10 ways to expedite contract negotiations
(Editor’s note: Polly Dinkel is a partner at Sideman & Bancroft. She submitted this story to VentureBeat.)
Big-ticket sales of products and/or services can be hard to pull off in a time- or cost-efficient manner – especially when the customer is large and sophisticated. It’s just as hard to control the business and legal risks.
Large-volume customers usually have strict internal policies and procedures for purchasing that include “mandatory” terms and multiple levels of review and approval, by both legal and business teams. This means the negotiations can drag on, lengthening the sales cycle, burdening internal resources, increasing outside legal costs, and resulting in last-minute concessions to close the deal timely.
There are ways to cut back on that though. Here are 10 tried and true tactics to expedite contract negotiations.
Know your customer – It’s important to understand the customer’s timetable for launch. If implementation is not imminent, conserve your resources by responding only as necessary to keep the deal alive until it makes sense to proceed. Repeated starts and stops and deal changes increase costs unnecessarily. Other important points include:
- Understand the customer’s familiarity with your product/service and whether the customer is entering a new technology arena or market. If so, expect delays and build in time for education.
- Learn the customer’s approval process and identify the decision-makers.
- Assess the parties’ relative leverage: do they need you, or do you need them?
- Appreciate that the customer’s attorneys, whether in-house or outside, will be highly motivated to avoid any risk. In most cases, the incentives to avoid risk will override the incentives to get the deal done.
Set the customer’s expectations – Educate the customer at the outset of your contracting process, from both a business and legal perspective, and remind them as necessary during the negotiations. Set expectations early as to what is/is not possible/negotiable, from both a business and legal perspective. And at all times, make sure that front line sales is selling the terms as well as the product/service.
The contract is key – Always present the customer with a pristine contract. While it is easy to push back on a lawyer who is “moving commas,” you will quickly become bogged down in defending typos, grammatical errors and ambiguities. Also, move as many of the “negotiated” terms as possible to the exhibits. Not only will this take focus away from the provisions that you would rather not change, but it will facilitate identifying non-standard terms throughout the term of the customer relationship.
Consider whether lower-value products or services can be separated from the bundle and sold or licensed on a PO or a click- or-shrink-wrap agreement. It might be worth moving an SLA or other highly technical terms to a webpage that can be cross-referenced in your customer contract. The idea is to remove as many terms as possible from the negotiation process.
Also, maintain a compilation/database of acceptable compromises and educate negotiators about them. And avoid separately pricing consulting services and the resulting “if we pay for it, we own it” response.
Control the paper – Don’t expect that sending a document in a form that is not intended to be edited will discourage comments. Technology and custom have left those days behind. Do impress upon the customer that versions of your agreement will be controlled at your end and commit to turning revisions timely.
It might be best to encourage your customer to discuss comments by phone rather than inputting changes (once made, the customer becomes wedded to the changes). And always provide a marked copy. Failure to do so promotes unnecessary suspicion.
Control your counsel – Make sure your outside counsel is aware of company “hot buttons” and is clear on the chain of command. And if there are legal budget constraints on the deal, make sure your outside counsel is aware of these, as well.
It’s smart to check your counsel’s availability for conference calls and notify him/her in advance if “on call” availability is necessary. And make sure the business representatives are controlling the deal.
Just say no – Disagreements are going to happen. When they do, the tone should always be respectful but firm. If antagonized, the customer’s representatives are likely to dig in their heels. Make sure, also, that the team members are supporting, rather than undercutting, one another. “Good cop/bad cop” only works when everyone knows his/her role.
Resist deal fatigue, threatened deadlines, and last minute nickel-and-diming; make concessions only if assuming additional risk makes sense in the context of the entire deal. Your contract negotiator should also not be someone who will own the ongoing customer relationship.
Business versus legal – Separate the business issues from the legal ones and have the each party negotiate separately. Having attorneys present during business negotiations is usually not an effective use of legal resources. (On the other hand, astute business negotiators can contribute to negotiation of the “legal” issues by making decisions about the appropriate level of risk the company should assume.)
Be sure also to have your counsel hold training sessions with contract negotiators to sensitize them to the importance of warranties, limitations of liability and indemnification provisions.
Get on the same page – Internally, take 5 or 10 minutes before a scheduled call to bring the negotiating team up to date on interim developments.When you’re with the customer, insist on getting all requested changes before responding; don’t negotiate against yourself.
Get momentum – Initiate calls yourself – and make them (rather than waiting for them) when they’re scheduled. And never end the call or leave the room without agreeing upon next steps and a timetable. Hold your team accountable to meet its commitments.
Contract evolution – Constantly update contract templates in response to historical comments and convene periodic meetings with counsel to review and evaluate issues arising in contract negotiations.
It’s better to err on the side of reducing the level of detail.
