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University-Industry Engagement Advisor

In industry contracting, careful risk analysis can produce more flexibility

By David Schwartz
Published: November 19th, 2019

Contract negotiations with corporate partners can often be difficult, even to the point of weakening the partnership itself. They require a delicate balance, because protecting your own interests must always be a primary factor, even when you’re on the verge of a blockbuster deal. But protecting your institution, and recognizing risk factors in the negotiation, can actually make negotiations go more smoothly and conclude more quickly, experts say.

Still, some industry observers claim that too many practitioners believe “all deals are created equal,” and that they therefore approach every contract negotiation the same way. While not going so far as to agree with that criticism, Stephen G. Harsy, PhD, director of contracting and pre-award services at the University of Arizona, clearly does not approach every negotiation the same way. “I think it’s important to appreciate that all deals are not created equal,” he asserts.

In terms of risk, Harsy continues, “people often think of indemnification clauses, liability, and insurance. These are important, but there are many others. For example, there is venue — the location of legal action that should arise.”

How do you determine the level of risk? “You can do it in a number of different ways. You could look first at the type of agreement, the scope, the dollar value,” says Harsy. “A high-dollar project should be looked at more carefully than a low-dollar one since you may have more at stake because the project is larger, and more could go wrong. A non-funded agreement such as a confidentiality agreement contains fewer obligations, is lower risk, and may not justify significant negotiation time.”

Master agreements are usually the indication of a partnership that is already strong, but that doesn’t mean they don’t carry risks. In fact, in some ways they are more risky, because there are so many unknowns. “You don’t know what the projects may be,” notes Charles Adelsheim, senior patent attorney with Varian Medical Systems. “You can’t go and factually resolve contractual issues. One side or the other wants to cap damages at $1 million. The potential for clinical harm is not going to fly. Or one partner wants to share highly confidential information, and the other prefers not to, or [wants to] exclude violations relating to confidential information from the cap.”

There are also many qualitative factors to think about, he says, when even considering doing a master agreement. “Do we tend to do similar projects? Is the relationship one such that there are going to be a series of projects that enable you to use similar terms? Has the university been doing one tech project after another for years and years? Then,” he says, “a master agreement makes a lot of sense.”

“One of the other things I see is that universities and companies are interacting in new and different ways, with different types of relationships being developed,” adds Harsy. “With that goes the need to be flexible in the contract terms we use to govern the relationship; they cannot be boilerplate. It requires a willingness to invest some time, and to analyze the risk.”

A detailed article on using risk analysis to guide university-industry contracts appears in the November issue of University-Industry Engagement Advisor. For complete subscription details, CLICK HERE.

Posted under: University-Industry Engagement Week

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