Introduction to Order Forms
Why are Order Forms not as harmless as they appear - image showing an innocent looking sheep
Image credit - Unsplash
One of the most common misunderstandings and misconceptions of the commercial contracts’ world is the creature called the Order Form.
Business teams treat it as just a commercial document - a change order, or a purchase order, or the like. I can’t count the number of times I have heard - it’s not a contract; it’s just 1 page; why does it need review; why can’t it be signed directly; why can’t we (Business) sign it. And that’s when they even go to their Legal team/contract reviewer to check. Sometimes, probably out of lack of awareness, they sign it themselves, without realizing what they are getting their organization into.
On the other hand, lawyers and contract reviewers know that order forms are contracts. Let’s go deeper to understand.
Why are Order Forms really just contracts
Reference to & amendment of existing contract via order forms
All order forms include either a reference to external links and terms and conditions or refer to an existing signed contract (usually called a Master Service Agreement - MSA). The order forms form part of that same contract.
Most of the times they include some language which changes the terms and conditions, for example:
(1) The link to the terms and conditions might be different from the previous one; or
(2) There might be a “Notes” section which adds new terms and conditions or amends existing ones; or
(3) The Order Form might be made with a different entity within the same group, forcing a check back to the main/signed contract/MSA to see if this is allowed.
If someone claims - but it’s the same contract, which is already signed, the question then to ask is, is there absolutely no change in the existing terms and conditions. In my experience, this has never happened. There is always some change, in either of the above formats.
Contradiction between order form and MSA
How are order forms really just contracts - image showing a sign of ‘order here’
Image credit - Unsplash
Another reason is that a lot of companies issue order forms in “standard formats” with standard notes, rarely aligning it with the specific contract entered into with that particular client. Let’s understand it further by a couple of examples:
(a) Let’s say - a client had negotiated in their MSA 3 years ago that they have a right to exit with 90 days’ notice without any penalty, but the new order form (for the same product/services in additional quantities) says that there will be a termination penalty. It’s contradictory. Does it mean it’s necessarily wrong - no, it’s possible that for this deal and this order form this is commercially agreed to for some reason. But point remains, unless the right people review it and validate it, this should not be signed.
(b) Let’s say - the MSA does not have any provision for the order forms to be made with different contractual entities in the respective countries of services (either deliberately, or the parties did not discuss/cover this at this time), while one of the order forms is issued with a local entity. This has billing and multi-country tax implications, along with the fact that a country entity signing the order form without the MSA recognizing it makes it a wrong document to start with - it can be challenged after the services are done, leading to chaos and differences between the two parties.
Financial commitment via an order form
Even if the order form changes just the scope, commercials and duration, let’s not forget that these are the core of a commercial contract. If there are additional services being provided by one party in exchange of additional charges from the other party, this is the very essence of a contract. This might not change the other terms and conditions, but it still needs to be signed by an authorized signatory, and most well-established organizations have an approval process for that, which should not be bypassed.
As an example, let’s say the first order form was for a SaaS product ABC that was duly authorized by the company via its processes and signed by the authorised signatory, under a Master Service Agreement. Let’s suppose that the next Order Form (just 1-2 pages, but referring to the signed MSA) commits the company to another SaaS product XYZ, which has not been authorized by the company, has not been assessed by the relevant teams including data security & privacy (considering it’s a different product), the duration of 4 years vis-a-vis the previous duration of 1 year has not been validated, the document has not been sent to the authorised signatory, etc. If this is not reviewed by the right teams/stakeholders, it can have so many adverse consequences.
Order of precedence between Order Form and MSA
In this respect, the order of documents - whether the MSA prevails or the order form, makes all the difference in the world. If the MSA says that Order Form prevails over the MSA, then the client might lose their carefully negotiated exit right, if the order form is not reviewed by the right teams - in the example of termination, as above. If the MSA says that the MSA prevails over the Order Form, it creates confusion as to why the Order Form had a specific termination penalty, what is its real value, and whether it will be binding or not.
Pro Tip:
· If you are Business - Ensure your Order Forms are reviewed by your lawyer/contract reviewer, whether internal or external resources. Do not assume more risk by thinking “but this is not a contract” or waste everyone’s time and delay the deal by resisting and saying “but this is not a contract”.
· If you are Legal/contract reviewer - First check the Order Form to understand what “commercial” (e.g. core numbers), and what’s “legal” (in other words what changes the contracts or affects the rights and remedies of your client). While they are usually interlinked and interdependent, this broad segregation can help in moving fast on the reviews. And educate your clients and businesses, always.
Moral of the story: A rose by any other name would smell just as sweet. A contract by any other name would be just as risky.
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