When Small and Medium-sized Enterprises (SMEs) and larger companies want to collaborate, they place a huge amount of emphasis on the tools that will enable that collaboration to work effectively. Shared platforms; joint processes, and integrated protocols all take precedent. But the most effective collaboration tool often gets missed – the contractual agreement. The form of collaboration may differ, but an effective agreement is key to a successful partnership.
So what issues should that agreement cover? And what are the main issues an SME and collaborator should consider when entering into a collaboration agreement to ensure mutual advantage? The following is by no means exhaustive but covers some of the main considerations:
What does each business want from collaboration?
SMEs and larger organisations will have different requirements of the partnership, but also common objectives, and parties’ understanding of these will enhance the relationship.
A SME may benefit from a larger company’s access to markets and customers and assistance to overcome barriers SMEs might experience, such as complex procurement processes, or knowledge/expertise outside an SME’s core business focus. A larger partner may want to leverage a SME’s agility, flexibility and niche capabilities to deliver solutions to real world problems.
The aim should be a symbiotic relationship combining the relative strengths of both organisations and any collaborative agreement should clearly reflect that relationship.
Initial stages of agreement
When organisations want to work together they have choices on how to contract including purchase order terms; joint venture agreements; and prime and sub-contractor arrangements. In many cases a collaboration agreement is suitable for teaming to develop technology: it should set out how the parties will work together - in addition to what happens if the parties cannot agree or want to stop working together - and divide the benefits, responsibilities and obligations of the project.
Setting up a collaboration agreement requires effort from contracting parties, and should be actively managed to avoid protracted negotiation – particularly if there are multiple collaborators. Initial discussions governed by a non-disclosure agreement should permit transparent sharing of knowledge and business plans. Negotiating a non-legally binding term sheet on the main commercial terms may short-cut negotiation of the collaboration agreement itself.
Project work and management
The agreement should record how the parties want to work together.
Many collaboration agreements specify the project development work, including deliverables from parties, their specific contributions (for example, resources, equipment, facilities and personnel), milestones to track progress, work requirements or specifications, and allocation of costs. If development work is to be done in multiple phases, the agreement may be best structured as a framework or master agreement with separate contracts ‘called off’ for each phase of work.
Agreements should also set out the parties’ project management approach to ensure effective communication and reporting between the parties: in simple agreements, this may take the form of appointing project managers for parties with certain responsibilities; more complex projects may require the establishment and regular meetings of a governance committee.
Parties may want to consider alternative approaches to project management: collaboration agreements based on agile methodology use short development phases, cross-functional project teams and continuous partner feedback to develop a solution in an iterative and incremental process. It is used, for example, by QinetiQ’s Q-Works team for customer collaboration to rapidly solve customer problems, incubate new technology and take it to market.
Intellectual property (IP)
IP terms are generally the most highly-negotiated in a collaboration agreement because they cover ownership and rights to use the technology developed. The IP concerned may include patents, know-how and other confidential information, software, and copyright (e.g. reports).
Collaboration agreements tend to divide IP into ‘background IP’ (IP created independently of the project, and used for the project) and ‘foreground IP’ (IP created for the project, and incorporating the technology).
Ownership of background IP usually remains with the original owner, but the parties will have choices as to foreground IP ownership. Two common approaches are either that foreground IP is owned by the party whose personnel creates it, or that ownership is allocated by technology category; both approaches require careful drafting to avoid ambiguity. Joint ownership of IP may seem a fairer compromise, but should be avoided because it ties parties to an indefinite relationship in relation to the IP and how it is to be protected, enforced and commercialised.
Parties should also carefully negotiate confidentiality terms, particularly where a party contributes or creates valuable know-how (confidential technical information) – that party will want a commitment that any collaborator takes measures to prevent the information becoming publicly-known and losing its commercial value. If any party is a university, it will want the ability to use the results of the collaboration for academic publication, in which case the agreement should include a process for review and approval of such publications by other parties.
Parties should consider the appropriate standard of performance for their obligations under the agreement. In some collaborations, development work is experimental and parties agree to use reasonable skill and care in performance, but otherwise give no warranty as to the work. In other collaborations, for example, development work to integrate existing technologies, parties may agree to warrant a particular outcome.
Disputes and termination
As much as setting out to succeed is important, provisions to resolve difficulties in the relationship are also critical, and parties should consider what happens if collaboration fails or stalls. For disagreements that arise during the project, it is sensible to specify a dispute resolution process, for example, for escalation to senior party executives, followed by cost-effective alternative dispute resolution (ADR) to avoid litigation. In addition to common early termination rights, parties may want to be able to terminate the agreement on notice (or simply exit the agreement, if there are multiple parties) for convenience. The agreement should address consequences on termination or exit for invoiced and uninvoiced costs and charges, any continuing licence of background and foreground IP, use of deliverables, confidential information, and parties’ resources, in addition to whether any continuing collaboration is necessary after termination.
The areas discussed above are useful for creating collaboration agreements but that agreement will only be as good as its implementation. So although it may be tempting to simply file signed agreements and carry on, project teams should be familiar with their terms and use them to actively manage the collaboration and build a truly successful relationship.
For more information on IP and collaboration, please visit our World IP Day series. For any help with collaborative working with QinetiQ, please get in touch with our team.