Adversarial Contract Review

After reviewing the contract, several clauses could be exploited against the contractor, creating an unfavorable and potentially risky situation for them. Here are the problematic clauses, suggested modifications, and the legal reasoning behind the changes:

1. Scope (Clause 1):

   • Issue: The client can modify the scope at any time without additional compensation, which could lead to an excessive workload for the contractor.
   • Modification: Add that any significant changes to the scope will require mutual agreement and may result in an adjustment to the payment structure.
   • Reasoning: Both parties should have a say in significant scope changes to ensure fairness and prevent contractor exploitation.

2. Payment (Clause 2):

   • Issue: The client can withhold payment if they deem deliverables unsatisfactory, and the payment term is 90 days, which is quite long.
   • Modification: Replace "unsatisfactory" with a clear definition of what constitutes non-payment, such as failure to meet agreed-upon quality standards or project milestones. Shorten the payment term to 30 or 45 days.
   • Reasoning: Clear payment triggers and reasonable payment terms protect the contractor's cash flow and ensure they are compensated for their work promptly.

3. Intellectual Property (Clause 3):

   • Issue: The contractor's pre-existing IP becomes the client's property if used in the engagement. This is overly broad and could hinder the contractor's future projects.
   • Modification: Limit the client's rights to IP created specifically for this engagement and using only client-provided materials. The contractor retains full rights to their pre-existing IP.
   • Reasoning: Protecting the contractor's pre-existing IP ensures they can continue to use and improve upon their work in other projects.

4. Non-Compete (Clause 4):

   • Issue: The 24-month non-compete period is overly restrictive and may prevent the contractor from engaging in other projects in their industry.
   • Modification: Reduce the non-compete period to a reasonable timeframe, e.g., 6 or 12 months, and limit it to similar services provided to direct competitors of the client.
   • Reasoning: A reasonable non-compete clause protects the client's interests without unduly restricting the contractor's future work opportunities.

5. Termination (Clause 5):

   • Issue: The client can terminate the agreement at any time, while the contractor must provide 60 days' notice. This imbalance can cause financial hardship for the contractor.
   • Modification: Allow both parties to terminate the agreement upon providing a reasonable notice period, e.g., 30 or 45 days.
   • Reasoning: A balanced termination clause ensures both parties have fair notice and time to mitigate potential losses.

6. Liability (Clause 6):

   • Issue: The contractor assumes all liability for any bugs, security vulnerabilities, or system failures in delivered software, with no cap on liability. This clause could expose the contractor to unlimited financial risk.
   • Modification: Cap the contractor's liability to a reasonable amount, such as two times the total contract value, and require the client to provide written notice of any claimed defects within a specific timeframe (e.g., 90 days) after delivery.
   • Reasoning: Capping liability protects the contractor from excessive financial risks and encourages the client to promptly identify and report any issues.

7. Indemnification (Clause 7):

   • Issue: The contractor must indemnify the client against all claims arising from their work, regardless of fault. This places an unfair burden on the contractor.
   • Modification: Limit the contractor's indemnification obligation to claims resulting from their gross negligence, willful misconduct, or violation of law.
   • Reasoning: Limiting indemnification to situations where the contractor is at fault ensures fairness and prevents the contractor from being held responsible for claims outside their control.

8. Confidentiality (Clause 8):

   • Issue: The contractor cannot disclose any information about the engagement for 5 years after termination, which may limit their ability to discuss or reference the project in their portfolio or future work discussions.
   • Modification: Limit the confidentiality period to a reasonable timeframe, e.g., 1 or 2 years, or allow the contractor to discuss the project in general terms without revealing sensitive information.
   • Reasoning: A reasonable confidentiality clause protects the client's interests without unduly restricting the contractor's ability to discuss and reference the project in the future.

9. Dispute Resolution (Clause 9):

   • Issue: Any disputes must be resolved through binding arbitration in the client's home jurisdiction, with costs borne by the losing party. This could place an unfair burden on the contractor if the client is located far away or in a jurisdiction unfavorable to the contractor.
   • Modification: Allow disputes to be resolved through mediation first, and if mediation fails, allow either party to choose binding arbitration in their home jurisdiction or a neutral location, with each party bearing their own costs.
   • Reasoning: A fair dispute resolution clause ensures both parties have a voice in selecting the resolution process and location, preventing potential bias and excessive costs.

These modifications aim to create a more balanced and fair agreement that protects both the client's and contractor's interests. It is essential to consult with a legal professional when drafting or negotiating a contract to ensure it complies with applicable laws and protects your rights.