
In conducting business, naturally you are going to enter into many types of contracts with other parties. One such type is a collaboration agreement which serves as a legally binding document stating the responsibilities of each party, the distribution of reward and risk, and ownership of assets.
Having a collaboration agreement safeguards you from future legal disputes and conflicts while serving as a guideline for the collaborative effort. In this article, we cover what these agreements are, why they are crafted and what they should include.
What is a Collaboration Agreement?
A collaboration agreement is a legally binding document between parties that wish to collaborate and cooperate on a commercial project. It details the specifics of the collaboration, the responsibilities and obligations of both parties, as well as fine points how profits and compensation is to be structured.
And most importantly, the agreement will sets out remedies for in the case one party does not perform to their end of the bargain.
When do you need a Collaboration Agreement?
Collaboration agreements are generally drawn up for joint ventures. The specifics of the agreement and the legal content varies based on the nature of the project and the industry in which the company operates. For example, a collaboration involving two tech companies will have provisions relating to technology, data, use, and ownership of intellectual property as well as confidential information clauses.
Why do you need a Collaboration Agreement?
There is no legal obligation to have a collaboration agreement in place. Such agreements are used for private commercial contracts between the collaborating parties. You can choose to have a legal collaboration agreement depending on the risk you are taking and the resources you choose to invest into your new venture.
Having a formal written document enables you to pursue legal action easily in case of non-conformance of an agreement or legal dispute. Even though verbal agreements are also valid in courts of law, it is harder to prove what was agreed upon. A legal document, hence, makes it easier to seek remedy.
An agreement also helps clarify the relationship to other parties you are collectively contracting with or internal stakeholders. All parties are on one page regarding the obligations of either party and know who to turn to for their concerns.
What does a Collaboration Agreement Include?
A detailed collaboration agreement should include the following:
Details of the joint project
A well-drafted collaboration agreement should have clear details about the obligations of all parties involved. Details reduce the possibility of confusion arising later that requires renegotiations or legal remedies. When drafting the agreement, it would be beneficial to add in a clause that allows for revisions of scope and strategy.
Collaboration period and schedule
You can add in the tenure of the collaboration along with the milestones and timings of key deliverables. Collaboration agreements can be for a fixed period or can be an ongoing process till one party terminates the contract.
Confidentiality, exclusivity, and permitted use
A joint venture between multiple parties also includes information from several companies. Therefore, the protection of sensitive and confidential information is essential. It is important to include clauses in the agreement that details the type and nature of sensitive information, who can have access to it, etc.
It is also recommended to add clauses that specify whether participating parties can work with other vendors/clients or are in an exclusive collaboration with the concerned company. It should also clarify whether and when can these parties collaborate with firms in similar businesses or projects with similar activities.
Reporting and project management
With multiple teams on board, a clear communication strategy can make work and coordination easier between the parties. You can add a reporting schedule, hierarchy, as well as milestone and review meetings in the collaboration agreement to help track the progress of the project.
Payments by each party
The finances for the project and the payment obligations should also be documented in writing to avoid confusion in the future. Add clauses that relate to obtaining additional funds, their sources, the profit distribution ratio and who will be dealing out payments to any other parties involved.
Legal remedies should also be added including but not limited to damages the parties can claim in case of non-payment by one partner. Limited liability clauses safeguards against major losses should also be incorporated.
Intellectual property rights and Data protection
With multiple parties working on one collaboration, confusion can arise regarding the ownership of intellectual property. The parties will need to document who will own any property created, and how the transfer of ownership will take place once the collaboration ends. Licensing agreements and provisions should also be added to determine the legal use of assets by the other contracting parties.
- All personal and sensitive data collected during the project should be monitored, stored, and protected following the guidelines of the Privacy Act 1998. Any data breach must be reported and due course of action should be followed as prescribed by the privacy principles.
Non-Solicitation
Non-solicitation clauses may be added if parties fear the other parties will try to poach their employees, consultants, and talent. Such clauses can be added that specify time duration after the project during which no talent can be poached by the other parties. These clauses need to be drafted carefully for them to be legally applicable and hence it is advisable to consult a legal expert.
Disputes
Collaboration agreements should include a process that the parties can follow in case a dispute arises. Deciding how a dispute would be heard and resolved is essential; you can choose to have a separate team, identify senior managers for the task or consider legal action. All parties must agree to the process and it should be documented clearly.
Termination arrangements
For both one-off collaborations or longer-term contracts, having a process of project closure or termination is important. These clauses will determine when the contract can be terminated as well as the due process to follow.
In the case of multiple parties, add provisions regarding the process if one party chooses to exit the contract. Termination will also take into account any transfer of assets, payments, and distribution of any shared resources and how they are to be settled between the parties.
KEY TAKEAWAYS
- Collaboration agreements are drafted in the case of contractual joint ventures and are formal written documents with details regarding a collaborative project.
- The agreement should include details of the project, responsibilities of the parties as well as the rewards and risks they will be taking on.
- The document should also have clear reporting schedules, a comprehensive timeline with key deliverables.
- Set provisions regarding the ownership and use of assets and shared resources, the sourcing and management of funds and financial obligations, data protection and use guidelines, as well as clauses for compliance and non-solicitation,
- Prescribe methods of legal action and remedies that are agreed upon and procedures to follow when terminating the contracts.
Putting a Collaborative Agreement in Place
A collaboration agreement is a legal document that serves not only as a detailed guideline for a project but also as a business contract. Hence, it is imperative that it should be legally sound and can be presented in court as proof if any legal disputes arise.
Seeking legal counsel when negotiating a collaboration agreement ensures your collaboration will be set for a good start. Lazarus Legal’s team of expert business lawyers can help you draft a detailed agreement based on your project specifications. Get in touch with us today to schedule a consultation.
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Mark Lazarus
Mark Lazarus, the visionary behind the business and the fresh blood of the Lazarus Legal team, Mark (or Laz as he is often known) owes much of his success to his past experiences. And he’s made it his personal goal to bring that wisdom and formula to the firm.