Many times clients will reach out to me with a dilemma of having negotiated an agreement and realized their lack of clarity has caused penalties and/or delays in getting their project completed–and most importantly getting paid. Or what happens is they inadvertently negotiated rights away they intended or needed to keep. So without further ado, here are a few mistakes to know and to avoid when entering into contract negotiations.

 

Mistake 1: Not having a schedule/timeline or milestones

If there are delays in completion of the project, that may delay payment until the project is completed. The mistake I see most often is pinning final completion of the project on payment for the services. There is an easy way to prevent this from happening.

The solution is to make sure you have a development plan that is clearly laid out with detailed timelines and milestones that will drive the completion of each phase of the project and will trigger payment accordingly. The milestones will help both parties to agree up front on what the milestone achievements are so there is no misunderstanding/disagreement on completing each phase of the project and payment for that phase of the project.

In my personal experience I’ve had companies come to me without any defined steps or stages in-between, and now it’s already done and they’re running into problems, and they come to me to resolve the dispute.  What happens is I re-negotiate the timeline and/or stages that both companies can agree upon before moving forward.

 

Examples of stages of the project

Sometimes the development plan will include timelines for seeking and obtaining regulatory approvals. It is important to specify as much as possible, each regulatory submission that is required to move forward to the next stage of the project as well as the estimated timing of completing the filing of the regulatory submission. In my personal experience, it is better to try and tie the timing of the regulatory filing to an estimated dateline rather than simply describing the regulatory submission that you plan to file. Also best to separate out each step of the regulatory process, so that both parties are on the same page on each step of the process.

The cost of preparing and filing any regulatory submissions can be handled through percentages of the total cost of the project or by breaking out the total cost and assigning specific amounts to each stage. These stages also need to be clearly outlined so that the parties are aware of the timing of such milestones and when they are due to be completed.

 

Mistake 2: IP Rights:  You want to be clear on the property rights you own up front

The mistake I see most often in “IP” or “Intellectual Property” Rights Cases is not clearly identifying who owns what property rights. 

Some startups assume what they own, and the other party owns what they own, and there’s no need to say anything more about it. They assume both parties completely understand without having it in writing.  Isn’t that silly? Given that each party is keen on retaining ownership of any and all intellectual property (IP) rights in any material or information it makes available for the purpose of proceeding with the development project it is best to spell out in advance who owns what in the event there are any inventions, improvements, or any discoveries that come out of working on this project, those rights must and should be clearly defined and assigned to the party providing the underlying material or proprietary information.

 

Mistake 3: When it’s not clear, and open to interpretation

The mistake to avoid is not clearly stating the details for payments. 

Not specifying when payment should be made and for what phase/stage of the project. If you don’t separate the timing for payment for services rendered from achievement of milestones, you risk tying up payment in the event of a dispute about whether the milestone has been achieved.

The key is to spell out and define in advance and in detail the payments for each phase of the project whether to tie payment to specific dates or the achievement of certain targets or milestones. Companies will try to require achievement of milestones as the trigger for payment. However, if there is a dispute on the achievement this may delay payment until the dispute has been resolved. 

I believe this is one of the biggest mistakes that small companies make in not being well defined and clear on when and under what circumstances payment is due.

 

Trying to do these agreements by yourself, leaves you vulnerable and prone to being taken advantage of by more savvy companies or institutions. 

Best to contact me before the mistakes happen. As an experienced pharmaceutical contracts attorney I can help you avoid these pitfalls. Click the link below to schedule a call with me now.