Friday, January 28, 2011
Point in Time or Auto Updating Documents
Many times a contract will incorporate other agreements or documents into it. For example, you may negotiate a Master Agreement and then incorporate that into Statements of Work negotiated for individual purchases. You may incorporate specifications and other documents into your contract.
When you incorporate a document or another agreement by reference into your Agreement, that document will be what I call a point in time document. Without expressing language to the contrary, the document you incorporate will be as it existed as of the date you incorporated it into your agreement, effectively being frozen at that point in time. Sometimes that may work, other times it can require a huge number of contract amendments to constantly update your agreement.
When incorporating a document by reference into a contract you need to decide if a point in time incorporation works or if you want your agreement to change every time the incorporated document changes. If you want it to change, you also need to decide upon the extent it will be changed or updated.
If you wanted all the changes that were made to be included, at the point where you incorporate the document or agreement by reference you could, include “as may be amended from time to time by the parties”. This shows the intent of the parties for it to automatically update within your agreement each time the referenced document changes.
You could also agree to limit the scope of the auto updating. For example if you had a strategy where Subsidiaries wrote their own agreements and incorporated their Parent Company’s agreement with the Supplier, there could be a number of reasons why they would want to separately review and agree what terms get incorporated into their agreement. They may want to take advantage of addition of new Products or Services that are added to the referenced document so they don’t have to amend their agreement every time a new product or service is added. They may also want to take advantage of any price changes that get negotiated. To do something like that you might say, “This agreement automatically incorporates any changes to the Products, Services and Prices included in the Referenced Agreement. All other changes to the Referenced Agreement shall require written agreement by the parties to this Agreement before incorporation into this agreement”.
Let me give you an example.
You have a Master Agreement. Over time you have written 20 statements of work that each incorporate the terms of the Master Agreement. Each statement of work is still in effect. Over time the master agreement was amended 10 times. You encounter a problem with the Supplier that could potentially affect all your statements of work. You want to determine what contract protection you have against this problem. To do that you would first look to see whether the incorporation was point in time or auto updating. If all the incorporations were point in time, to understand your contract rights, you first need to review all amendments to the statement of work to see if any of them incorporated changes made to the Master Agreement. If they didn’t you then would need to understand what the Master Agreement terms were at the time it was incorporated into each statement of work. To do that you would review the Master Agreement and any amendments executed prior to the date it was incorporated into the Statement of Work for to understand each statement of work's full terms. Depending on when they were written you could have up to 10 different versions of terms in effect for the SOW’s.
Auto updating works when the document being auto updated requires mutual agreement by the parties. You would never use auto updating when the Supplier alone controls the document.
If you consider using auto updating, contact your legal support to see if Auto Updating provisions may be used in that jurisdiction and what they would recommend.