A few years back, I hit on a concept that I've been a firm proponent of ever since: the perpetual contract.  One reason I like perpetual contracts is because I never have to worry about renewing them because they never expire.  In fact, I try to put a perpetual contract in place with every one of my vendors.

Even if you're new to purchasing, you're probably right now thinking to yourself:

• Things change--it doesn't make sense to have a perpetual contract.
• What if we only plan on using the vendor once?
• If you enter into a perpetual agreement with a vendor, you're going to lose a ton of leverage.
• I can see a perpetual license for software or some other IP, but a perpetual contract doesn't really apply to anything else.

Let me alleviate your concerns...  First, though, I want to emphasize (again) how important it is to be operating off of your own contract templates--what I'm about to describe only works if you're operating off of your own paper.  OK, on to the rational and mechanics of a perpetual contract...

Beyond my not wanting to have to worry about renewing expiring contracts, my real reason for wanting a perpetual contract is that I never again want to re-negotiate the original terms and conditions with a vendor.  That assumes that the vendor either executed my contract template as-is or negotiated changes such that the contract is still favorable or equitable for me.  Once I have that contract signed and sealed, I want to protect those terms and conditions in perpetuity, and I don't want to risk them being re-negotiated unless they absolutely need to be.

The other reason is efficiency.  With my contract templates, what I do is separate the "legal" terms from the "business" terms.  The "Master" contains the legal terms and what I call the "Exhibit A" contains the business terms.  If the vendor is awarded future business, it's just a matter of negotiating another "Exhibit A."  Here are some examples of the structure by commodity:

• Master Professional Services Agreement - Exhibit A (Statement of Work)
• Master Software License Agreement - Exhibit A (Product Description)
• Master Purchasing Agreement - Exhibit A (Purchase Order)
• Master Hotel Services Agreement - Exhibit A (Booking Sheet)

Mechanically, here's how the Master / Exhibit structure works.  In the Master (I'm using a professional services agreement as an example for the following provisions), there's a provision immediately following the recitals that describes the Master / Exhibit structure:


Once I execute the Master, I then execute an Exhibit A for each statement of work.  Using professional services as an example, the first statement of work would be called Exhibit A-1, the next statement of work would be called Exhibit A-2, and so on.  The start of an Exhibit A form for professional services is as follows:


Some of you may still be wondering about flexibility--how can the Master be flexible enough to handle the variability of future purchases?  Here's an example taken from a professional services agreement that demonstrates the flexibility of the Master:


The key clause that provides the flexibility is "Unless otherwise specified in the applicable Exhibit A..."  Since, as indicated in the Exhibit A-___ incorporation clause excerpted a couple of paragraphs above, the Exhibit A "rules" the master.  So, my Exhibit A also serves as an amendment vehicle to the Master without having to formally / permanently amend the Master using a separate amendment.  Here's another example of the key "unless otherwise" clause in action:


What the above provision allows is for a customer to specify a milestone-based invoice structure in an Exhibit A (if needed), but if no payment structure is specified in an Exhibit A, that Exhibit A defaults to a monthly invoice structure.

Some of you may wonder about what happens once an Exhibit A has been performed (and therefore terminated).  Well, whether you think it at the time or not, once you've done business with a vendor, you'll likely do business with that vendor again (unless the vendor didn't perform as expected).  However, even if you don't do business with a vendor again, the Master is basically dead because there's no active Exhibit A.  Once an Exhibit A has been performed, the Master lies in wait--just waiting and hoping for another Exhibit A to come along.  Sure, the parties still have certain obligations under the Master, like confidentiality, but those types of obligations I'm OK living with.  If I haven't executed another Exhibit A with a vendor after a couple of years, I'll go back and formally terminate the Master.

Once you get used to the structure, you won't believe how much efficiency and flexibility you gain.

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