The start-up, organization, development, management and operation of an ethanol production facility requires the joint efforts of numerous parties. These parties include, but are not limited to owners, employees, attorneys, contractors, technology providers, project development and risk management consultants, vendors, suppliers and marketers. As fiduciaries, directors have the obligation to carefully check out the background, qualifications and credentials of these parties and make reasonable business decisions in engaging the appropriate parties upon the appropriate contractual terms. What does this mean in the real world?

There are numerous parties from which to choose—qualified and unqualified, experienced and inexperienced, expensive and less expensive, and with or without a successful track record. Perhaps equally important, but sometimes overlooked, is the party's successful reputation for honesty and integrity. All of these factors are critically important in establishing and maintaining mutually beneficial business relationships that add value and lead to success. This means carefully checking the party's background, qualifications, experience and reputation, and making reasonable business decisions based on the investigation.

Once you've selected the "right" parties, it is critically important to carefully review and negotiate the important business terms in your contracts with them rather than simply signing their "standard" (i.e., one-sided) contract. The language of the contract will define your legal rights, so it is important that it be detailed and accurate. While this article cannot include a discussion of all of the important legal and business terms, certain terms are (or should be) present in nearly all contracts. The terms should be carefully reviewed and negotiated. They include, without limitation, the following:

› Parties/relationship/purpose The contract should clearly identify the parties, their relationship and the purpose of the contract.
› Duties/standard of care The contract should clearly set forth the parties' duties, the applicable standard of care, and the criteria by which success will be measured.
› Term/termination The contract term must be clear and should stipulate the conditions under which it can be extended or terminated. At a minimum, you should be able to terminate for "cause;" better yet is a provision that permits you to terminate with or without "cause." Without these provisions, you can end up in a situation where the other party has breached or substantially underperformed, and you cannot terminate. Contrary to popular belief, without a contractual right to terminate your typical remedy is damages, not termination.
› Payment of fees/expenses The contract must be clear as to when and how fees are earned and to be paid, and what happens in the event of early termination.
› Insurance/indemnification These provisions are frequently overlooked but are extremely important. Depending on the nature of the relationship, different types of insurance are appropriate. However, in most circumstances, something in the nature of commercial general liability coverage or errors and omissions coverage is essential to protect you from liability due to the other party's acts and omissions. Also, your consultants should defend, indemnify and hold you harmless from and against liabilities suffered as a result of their acts.
› Remedies Provisions limiting the other party's liability, requiring that disputes be arbitrated, or requiring that the applicable law and venue for disputes be the state in which the consultant resides should be carefully reviewed.
› Restrictive covenants Always consider whether a contract should include confidentiality provisions and non-compete/non-solicitation provisions. These provisions are particularly important where the other party will have access to your confidential and proprietary information.

As noted above, this article is not intended as a comprehensive discussion of how to select a consultant or what to include in contracts with your consultants. In the final analysis, each relationship and contract should be carefully reviewed, considered and negotiated.

Christopher R. Sackett is a corporate, securities and real estate partner with BrownWinick, a Des Moines, Iowa-based law firm serving the renewable fuels industry. Reach him at sackett@brownwinick.com or (515) 242-2470.

This article is only a general summary for information purposes and does not constitute legal advice. Consult a qualified and experienced legal advisor for your specific situation or particular questions.