There are basics everyone should know about drafting amount payable provisions.
This provision states the basic payment obligation. This section seems simple and straightforward to draft. After all, don't we just need to say, “Buyer will pay Seller $X”? What's complicated about that?" Yes, you can draft it that simply, but in practice, there are lots of nuanced edits that improve a party's position.
Here are three critical concepts:
1. What does the payment cover? Pay attention to what is included in the stated price. In particular, is part of the price allocated to any intellectual property license? Vendors sometimes say that this payment amount is consideration for both services performed and rights granted. While innocuous looking, that may matter a lot. Let's say the vendor did not perform the services or performed them so poorly that no payment was due. By tying the fee to both the services and license, the vendor may argue that only a partial refund is due in these cases. Customers want the fee to only apply to services and make the performance of all services an explicit condition precedent to the buyer's payment. The customer may want to make sure that the services performance is required before it has to pay the license fee. Customers also may want to say that the price is for a turn-key project or service. This clarification helps support a claim that incidental services or items not listed but needed for service or product are included.
2. Are expenses included or extra? Vendors may include a broad reimbursement for any costs and expenses without restriction. The price stated is just the base fee before all the expenses. Customers need to be very careful with this approach. At the very least, they need to know what expenses are included in the services and which ones are not. So a vendor provides design services, does the price include the software and tools they need to perform? What about software and tools the customer needs to use the services? I've represented buyers who were caught unaware that the price was not inclusive and blew through their budget very quickly. To avoid this, customers can add a no reimbursement language and a statement that the fee is the only thing seller can charge.
3. Is the vendor allowed to increase the fee? Vendors often ask to include mechanisms to increase the price, especially when the contract term extends out multiple years. Controlling by how much and how frequently is key for the customers. Customers may prefer a flat fee for at least the initial year or two and then cap any future increase to a flat percentage or an inflation metric.
What other nuances do you see or include in your pricing provisions?