Episode: 12 |
Matt Weill:
Consulting Contracts:


Matt Weill

Consulting Contracts

Show Notes

Our guest today is Matt Weill, who is my attorney as well as a good friend.

Matt began his legal career as an Associate at Skadden Arps and then he became a partner at the firm of Golenbock, Eiseman, Assor Bell & Peskoe. Matt is currently with Polsinelli.

His legal practice is primarily focused on business and transactional matters for a wide range of clients, including private equity and venture/growth capital funds and their related portfolio companies and investments.

Matt  routinely counsels entrepreneurs, startup and growth-stage companies and investors in connection with the structuring and formation of new business ventures, private placements, capital raising transactions, and agreements among founders.

Matt has extensive experience working with independent professionals, and for Umbrex he has prepared three contract templates – a contract between an independent professional and a client; a contract that an independent professional can use to engage a subcontractor, and a non-disclosure agreement.

If you email me at unleashed@umbrex.com, I will send those files to you. Please note: these are just a starting point and don’t constitute legal advice – you should get an attorney yourself to customize for your particular situation. That said, these templates can jump start that process and save you time and money.

In the show today, Matt walks us through the contracts, explaining the key things we should watch out for. He also answers questions submitted by listeners, including steps you can take to get paid on time, how to negotiate non-circumvention clauses, and why you should read the fine print of the indemnity clause.

One weekly email with bonus materials and summaries of each new episode:

Will Bachman: Hey there podcast listeners. Welcome to Unleashed, the show that explores how to thrive as an independent professional. Unleashed is sponsored by Umbrex, the world’s first global community of top-tier independent management consultants. I’m your host, Will Bachman.

Our guest today is Matt Weill, who is my attorney as well as my good friend. Matt began his legal career as an associate at Skadden Arps, and then he became a partner at the firm of Golenbock Eiseman Assor Bell & Peskoe. Matt is currently with Polsinelli. His legal practice is primarily focused on business and transactional matters for a wide range of clients including private equity, and venture growth capital funds, and their related portfolio companies and investments.

Matt routinely counsels entrepreneurs, startup, and growth stage companies, and investors in connection with the structuring and formation of new business ventures, private placements, capital raising transactions, and agreements among founders. Matt has extensive experience working with independent professionals. And for Umbrex, he has prepared three contract templates: A contract between an independent professional and a client, a contract that an independent professional can use to engage a subcontractor, and a non-disclosure agreement.

If you email me at unleashed@umbrex.com, I will send those files to you. Please note, these are just a starting point and don’t constitute legal advice. You should get an attorney yourself to customize for your particular situation. Matt made me say those things. That said, these templates can jump start that process and save you time and money.

In the show today, Matt walks us through the contacts I just mentioned explaining the key things we should watch out for. He also answers questions submitted by listeners ahead of time including steps you can take to get paid on time, how to negotiate non-circumvention clauses, or non-competes, and why you should read the fine print of the indemnity clause. I feel much better educated myself about contacts after our discussion, and I hope you find it useful. Matt, thank you so much for joining. I’m really looking forward for our conversation today.

Matt Weill: Happy to be here, Will.

Will Bachman: Matt, you have been my attorney now for several years, and I’ve got to say you’ve always given us awesome, awesome service in terms of quick turn around. I don’t know how you do it. I’ll email you a question, “hey, I got a contract that just came in,” and you’re always quick turn around, and really thoughtful advice. Thank you so much for agreeing to be on the show, and talk through some of the legal aspects that independent professionals should be aware of. Maybe we could start by give me just a couple of minutes on your background, and your firm here, and the type of work that you do.

Matt Weill: Sure, absolutely. I’m happy to be here, Will. My name is Matt Weill. My firm is Golenbock Eiseman Assor Bell & Peskoe. We are a boutique full service law firm in Manhattan. We have about 50 attorneys covering all the major practice areas, corporate, intellectual property, real estate, employment, litigation, tax, so we’re many version of a big firm. We’re largely populated with lawyers who came from some larger shops in the city. I personally started at Skadden Arps. I was in their mergers and acquisitions group for three and a half years or so before coming over to Golenbock. So our model is that we take people with big firm backgrounds and transplant them into a smaller more entrepreneurial environment.

So my practice today consists largely of working with smaller growth companies, independent professionals, and also doing some private equity M&A work as well in the independent consultant world where often on the consultant side representing them in their engagements with larger corporate clients. But just as frequently, we’re on the company side, so we see both sides of the issues that we’re going to be talking about today.

Will Bachman: Fantastic. So, I’ll start a conversation by saying you have kindly prepared for us three sample documents. You’ve prepared a consulting agreement that consultants independent professionals can use with their clients. We have a template for independent professionals who want to engage a subcontractor, and a non-disclosure agreement. And those templates if you email me at unleashead@umbrex.com, I will send you a copy. So we’re going to be talking through those documents today, and just going through the different terms of each one.

Matt Weill: Yap. That all sounds good. The one thing I would add is these are standard template type documents. They should be viewed as a starting point. They don’t necessarily cover everything that your particular situation may require. They do include some drafting notes and some explanatory foot notes, and if you have questions about those documents after getting them from Will, you can feel free to shoot him an email, or after this segment is done I’m sure he can share my information, and I’m also happy to answer any questions you may have.

Will Bachman: Fantastic. Thank you for the disclaimer. I was going to add that, but of course my attorney did it.

Matt Weill: That’s a lawyer talk.

Will Bachman: Of course. Awesome. Oh, and I should also mention some listeners ahead of time sent in some questions so we’ll be incorporating those in the show. So let’s start with the consulting agreement between us, the independent professional, and the client, and go through term by term. So, first one talks about, it just says between the client and us that gives you the addresses. Why do they always ask that, the address? Just to confirm who it is?

Matt Weill: To confirm who it is, and often in these contracts there will be notices provision which says if one party needs to deliver notice or communication to the other party it will do so at a listed address. So, either that’s included in the preamble upfront, or maybe it’s included on the signature page, or in the notices section. But there needs to be someway for each side to know where to communicate with the other side.

Will Bachman: Got it. All right. So then the first section here is just consulting services. It refers to an appendix statement of work. So, something that get attached to this giving the details. Any stuff on that paragraph one, the consulting services, that is worth going out?

Matt Weill: I think it’s just important and this is much a business point as it is a legal point, but to be clear in your statement of work as to what the scope of the services will be. Sometimes it makes sense to be more general because the nature of the engagement is a more general consulting type engagement. Other times you’re engaged for a specific project, or and all delivering is specific work product or deliverable at the end of the engagement. So I think it’s in everyone’s best interest to be clear upfront in terms of expectations around what the services will be.

Will Bachman: Great. The appendix, the statement of work, that we have as a template is pretty general. It just says effective date, and then description of services, individuals perform in work and professional fees. So that would be laid out in the appendix, and in some cases, you might just refer to a proposal document that you’ve already sent to the client.

Matt Weill: Right. I think that’s right. And just stepping back the way this consulting agreement, this form consulting agreement, is set is that it contemplates that there would be an initial statement of work for the initial project. If there is follow on work or a new project for that particular client, this agreement will continue to roll forward, and form the basis of the standard terms and conditions for the engagement. But obviously, the particulars of any future project would be described on a new statement of work, which you can attach or sign off as an additional SOW that’s subject to this original consulting agreement.

Will Bachman: Yeah. In my experience, each client has their own set up, and in some cases all you need to do is just do a new statement of work just pick one or two page with some signatures on it. You don’t have to do the whole consulting agreement again. This contractor, this template, is set up for clients that don’t have their own boilerplate language. Some insist on using their own, but the conversation today will help illustrate the points because the contact is usually [crosstalk 00:08:46].

Matt Weill: Yeah, absolutely. I think the categories of the contract terms that we’re talking about would apply in the client’s standard form as well. I think some of the questions that were submitted from other group members in advance talked about, well, I get these very long boilerplate contracts from a client, or from a large corporate client, are these point negotiable? Do I need to negotiate them? I think it’s hard to answer that question in a vacuum, but I think you should read the standard form contract that you’re provided if there are provisions in there that you view as problematic or just not applicable to your particular engagement. I do think clients generally are receptive to reasonable comments, some more so than others. But I do think you shouldn’t feel bad about asking for changes to a client’s standard form.

Will Bachman: Okay, great. So, see the next paragraph part of two here is the term. So, start date and end date. Anything to call out there maybe around end date? Does that have any legal implication that we should be aware of?

Matt Weill: If you’re going to have a fix term, which this agreement contemplates, you obviously want you end date to be sufficiently far in advance that it allows you to complete all the services that you think you need to complete under the terms of your engagement. Another way to structure these arrangements is to have a more master services type agreement that continues to roll forward and doesn’t necessarily have an end date until one party likes to terminate on some prior written notice to the other party. So there’s two different ways that you could handle this. You could have the stand-alone agreement that’s for a particular engagement, or you can have a standing agreement that will continue to apply for future engagements.

Will Bachman: Okay. Great. Next one is around expenses, and the contract itself, probably not too much that needs to be explained, but we did get one question around, several questions. Several people asked about … One person asked, “Pragmatically, what are the levers that we have to get paid by super slow pay clients?” Sometimes I get to use my contract template, I put an interest charge after 45 days, which I’ve never attempted to collect, but it’s been a useful reminder. What’s your advice from a legal perspective, Matt, on encouraging slow paying clients to get paid?

Matt Weill: I think most importantly you should be clear in your contract as to what the payment terms are. If you’re expecting net 30 payments, you should clearly state in your contract or on the statement of work that the payment terms are net 30, so that will set your expectation up front. Some people at times will try to include a concept of penalty interest if an invoice remains unpaid for some extended period of time. In my experience, larger corporate clients often as a policy will push back on that and say, “That’s just not something we agree to, or XYZ big public company. Don’t worry about it. It’s net 30. It’s net 30.”

But it is a lever that you could try to include, again, to set your expectation that the client really does pay with that 30-day period. If it’s a unique situation where the engagement requires significant upfront time or expenditures on your side, you could consider asking for a retainer upfront. Again, I would say that that’s not the norm. That’s of on a case by case unique situation type basis, but it’s something else to consider.

Will Bachman: Great. And then from a business perspective some tips that are not so much legal in nature is, and in my own experience for the last nine years, number one, some clients will have net 45 or net 60 days, but when I’ve asked for a net 30 I’ve never heard a client say no. When I explain, “Look, I need to pay my subcontractors. I’m just an independent guy. I need to get paid. I don’t have working capital from $100 million bank loan or something.” They always have agreed to that.

Number two, I always ask, “Who in accounts payable should I copy on my invoice when I send it to you?” This is so I establish that line of visibility to the account’s payable group. Number three, I’ll ask someone to, like maybe the assistance, to just confirm receipt and then follow up a couple of weeks later. Not on every invoice, but maybe the first month just to make sure that the accounts payable, and hey, you just checking cash flow, just wanted to know what the estimated payment day is so it’s in their system.

EFT, electronic payment, is usually better so you don’t have checks lost in mails. So I try to set that up proactively and ask if they have a form that you need to fill out because some clients will want a form signed for some reason even if you include your bank rounding info. And then to your point about regularity rather than doing a three-month project and having just the payment at the end, try to structure the contract so you’re doing some monthly invoicing based on percentage of work done, or days worked rather than just some three-month milestone. I think most executives when you’re serving someone senior they don’t want to be embarrassed and not pay you, so copying them if you’re following up usually makes it happen.

Matt Weill: Right, and I think the same thing goes on the expense for reimbursement side. If you are expecting regular expense for reimbursement that’s part of the engagement, it’s important for you to provide for expense reimbursement in your contract, which is normal and customary, and then to actually submit the receipts and the invoices on a regular basis just to ensure that there isn’t a significant lag.

Will Bachman: Great. Okay, so fees. So independent contractors. Next thing is language around it is expressing understood and agree the consultant is an independent contractor. Talk to me about anything related to that.

Matt Weill: Right. This goes to whether or not the person performing the services is classified as an independent contractor versus an employee for tax and labor law purposes. Generally, when we’re working with independent management consultants and independent consultants in other industries, it’s important to be clear upfront that you are not an employee of your client. It’s a multi part test that the IRS and department of labor uses. Generally, it looks to the level of control that the client exerts over your activities typically if you are working for multiple clients and not unique to one particular person or entity. If you’re able to do things on your own timeline using your own equipment. Those are all good factors which suggest that you’re an independent and not, in fact, an employee.

If you’re really doing all of your work for one client for one extended period of time, it’s something to think about, and you should talk to your lawyer or your accountant just to make sure there is no adverse consequence to you. From a tax standpoint, and I’m not a tax lawyer, another disclaimer, but if you’re an independent contractor, generally payments to you will be gross payments. You will be responsible for paying taxes on your side. If you’re an employee, payments to you would be subject to withholding and employment related taxes. So again, just important to be clear upfront that you’re, in fact, an independent contractor and not an employee of the client.

Will Bachman: So, just to recap some of the things that we can do to ensure that we continue to be classified ourselves as independent contractors. I heard use your own computer or your own equipment, potentially be working with multiple clients at the same time, or not for one client for a super extended period of time, use your own email address potentially, work on your schedule, or sometimes at your own location. Are there any other things that-

Matt Weill: To the extent you’re operating through an entity. And I think as a general matter if you’re really in the business of performing independent consulting services, it probably makes sense for you to form some type of business entity whether it’s an LLC or and S corp, and maybe that’s a discussion for another day. But if you’re operating through an entity, make sure you always sign everything through that entity. You’ll be the one signing on the dotted line, but the signatory should be the entity.

Will Bachman: So then confidential information. So we had several questions around this. We build in here, into this contract, a confidential information clause. Talk to me a little bit about that and some things that come up with NDAs.

Matt Weill: Yeah. I think confidentiality can sometimes be a hot button issue on the client’s side. Clients are entrusting you with their secret and propietary important information that’s not necessarily publicly known. And as a condition to sharing that information with you, the client will expect that you keep that information confidential and not use it other than in the context of the services that you’re performing for them. And that’s pretty normal. That’s standard. I wouldn’t say we would typically push back on that concept when representing an independent contractor.

But it is important to clearly define what constitutes confidential information. It’s not every piece of paper that you receive from your client. It should really be information that is not public. So you should always have a cover out for information that is or becomes part of the public domain. It should not include information that was already in your possession or in your control before you started working for the client just because you now go to work for someone if you already knew something that doesn’t now make it the client’s confidential information.

Also, if you independently receive something from someone else, maybe another client that you’re working with, and if, as far as you know, that other client didn’t disclose that information to you in violation of some confidentiality obligation to your other client, again, that shouldn’t constitute, quote on quote, confidential information. One of the questions that came up, I believe, related to enforceability and duration of confidentiality obligations, I think will get to non-competes and non-solicit obligation separately.

But on the topic of confidentiality, courts generally enforce confidentiality obligations. There was a suggestion that there may be some time limit in the United States as to how long these confidentiality obligations could extend. In my experience, confidentiality obligations can extend indefinitely. There is a legitimate business purpose to preserving confidential business information. But, again, I think the way that you mitigate that risk on the contractor’s side is that you have all of the customary exclusions from the definition of what constitutes confidential information in the first place.

Will Bachman: Great. Yeah. So we did have several questions about time limits. They can actually be … You just continue on with no end point.

Matt Weill: Yeah, you often see that and certainly in most any standard form that you get from a client. It would continue indefinitely. It wouldn’t say just for a period of two years after the engagement, or four years, five years after the engagement. Normally, it would just say you will always keep my confidential information confidential. It doesn’t mean you can’t comment on that. Try to limit it on the contractor side, but I think often a client will push back.

Will Bachman: NDAs are the most common thing that we sign, right? What are the cases where any kind of litigation will actually come up around an NDA in practice? Can you give any kind of examples that would help us alert us to things to watch out for?

Matt Weill: It’s hard to pick a specific example. If you’re working with a lot of clients in the same industry, I think that’s where it becomes a little bit more of a sensitive issue. You just need to be mindful of these obligations if you’re an independent consultant working with multiple clients in the same industry. I think it’s one of the few areas that clients and larger corporate clients in particular take extremely seriously.

Will Bachman: Okay. Great. Indemnification. For the longest time, I signed contracts not really knowing what that word meant. Talk about indemnification a little, if I get that word out.

Matt Weill: Right. So, indemnification is an obligation by one party to hold another party harmless for losses, liabilities, expenses that the second party may incur as a result of something. So it will say, “I hereby indemnify Will for any loses he may incur as a result of my breach of this contract or agreement, or as a result of my gross negligence, or wilful misconduct in performing the services,” or something like that. So there’s usually a standard around what the indemnification applies to, and that’s typically a negotiable point.

It’s a risk allocation issue, and has the effect of shifting responsibility for third party claims, as well as attorney’s fees and cost associated with defending most third party claims from one party to another. So, if I was the corporate client then I said, “Well, you need to indemnify me for anything, any loses I sustain as a result of any third party claim that arises in connection with your services.” If I were to enforce that obligation against you I could recover not only my out-of-pocket costs, but also in any attorney’s fees, any cost to pursue recovery against you, things like that which in the normal context would not normally be recoverable.

So that’s the main difference. In the absence of an indemnification clause, if I, Matt, sue you, Will, for breach of contract, under normal circumstances in the United States, I would need to cover my own attorneys cost to bring that claim and collect from you. If I have an indemnification clause that also covers attorney’s fees as part of that claim, I could recover the attorney’s fees.

Will Bachman: So this is actually one clause that could really get us in trouble. If you see a clause that says, “consultant agrees to indemnify defendant hold the company, your client, harmless from liability,” we could be on the hook for massive.

Matt Weill: It’s an important clause to read. I can see consultants giving this and sometimes they do, but it should really be tied to bad acts. It shouldn’t just be that you, the consultant, are indemnifying the client for any loses the client may sustain related to the services you are performing for the client. That’s not a fair standard, right? It should really be if you are grossly negligent, or engage in some type of wilful misconduct, or fraud, or other bad acts in connection with providing the services, then arguably the client, I think, has a right to ask for that type of indemnification.

Will Bachman: Can we limit it someway, maybe limit it to the fees that were paid?

Matt Weill: You can certainly try to limit it in the standard form contract that we’ve prepared for you guys. We have limitations both on the dollar exposure. We try to limit it to the amount of fees under the agreement. We also exclude certain types of damages which could exceed the actual out-of-pocket cost to the client. So for example, punitive damages. Punitive damages are not tied to the actual loses that the client sustain. It’s you are a bad person therefore I’m going to award additional damages. You shouldn’t be on the hook for that type of damage.

Will Bachman: Okay, great. Limitation of liability, and this one is in all caps, so you must have thought that was really important. Talk to me a little bit about that one.

Matt Weill: Yeah. I think this is the same point we were just talking about in terms of capping the exposure of the consultants to the company, and here we drafted it as a two-way clause optically, sometimes when you make things mutual it’s more likely to accepted by the counter party. But basically it says, “In no event is either party liable to the other for lost profits or punitive special indirect, incidental, exemplary, or consequential damage related to this agreement even if the party was advised of the possibility of those damages.”

Again, these are categories of damages that exceed the actual out-of-pocket costs to the aggrieve party. Again, we’re trying to tie it to actual out-of-pocket costs. And the further limitation that we would often try to include on the consultant side is to tie it back to the fees that you were paid under the contract. If you only were paid $50,000 under an engagement, you shouldn’t have potential exposure beyond that $50,000 is the theory.

Will Bachman: Got it. Force majeure.

Matt Weill: Force majeure is a concept. Again, it’s a service provider friendly concept that says if you, the service provider, in this case, the consultant, are unable to perform services because of something out of your control, because there was a hurricane, or a flood, or a computer failure, or something like that, an act of God, then you’re not on the hook, and you’re not liable for any loses, costs, expenses incurred as a result of that act or that occurrence that you couldn’t control.

Will Bachman: Got it. And then there is something about successors and assigns, which that’s kind of … We can probably skip over that one.

Matt Weill: Yeah, I think the rest of the contract for the most part includes standard boilerplate clauses. Obviously, happy to fill any questions that come up on those. The one that has somewhat of a substantive impact is the governing law and arbitration clause.

Will Bachman: Let’s talk about that one. Governing law. We have it right here as highlighted so you can put in your own home state, but the client might want to change it to their home state. What’s your advice either should accept that? What if the client wants to make it some like if they’re London-based and they want to make it London?

Matt Weill: I think unfortunately on this particular clause, the client has a bit more leverage and often times particularly from large corporate clients he’ll get the response that this is our corporate policy. We’re engaging you to perform services for us. In all likelihood, if anyone is going to do something wrong as part of this engagement it’s you not us, although maybe the client doesn’t pay, but you’re the one who’s performing the services.

I think if a client feels strongly about it, we would normally give. I think it’s certainly worth trying for your home state before submitting to jurisdiction somewhere else. If a client is overseas but has a presence in the states, you might offer a neutral third party forum like Delaware, which has a robust corporate law, a sophisticated bench that is experienced in interpreting commercial contracts and commercial contract claims. Sometimes offering up some mutual forum like that might be better than, for example, submitting the London jurisdiction.

Will Bachman: Got it. What about the arbitration piece?

Matt Weill: Yeah. I think arbitration versus settling disputes in courts is … Different practitioners have different views on this. Originally, arbitration was viewed as a somewhat more streamlined, more confidential, and, at times, more cost effective option than doing [inaudible 00:28:24] litigation. I think overtime if I were to converse my litigation group here, half of them would say that arbitration is actually close to the same cost as a litigation, and could take the same amount of time as a litigation. Other ones still prefer arbitration. So I think on balance, people still prefer arbitration as a dispute resolution mechanism for commercial contracts. But I think it really just depends on the circumstances.

Will Bachman: Okay. Got it. Now, sometimes we don’t have it in our suggested template here. But sometimes the client will ask you to sign their boilerplate contract, and there’ll be some insurance requirements in there. Sometimes the insurance requirements might be $5 million or $10 million, or some number more than most independents have. What’s your advice on that? How flexible have you seen companies be on reducing those if you push back and say, “Hey, I have insurance but it’s like a $2 million limit, or it’s a $1 million limit”?

Matt Weill: I’ve seen clients be flexible, but I have seen other clients that are not flexible, and again, take the position that we deal with many vendors, and many consultants and many contractors, and we really need to have consistency across the board, and this is a corporate policy that was put in place that our vendors need to have X levels of insurance. I think from a planning stand point, if you know the types of clients that you’re looking to go after, or that you have worked with overtime, understanding upfront what their insurance requirements are and getting that level of insurance is probably the best proactive way to address that issue.

Obviously, you don’t want to be carrying $50 million of insurance coverage if it’s going to be cost prohibitive. But if you know that all of your clients are going to require that for some reason, if you can know that upfront and price it out, that’s probably a proactive step that you could take.

Will Bachman: Okay. Great. Let’s go onto the subcontractor one. So the subcontractor template let’s talk through that. But maybe let’s just jump to the question that most people had about, in this case, really instruction so that either if for independent professionals who are going to be asap contractors to somebody else, you can pull this out if the person doesn’t have one, or if you’re engaging a subcontractor. So it’s really for either party, and I think you try to make it pretty fair both ways.

Matt Weill: Yeah, I think it’s pretty fair and down the middle. If anything, it’s a little more favorable to someone who is engaging asap contractors as opposed to the subcontractor itself. So if you’re the subcontractor and you wanted to present your prime contractor with a template form, I’d recommend that you reach out to Will and we could talk about creating a version of this that’s maybe a little bit more subcontractor friendly, but it is fair down the middle, and it includes all the provisions that you would expect to see in a subcontractor agreement.

Will Bachman: Agreed. So, the most common question that people have, I think, is around the non-circumvention. Let’s say that I am going to go get a project through an intermediary, through one of the brokers, one of the firms serving as a broker. Let’s say it’s a big firm company, I don’t know, Pfizer. Often the boilerplate standard that they might have is you can’t serve Pfizer for the next two years without going through us. And if I were a pharma guys, come on, I’m known in the industry. What’s your advice there for somebody on negotiating that kind of agreement?

Matt Weill: There is a threshold question about enforceability of that type of restriction. I think that’s really … It’s hard to give a blanket answer regarding non-compete or non-circumvention enforceability. The legal test is whether or not you’re protecting a legitimate business interest, whether there is adequate consideration for the covenant, and whether the restrictions are reasonable in duration and scope. So that’s a legal framework. But within that framework, it really depends on the context.

I think obviously there are different levers that you can pull here. The duration of the obligation is one obvious one. If the intermediary is requesting two years or 12 months, obviously you can try to push back and ask for six months or nine months, or something like that. If they’re trying to exclude you from an entire industry, in my view, that’s unreasonable if you’re in the business of providing independent contractor services, and your expertise is in that particular industry. I would never advice a client to sign that type of non-circumvention that says, “Within this entire pharmaceutical industry, for two years I will only accept engagements that are sourced by these intermediary.” To me, that’s just not a reasonable standard.

And even within a large corporate client like Pfizer, I think to say that you will not do another engagement with Pfizer unless through this intermediary, I would often try to push back on that and I would try to say, “I won’t do a follow on engagement for this particular group within Pfizer. Or maybe I won’t work for this particular group or division within Pfizer for the one year or six-month or whatever period.” But look, these are important issues and they go to the heart of your business model, which is to be an independent contractor, so I think you need to review these types of restrictions carefully.

Will Bachman: Yeah. I guess my point of view on this from a business perspective is that, number one, intermediaries are creating value. So they deserve to have some period of non-circumvention. And I’m happy to grant that one. I’m getting staff by one of them. I’d also say that they ought to be flexible to something, come to something that’s reasonable. So, if I were going to be working with Pfizer Oncology in the US, then to your point we would limit it to fall on work either a direct follow on project with the same content, or even some unrelated project if it’s serving the same executives in that group.

But if it’s something completely some other therapeutic area that just because I’m a pharma guy in that space, then I wouldn’t have to go through them. I think if you have that discussion upfront to limit the scope, people are usually pretty reasonable about limiting it.

Matt Weill: And in my experience they’ve been pretty reasonable as well. Another iteration I don’t often see this, but I have seen it a few times, is a clause that doesn’t restrict you from working for that client, or for that division of the client, or within that industry, but which says that if you separately accept another engagement that’s not through the intermediary that you’ll share some portion of your profit from that engagement. So it’s kind of like a profit share or revenue share rather than a blanket restriction on your ability to accept other engagements so then you, sitting at the table thinking about whether to accept the engagement, could say, “Is it still worthy it for me to do it if I have to give 25% away to XYZ agency or intermediary?” Again, I don’t often see that, but I have seen it come up in a couple of contexts.

Will Bachman: Yeah. And then one piece that I would encourage people to request or demand is that it’s one thing for that intermediary to restrict you from working with Pfizer Oncology US, but if a different agency independently comes to you and independently sources an opportunity with that same group, then you should have an exception for that situation because it’s not like you’re trying to circumvent them and call up the executive two months later and say, “Hey, I’ll work for you direct.” Someone else independently got a mandate, and is now giving you room. You shouldn’t be prevented from taking that.

Matt Weill: Yeah, now I think that’s a very, a very fair and a reasonable ask. The other one that I’ve seen a couple of times and I think when Will and I were chatting before the podcast began, he hasn’t had much success with this argument, but sometimes I’ve seen contractors argue with the intermediary that the restriction should fall away if your intermediary don’t source new projects from me within some period of time. So yes, I’ll agree not to work with Pfizer in Will’s example for six months, but if within the next three months you haven’t sourced another project for me, I shouldn’t sitting on the sideline if there is really no … If the value that I thought you were giving to me is not actually there.

Will Bachman: Yeah, you can definitely ask. Let’s flip to the subcontractor agreement. Let’s see scope of services, that’s pretty much the same thing. Incorporation of prime contract, fees and expenses.

Matt Weill: Yeah, I think on those first ones. Well, the main point is if you are the prime contractor, if you’re the one who has the relationship with Pfizer but you need to bring in a subcontractor, it’s important that your subcontractor understands what obligations you will have to Pfizer. So, whether you give them the full contract with Pfizer or not, or share the full statement of work, you’re basically on the hook for the subcontractor’s performance, so you need to make sure that they’re adhering to whatever standards you have agreed to.

Will Bachman: I see. So, they are taking that on. If the master service agreement that we just talked about before has staff around IT requirements, or non-disclosure and everything, this incorporates that by reference.

Matt Weill: Correct.

Will Bachman: But then that commits the prime contractor of making sure maybe you cut out some of the fees or whatever, but you should provide that document to your subcontractor so they are aware of what your restrictions are?

Matt Weill: Correct.

Will Bachman: Okay. Let’s see. Fees and expenses.

Matt Weill: Yeah, I think on the fees and expenses when dealing subcontractors, ideally you as the engaging prime contractor don’t want to be in a position where you need to pay the subcontractor before you have been paid by the client. So, what the model contract contemplates is that basically once you are paid by the client, you’ll pass through the applicable portion of that fee to the subcontractor so that you don’t have a timing issue where you’re out of pocket before you’ve actually been paid.

Will Bachman: Yeah. And I’ve personally been on both sides to that. I think as a subcontractor, it seems reasonable. If I’m working with another member of Umbrex who might have engaged me on a project, I don’t expect them to have the working capital to pay my monthly invoice. Term and termination. This includes the possibility that something might end early, and we didn’t really talk about that on the other contract. Talk to me a little bit about early termination and your thoughts around that.

Matt Weill: Yeah, I think it cuts both ways. Sometimes the client wants an ability to terminate early for whatever reasons. If the project isn’t going as planned, or if there is a change of direction in terms of internal corporate strategy, hard to know, but sometimes clients want that flexibility. The key points to negotiate in that circumstance are what fees are payable upon a termination. Sometimes it’s easy and clear because it’s calculated on an hourly basis or a weekly basis, or something like that so you can do a prorated calculation. If the engagement is more deliverables based and you haven’t yet gotten to a particular deliverable, you need to think about what the appropriate termination payment should be if a party has a right to terminate early and does terminate early. So I don’t think there is a one size fits all, but it’s an issue that you should think through.

On the subcontractor side, again, I think as the prime contractor if it’s not working with the sub for whatever reason, they’re not performing up to your standards, the client doesn’t like them, whatever it is. Again, ideally, you want to preserve flexibility to remove that person and bring in someone else to perform the similar services or perhaps for you to step in and perform them yourselves. So the standard contract that we’ve provided gives you that ability. And again, the question is just if there is an early termination, what payments need to be made.

There have been times I’ve seen, again, it depends on the type of project, I’ve seen early termination penalties so that it’s not just time and expenses through the date of termination. It’s also some additional payment the theory being that I, Will Bachman, have lots of great opportunities, but I chose to go with this particular client because I thought it was going to be a six-month project, and I thought I was going to provide for this revenue stream over that’s six months. If you, in fact, have a right to terminate early and you do in month two, I might not be able to get another replacement project immediately, so I should be compensated for that.

Will Bachman: Yeah. That’s true. I guess my own personal philosophy on that, maybe it’s stupid, has been to have the feeling that, you know what? I’m in the client’s service business and if I’m not adding value then I don’t want to stick around, right? I guess I’ve personally, usually been willing to accept very liberal from the client’s perspective termination clauses and say, “hey, if this thing isn’t working out or you’re not getting value, you can call it quits at any time,” which puts me at risk.

Matt Weill: Right. I think it’s a business decision. I think a lot of people in your position take that same view. But there are situations where maybe in your own mind you are adding value. You’re doing a great job, but for factors beyond your control have caused the client to discontinue this particular project and then, again, you’re the one at risk in that situation.

Will Bachman: Yeah. Or if you put a lot, or maybe you discounted your fees or something because you thought it’s going to be six months, and then with study utilization. So that would be certainly a reasonable situation to have some clause. Let’s see. So we talked about termination. I guess we talked about the non-circumvention already.

Matt Weill: Yeah, and the other point, that particular section of the subcontractor agreement is called the availability and non-circumvention. So the first part, the availability, again, if you’re the prime contractor engaging the subcontractor you want to make sure that the subcontractor sets aside enough time to be able to do whatever it needs to do for you.

Will Bachman: Right, that’s the concept. Confidentiality works for higher, that sounds sort of like the confidentiality clause we had before.

Matt Weill: Yeah, similar to the confidentiality clause we had before. The work for hire piece we did touch on in the form consulting agreement. The concept here is around intellectual property rights, and typically a client would expect that the work product that you create for them would be owned by them, the client. Pretty standard. Normally not an issue, and normally nor a highly negotiated part of the agreement unless you’re a contractor with, let’s call it, unique expertise, or if you’re bringing some of your own preexisting intellectual property to the engagement, or if you’re creating a deliverable that you, the contractor, want to be permitted to use with other clients, or in your own business. If any of those situations apply, you need to take a careful look at these clauses and make sure there are cover outs, or there are clauses that allow you to continue to use the preexisting intellectual property that you’re bringing to the engagement.

Will Bachman: Got it. Then we have an indemnity clause here. So, certain representations, warranties, agreements indemnity.

Matt Weill: Yap. Again, this is drafted more from the prime contractor’s stand point. So, the form contract includes representations and warranties by the subcontractor. For example, the valid execute and deliver the agreement that they have the professional capacity and expertise to perform their requested services, services that they perform will not infringe any third party patterns, copyrights, trademarks or other intellectual property et cetera, et cetera. The purpose here is, again, just to provide the prime contractor with some protections, some added protection, if, for some reason, the subcontractor would trip up one of these representations or warranties.

Will Bachman: Got it. Let’s see. And then there are some miscellaneous clauses that actually is titled miscellaneous. Any of those that you want to highlight?

Matt Weill: I think these are similar to the boilerplate clauses that were included in the form consulting agreement. Again, there is a corresponding governing law and arbitration provision in the form template that we provided. It includes New York. But obviously, that depends on where you, the contractor, are located, where the subcontractor is located, where the client is located. But otherwise, it’s pretty much standard boilerplate type provisions.

Will Bachman: Great. So, Matt, I’ve got to admit for a number of years, I worked without an attorney and just use my common sense to read these documents, and I probably signed some things I shouldn’t have, but [inaudible 00:45:22] everything worked out okay. But you’ve been super helpful the past couple years. It gives me more comfort to make sure that someone who knows the stuff is checking documents.

So, one, I’d like you to give me your contact info for anyone who’d like to have a conversation with you, and also maybe for someone who’s in another part of the country. What would your advice be, let’s say, after you’ve asked some friends and got a couple of referrals, which is probably the first step? How do you do due diligence on attorney? What the questions you should ask to gauge to pick among a couple good options?

Matt Weill: So, I think it’s a good question. I think at the outside referrals from people that you trust is a very important first step. If it’s a referral from some who is in your industry, all the better, or someone that you’ve with then that’s great. When you’re interviewing the attorney, and I do think it’s important to interview multiple attorneys, you don’t want to overwhelm yourself and interview five or six, but maybe you can narrow it down to two or three.

I think understanding their client base, who do they with? Do they work with people like you, or would you be the only type of this particular client for them? A lot of attorneys, particularly business corporate transactional attorneys will say that they can do anything. They’re a jack of all trades. To some extent, that’s true. But I think getting someone with industry’s specific expertise often is helpful, and someone who works with clients of your type and of your size is helpful.

The heart of necessarily fill this out as part of due diligence, but I think responsiveness is a very important quality of an attorney. So maybe press on that in your questions and say it’s really important. Often times I have a question that needs to be answered in the same day. Is that something you can do? Is that something that I should expect? And just see what their answer is.

Obviously, fee structure is important. If you’re a small business, you may be called sensitive, and just understanding what the hourly rates are, what their billing practices are, whether you’d be working principally with a partner or with an associate, and how they staff their projects. It’s helpful to understand that.

I started a very large firm. I’ve dealt with big firms and small firms, and it really varies. Sometimes if it’s a small matter, it just doesn’t get the attention that it deserves at the partner level, and you get stuck with a more junior attorney who may be less experienced. So I think pressing on that topic is helpful.

And lastly, maybe I’m a little old school, but I think meeting in person is good. Even if you go in and meet for 15, 20 minutes, I think seeing the person face to face, seeing how their demeanor is, and whether you interact well with them, and whether you have complementary personalities I think that’s good and important. Then I think at the end of the day whether it’s an attorney or anyone else you want like the people you’re working with, both respect their professional capabilities, but also enjoy working with them, and I think meeting someone helps you answer that question.

Will Bachman: Fantastic. And Matt, how could people find you online, or what’s the best way for people to get in touch with you?

Matt Weill: I can be found on my firm’s website, which is www.golenbock, G-O-L-E-N-B-O-C-K, .com. Website includes short bio of me as well as well as all the other attorneys here, as well as some information about the firm more generally. My personal email is mweill, M-W-E-I-L-L, @golenbock.com. My phone number here is 212-907-7317, and I’m always happy to answer anyone off questions that anyone may have.

Will Bachman: Fantastic. And in terms of you talk about responsiveness that you have been awesome at that. I can’t thank you enough for the help of the years where I’ve asked you a question and you get back to me an hour and a half. It’s always such a good feeling. Matt, this was super helpful. It was a lot of fun going through this, and understanding these contracts in more detail, and I’m sure a lot of our listeners will appreciate it. Thank you so much for joining.

Matt Weill: My pleasure, Will.

Will Bachman: Thanks for listening to this episode of Unleashed, the show that explores go to thrive as an independent professional. Unleashed is sponsored by Umbrex, the world’s first global community of top-tier independent management consultants. The mission of Umbrex is to create opportunities for independent management consultants to meet, share lessons learned, and collaborate. I’d love to get your feedback and hear any questions that you’d like to see us answer on this show. You can email me at unleashed@umbrex.com. That’s U-M-B-R-E-X,.com.

If you found anything helpful, it would be a real gift if you let a friend know about the show, and take a minute to leave a review on iTunes, Google Play, or Stitcher. And if you subscribe, our show will get delivered to your device every Monday. Our audio engineer is Dave Nelson. Our theme song is composed by Gary [McGarry 00:50:44], and I’m your host, Will Bachman. Thanks for listening.

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