporting hierarchy. Each of these persons should agree in writing to be bound by the terms of the Consulting Contract.

4. Qualifications. The consultant's qualifications should be described, or if the parties prefer, the consultant can make representations to the effect that he/she is fully qualified to provide the services.

5. Term and Renewal. Define what the term of the agreement will be. If it is project-specific, clarify the circumstances that define completion of the project.

• Is the contract ongoing and open-ended?
• Is it a project-specific contract that will end when the project is completed?
• Is it a one-year arrangement?
• If there is a renewal option, does it renew automatically or will the parties negotiate a new contract before the old one expires?

6. Contract Price. The contract price should be clearly set out. You also need to be very clear about:

• The amounts of periodic payments and the dates on which they are due. If payments are tied to the completion of certain milestones, those milestones need to be clearly defined.
• The method of billing by the consultant (weekly, monthly, etc. or whether invoicing will be done periodically as milestones are accomplished).
• The method of payment by the customer. State if payment is net 30 after the date of the invoice or within a specified number of days after a deliverable is delivered or a milestone is reached.

7. Invoices. If an invoice is required to initiate the payment cycle, it's advisable to include a description of the invoice format or attach a sample invoice as a schedule.

8. Approval Process. Describe the procedure for approval and acceptance of each phase or deliverable, as well as the procedure for revisions if any are required.

9. Contract Extras. Describe how changes or additional services can be requested by the customer, the additional amount that must be paid for those extras, and when and how it must be paid.

10. Currency. Be clear on what currency is the basis for the amounts quoted by including a paragraph like this one: "All amounts required to be paid under or in connection with this Agreement shall be paid in lawful money of ___________ (name of country)."

11. Expenses. Detail which expenses will be paid by the customer, what proof is required for reimbursement by the customer (e.g., receipts), any maximum limit on expenses, and which expenses or amounts require the customer's prior approval. Clarify whether expenses will be included as line items on the regular invoices or if they will be billed separately.

12. Reporting. What kind of reports will the consultant be required to deliver, how often and in what form? This should all be clearly established in the contract.

13. Ownership. Be very clear about who will own the work product, including any intellectual property rights included in that work product. If the contract is made on a work-for-hire basis, the customer should be the owner of the work product and IP rights.

14. Insurance. Will the consultant be required to carry E&O / professional liability insurance during the term of the agreement? Make sure the insurance provision establishes the amount and type of coverage to be maintained.

15. Termination. This section should set out:

• the grounds on which the contract can be terminated by either party, and
• the procedure for termination, including:
  • the length of notice period required,
  • the form of notice (typically in writing) and how it can be given (by fax, personal delivery, registered mail, etc), and
  • what information must be included in the termination notice (reason for termination, date of termination, and methods by which the non-terminating party can remedy the situation and avoid termination),
  • what happens to work that is already underway,
  • payment of unbilled or unpaid amounts, and
  • which provisions of the agreement will survive the termination. This could include such things as confidentiality restrictions, intellectual property rights, and licensing arrangements.

16. Dispute Resolution. Include a provision to deal with how disputes arising out of the agreement will be handled, such as having the parties agree to submitting disputes to binding arbitration or a third party mediator. It should also include the legal remedies available to each party.

17. Governing Law. Clarify the jurisdiction which governs the agreement (eg. "This Agreement shall be governed in all respects by the laws of _________________.").

18. Notices. Provide an address for each party for service of notices and other communications. If copies are to be provided to attorneys, accountants or other advisors, include an address for each of these persons as well.

19. Confidentiality. Include confidentiality provisions in the consulting contract or, alternatively, have the consultant sign a separate Confidentiality Agreement, make reference to it in the contract and attach a copy as a schedule. The confidentiality provisions should survive the expiration or termination of the contract. Clarify what the legal consequences will be for disclosing any confidential information without consent.

20. Non-Competition. Consider whether to include a non-competition clause (also called a "non-compete"), which restricts or limits the consultant's ability to perform similar services for a client's competitors (or its customers) during the term of the contract.

21. Entire Agreement. Make sure that all items agreed to verbally are set out in writing in the agreement. And include a standard clause that says the agreement supersedes any other verbal or written agreements between the parties and that no modifications or amendments are binding unless they are in writing and signed by both parties.

22. Limitation of Liability. Limit your liability to the extent legally possible. You cannot completely eliminate or avoid liability, but you may be able to limit the amount an unsatisfied client can claim to a reasonable amount, such as the amount that the client has paid under the contract plus attorneys' fees.

The contract should specifically prevent recovery for consequential damages. Include your employees and subcontractors under the limitation of liability clause to reduce their exposure as well.

Important Points to Remember When Writing a Consulting Contract

Ensure that you understand what you're signing.

Both parties should review the contract with a legal advisor and ask for explanations of any clauses that are not completely clear. Whether you're the client or the consultant, you should not sign anything unless you fully understand what you're signing.

Spread out the payments.

If the contract is for a lengthy project, don't agree to wait until the end of the contract term to get paid. Split the payments up over the duration of the contract.

Avoid overly restrictive non-competition provisions.

If a non-compete provision is included, you must ensure that it does not unfairly restrict the consultant's ability to earn a living in his/her field of expertise. This can result in the provisions being struck down in the courts. For instance, in California courts non-competition provisions are very likely to be deemed invalid. And in most other jurisdictions the more restrictive the provision is, the more likely a court will strike it.

Be careful of the wording of the ownership clauses.

The ownership provision should be worded so that it does not give the client title to ALL work performed by the consultant during the term of the contract. This could be interpreted by a court as giving the client title to work performed for other clients. You should get legal advice on this subject to ensure that (i) your rights are protected and (ii) other parties' rights are not infringed upon.

Renegotiate any prohibition about assigning the contract.

You should be wary of provisions that unreasonably restrict the consultant from assigning their interest in the contract or from subcontracting any of the work. Renegotiate this with the customer to ensure that the contract allows for assignment with consent, which should not be unreasonably withheld.

Conclusion

Almost any contract - even a "standard" form contract - is negotiable. If you're signing someone else's standard contract and any condition or provision of that contract makes you nervous or uncomfortable, it's your responsibility to bring it up.

Remember: Don't sign anything until you're satisfied with it. Review it with your lawyer, who can then assist you in negotiating a more favorable arrangement.

_{Image by Aymane Jdidi from Pixabay}

A deed of trust might make it easier for you to get a loan to purchase your new home than trying to get a traditional mortgage from a bank. That's because you're basically giving over the deed to the property to the lender as security for the loan. But not all states allow the use of deeds of trust.

A parental consent letter, stating that the adult in charge has the parent's or guardian's permission to travel with the child and authorizing him/her to make decisions on behalf of that child, is now essential - especially if traveling out of the child's country of residence. It should be signed by every person who has custodial rights over the child.

Many formal proceedings and applications require you to swear an affidavit under oath (or make an affirmation) as part of the documentation. Some examples of this are: obtaining a passport, proving service of legal documents, getting a mortgage or other type of loan, changing a title deed after a name change following marriage or divorce, and selling assets.

Every business partnership, no matter how good the relationship, has the potential to end in dispute. So long as the parties agree on significant matters, minor disagreements generally resolve themselves. The best and most proactive way to attempt to resolve or avoid potential conflicts and to minimize the costs involved in conflict resolution is to have a Shareholder Agreement in place to deal with significant business issues before they arise.

Many web developers prefer to create their own Website Development Agreements for clients. Do you know if your agreement template addresses all of the key issues it should? This article provides a checklist of the provisions that you should be including in your standard form agreement.

At a bare minimum, you need to include clauses that cover:

• who owns the website and content after the work is completed,
• protection of intellectual property rights for any software or resources used in building the site,
• detailed description of the various development phases, and what constitutes completion of a phase,
• functionality testing procedures,
• resolution of problems that arise during the development process,
• covenants, warranties and undertakings given by each party,
• confidentiality (non-disclosure) provisions to protect the parties, and
• what types of ongoing support will be provided.

1. Clearly outline the project specifications and development phases.

• Provide detailed specifications for the design of the website, which will then serve as criteria for final testing of the website to determine if the specifications have been met and if acceptance of the website is warranted. The specifications must be approved or modified by the client before work commences on the development of the site.

• Clearly define the developer's performance obligations to avoid any ambiguity between the parties. Clarify how extra work will be approved and billed.

• If the project warrants it, the Agreement should contemplate appointing a project manager to oversee and coordinate the development and to be the point of contact with the client.

• Set out a timetable for development / performance milestones and for progress meetings at key points in the timetable, and include the payment schedule attached to those milestones and key points.

• List all deliverables and resources required from the client and the times at which these are required. Include provisions which cover the implications if the client is late in delivering these items, i.e. how it will affect the timetable and completion date. Clarify what happens if a milestone is not met or the completion date is missed through no fault of the client.

• Ensure that the Agreement allows you to subcontract any part of the development services if necessary.

• The developer's performance obligations should include providing documentation and source code for all software used during the process.

• The Agreement must be flexible enough to allow for changes to the site specifications, and must also clarify how those changes will affect the timetable and development costs.

2. Make sure all parties agree on what is included in the contract price and how payments are to be made.

• Include everything that is included in the price, such as software licensing fees and applicable taxes.

• Payment should be tied to performance milestones. At least 1/3 of payment should be held back until the website has been thoroughly developed, delivered, tested and accepted by the client, and the website is ready to go live.

• There should also be a further holdback (10%-15%) for a reasonable period following acceptance to ensure that all defects have been detected and fixed.

3. Specify who owns the website and the elements.

• Unless otherwise agreed to with the client, the Agreement should expressly provide that the work done under the Agreement is a work-made-for-hire, and that all content, graphics, domain names, files and the look-and-feel of the site (together with all underlying code, software, digital programming) are the sole property of the client. A copyright notice should be displayed on the website.

• For greater certainty, the developer should sign over all proprietary rights in the work to the client under an assignment provision. Unless the developer is an employee of the client, the developer must convey copyright ownership to the client in writing in order for the client to acquire all rights reserved to the author under the copyright laws.

• Clarify whether the developer retains any rights to use any materials or software created during the development.

4. Cover all applicable hardware and software considerations.

• If the developer is providing any of the hardware, are any manufacturer's warranties being provided?

• If the developer is using any proprietary software in the development of the website, include provisions for the client to be able to license the software and access the source code in the event that the relationship between the parties is terminated or the developer goes out of business or becomes otherwise unavailable. The license granted to the client should be perpetual, royalty-free, irrevocable and worldwide, and should be transferable.

• Is any third party software or material (such as graphics) being used in the development? Have the required licenses / consents been obtained? Who is responsible for, and who pays the costs for, obtaining them? And who is liable for the performance of that software?

5. Clarify how third party infringement claims will be dealt with.

• Each of the parties should provide warranties that none of the material they provided infringes any intellectual property rights or other proprietary rights of any third party.

• There should also be mutual indemnification by each party of the other party.

• The developer should carry adequate liability insurance coverage to protect against third party claims.

6. Include confidentiality and non-solicitation provisions.

• The Agreement should contain confidentiality clauses to protect each party's confidential information and proprietary data.

• The Agreement should also contain a non-solicitation provision barring either party from soliciting the other's employees during and for a reasonable period of time following completion of the project.

• If either party wishes to refer to the relationship in its marketing materials (including putting the developer's name and/or link on the website), this should be agreed to in the contract.

7. Ensure compliance with laws and regulations.

• If the website collects any personal information from site visitors, all applicable local and international privacy and data security laws must be complied with.

• If the website is an e-commerce site which will be processing payment transactions, PCI compliance must be included in the scope of services.

• The website must contain all the required notices and disclosures for users (privacy, use of personal information, cookies, copyright, etc.)

8. Include liability provisions.

• Each party should indemnify the other for any loss or damages arising as a result of such party's breach of its obligations. The liability should be limited to the total of the fees paid by the client under the Agreement.

• Each party should indemnify the other against third party infringement claims with respect to content, material or resources supplied by that party.

9. Outline the specifics for website functionality.

• The Development Agreement should clearly specify the anticipated functionality of the website, including page load times, connection speed, mobile friendliness, download speed, number of simultaneous connections and response times for user requests, compatibility with all Internet browsers, security protocols, checkout and payment systems.

• The functionality provisions should also cover integration of the site with the client's existing data server structure.

• The client must be able to make changes to the website without interfering with the site's operation or functionality.

• Website functionality should also include the procedure for accessing, recording and compiling user data and analytics.

10. Include provisions governing installation and acceptance testing.

• The developer is responsible for transferring and installing the site and all associated software and files on the client's web server.

• The Agreement must address the following questions:

• Who will take responsibility for acceptance testing?

• Who will determine whether the testing has been successful?

• Will acceptance testing occur in stages?

• The client should have the right to reject the website if it fails to meet designated specifications and does not pass the acceptance tests.

11. Each party should provide specific warranties.

• In addition to the developer's warranty that there are no infringing materials, the developer should also warrant that the website will be delivered free from all known viruses and material defects, and will conform to the specifications. There should be a reasonable period of time allotted to resolve any defects or shortcomings.

• The client should provide a warranty that it is in full compliance with all applicable legal, financial and data protection matters.

• Determine how long the developer's warranty should be in effect, and set out the start date and end date.

12. Specify the types of ongoing support that will be provided.

• Determine whether the client will require training (e.g. html, CMS functionality, back-end administration, etc.) and if so, whether and for how long the developer will provide that training, and at what cost.

• Will the developer be providing support and maintenance after completion? Is this tied to a warranty period? If not, then consider signing a separate support and maintenance agreement.

• Determine the service level requirements, the costs to be billed to the customer, and billing and payment schedules.

Image courtesy of Pixabay.com