Costly ‘Boilerplate’ Provisions in Contracts
By Barbara F. Dunn O’Neal Esq.
Partner, Barnes & Thornburg LLP
With much focus on provisions such as services, fees, cancellation, and force majeure, many event professionals may be bleary-eyed by the time they reach the end of the contract. Yet often at the end of the contract are the “boilerplate” provisions which could be very costly to the group.
As such, it is critical for event professionals to watch out for these clauses and know which issues to flag and to address in contract negotiations.
Prevailing party attorney’s fees
In the United States, the general rule is that each party pays for its own attorney’s fees unless they agree otherwise in a contract. In contracts, the other party will often include language addressing the payment of attorney’s fees such as the following:
“In the event of any dispute involving this Agreement, the prevailing party is entitled to recover its attorney’s fees and costs from the non-prevailing party.”
While this language may seem innocuous, its effect is anything but innocuous. The provision, though softly worded, has a significant impact: the losing party pays the winning party’s attorney’s fees and costs in addition to paying its own attorney’s fees and costs. This provision often rears its head in settlement negotiations with the other side saying that they will be the winner and therefore if a settlement is not reached, the other side will be paying double the amount of attorneys.
Documents incorporated by reference
So the contract is the contract and there’s nothing else that the group can be bound to – correct? That statement may in fact be false if there are provisions in a contract which incorporate other documents merely by referring to such documents by reference. Often, the language will be included as follows:
“The terms of this Contract, together with the policies and procedures of the Facility, shall constitute the parties’ entire agreement.”
Again, while this provision may appear innocuous on the surface, its impact can be costly for the group. When I see this type of provision, I will frequently ask my client whether they have received a copy of the Facility’s policies and procedures. If they have not, I recommend they do so and ensure that they agree with all terms included in the document because simply by referring to the policies and procedures as indicated above, the group will be bound to its terms. If the group agrees with the terms, then the language can remain in the contract however the group will want to modify the provision to state “the policies and procedures of the Facility as attached” so as to ensure the group will not be bound to modifications to the provision.
One follow up point on this issue is that when I ask whether the event professional has received a copy of the policies and procedures, many event professionals will tell me that they asked the Facility for a copy and the salesperson told them that the policies and procedures are not written but instead, determined by the Facility on a case by case basis. If that is the case, the provision should be removed as the group cannot be bound to terms which it has not been notified.
While the parties work hard to ensure that the contract will fully address all issues which could arise, often it is necessary for the parties to later sign an addendum to the contract which modifies the contract provisions. Often these modifications relate to key items such as the room block, rates or function space.
It is anticipated that when these additional documents are signed, their terms will supersede and replace the terms of the contract yet that may not in fact be the case if the contract includes the following provision:
“If there is any inconsistency between the terms of this Agreement and the terms of any addenda, the terms of this Agreement shall control.”
As such, this provision will often set up a battle of the documents. This is especially true if the addenda later state that if there is any inconsistency between the terms of this addendum and the terms of the Agreement, the terms of this addendum shall control. In order to avoid this battle, groups should work to remove the provision noted above and include in any addendum, the language noted in this paragraph which provides that the terms of the addendum will control.
Just as with any happy beginning, organizations and their customers do not often anticipate anything other than a happy ending. Yet, if disputes arise after the contract is signed, any dispute resolution provisions which may be hiding out in the contract’s fine print may prove costly for the group.
While there are many ways to resolve a dispute, many event professionals may not know which method is the best for their organization. Is it litigation, mediation, or arbitration which is best for the group? While opinions on which method differ, one thing is certain: each method has its own advantages, disadvantages and costs. It is important that the group review dispute resolution options with its legal counsel before it agrees to them in the contract. Often the language in the contract makes the chosen dispute resolution provision the only way of resolving the dispute, such as the following:
“Any disputes arising out of the terms of this Agreement shall be resolved by arbitration according to the Commercial Rules of Arbitration of the American Arbitration Association. The determination of such arbitration shall be final and may be enforced by courts.”
The above provision makes arbitration the only option for resolving disputes so that the group is not able to pursue a claim in its local courts or submit the claim to mediation unless the other party agrees otherwise.
The best way of managing these provisions is to seek direction from the organization’s legal counsel before the contract is signed as to which dispute resolution method is the best for the group.
So the next time your eyes get bleary and you are eager to gloss over the fine print in the contract, stop and take time to focus on these important provisions. What may be included in them may be costly for the group and waive any savings the group is experiencing in the contract.
Barbara F. Dunn O’Neal is a partner with the Associations and Foundations Practice Group at Barnes & Thornburg, where she concentrates her practice in association law and meetings, travel and hospitality law. Barbara can be reached at (312) 214-4837 or [email protected]
©Copyright 2014. Barbara F. Dunn O’Neal, Barnes & Thornburg LLP. Chicago, Illinois, USA. All rights reserved under both international and Pan American copyright conventions. No republication permitted without the express written consent of the copyright holder.