Too often, we consider our purchased service contract’s boilerplate (or terms and conditions) to be routine, inconsequential, and legalese. On the contrary, this contract terminology is the backbone of your contracts, without which it would be difficult to resolve disputes, clarify your positions, and eliminate misunderstandings. Although there are many terms and conditions that are unique to your contracts, there are five key standard clauses that should be a constant in all of your purchased service contracts as follows:
1. Clearly Define Confidential Information: Be sure to detail exactly what comprises confidential information. Don’t leave it to chance! For example, list exact company financial information covered, competitors’ or your pricing, trade secrets, specialized purchasing processes, etc., in your contract terms and conditions as confidential. Also limit access to any confidential information by outlining the steps your supplier must take to prevent staff or third parties from accessing your confidential information.
2. Detail Your Materials and Quality Requirements: We all expect the highest quality products, services, and technologies from our contractors. However, unless you specify type, color, shape, size, weight, etc., you will not be able to hold your contractor accountable for their materials or minimum standard for quality. Further, we are frequently seeing manufactures upgrading their products at a higher off-contract price when there are quality issues with their commodities. To remedy this situation, make sure you require that your manufacturers are not permitted to upgrade their products at a higher price without written permission from your contract department.
3. Include Conditions to Promote Contract Performance: To promote contract performance, include the following clauses in your contracts:
- Performance guarantees
- Financial penalties for delays
- Termination clauses for non-performance
- Suspension or termination clauses for delayed performance
- Escrow arrangement
- Performance bonds
- Rights that allow another supplier to “step in” where the current supplier has failed to deliver
4. Plan for The End of Your Contract: Outline the circumstances under which parties can terminate a contract, and what happens once that termination occurs. For example, does the leased equipment need to be returned or can it be purchased for a dramatically discounted buy-out? Can the contractor’s employees be hired by the hospital after the contract has been terminated? And if so, is there a fee to hire the contractor’s employees?
5. Detail Who Owns Any Intellectually Property Developed: Your contractor may develop intellectual property for you (software, systems, procedures) while working on your project. Your contract needs to assign all rights of these work products to your company. Otherwise, your contractor could own this intellectual property.
Clearly defined contract terms and conditions are one of the most important responsibilities of a contract manager. If contract clauses are left to chance, your healthcare organization could be financially injured by the results. So, envision any problem that could occur with a new contract and make sure that it is remedied by specific terms and conditions. This way, there is little or no wiggle room if an issue arises with your contractor’s services or performance.
P.S. If you would like more ideas like these to improve your purchased services contract management, e-mail me at email@example.com to receive my FREE e-book, “How to Rein In Your Multi-Million Dollar Purchased Services Before They Damage Your Bottom Line.”
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