One of the more frustrating things to run into during a contract negotiation is the “stock position.” These are negotiation positions often used as tactics to shut down discussion on a point, or to push back on an otherwise reasonable request Part of every attorney’s job is to find and leverage ways to make the negotiation cycle more efficient. Being prepared for these 10 common negotiation positions, and knowing ways to work through them, can help you avoid a stumble on your way to the negotiation finish line.
10. It’s Locked Down (“We only send our agreement as a [PDF/locked Word document].”)
Why you hear this: Some companies try to limit redlines to their agreements by only distributing agreements as a PDF or a Word document locked against editing, making it very burdensome if you want to propose changes.
How to respond: Propose capturing any changes in an amendment or rider to keep the agreement itself as-is, but ask for a Word version so you can show the changes you’d propose be captured in the amendment or rider. If they won’t budge, consider creating your own Word version to redline (modern versions of Adobe Acrobat Pro have built-in OCR that lets you save a PDF in Word format, or you can print and then use Optical Character Recognition (OCR) to convert the PDF to an editable version). You can also create an unlocked version of a Word document for editing purposes fairly easily – see my earlier article on this topic. If you create an editable version yourself, be sure to state in your cover note when sending the agreement back that you have created a Word version solely to facilitate your and their negotiation of the agreement, and reiterate that you would be happy to capture the agreed-upon changes in an amendment or rider to the agreement.
9. Can’t Help You There (“I don’t have the authority to negotiate that.”)
Why you hear this: The person you are negotiating with either doesn’t have the authority to approve changes to this provision, or wants you to think that he/she can’t make changes to it.
How to respond: If the change is important to your company, let them know why, and ask them if they can break out to seek approval from a person with authority (you’ll hold if on a call). Alternatively, ask if the person with authority can join the conference call or meeting so you can explain the importance of the change or provision directly. If they balk, ask them to set up a follow-up call or meeting with the person with authority. If they’re bluffing, asking them to bring in someone with authority may result in a change in position.
8. We’re The Best Around (“Do you know who we are? We’re the number one [vendor/supplier/provider/client] [of/to] [thing] in the [geographic area].”)
Why you hear this: This response is the equivalent of “we’re the big fish in this pond – be lucky you’re working with us.” They’re trying to use their market position to get you to back off your position or request.
How to respond: This is one of the reasons it’s important to have a credible backup partner/supplier/vendor waiting in the wings, or at least know who the other party’s major competitors are. If your position or request is reasonable, you’ll need to stand your ground. Let them know that while you are aware they are a major player, your request is important to your company, and that you hope they can negotiate on this point. If you hold fast, you may have to drop the names of their competitors (if you know the name of a sales rep in your area, drop that) and let them know, expressly or by implication, that their willingness to work with you on this point is more important than your desire to work with the top player in the market.
7. Don’t Stop Us Now (“Why are you asking about that? You’re slowing the deal down/this [will/may] cause us to miss our [contract execution date/launch date/etc.].”)
Why you hear this: All too often, parties enter negotiation where one or both are already committed or invested in the relationship — implementation has already started, financial forecasting has already assumed the agreement is completed by a certain date, commitments regarding the agreement have been made to senior management, etc. The other side may be trying to leverage a “need for speed” on your company’s part to avoid discussion of potentially contentious or unfavorable points.
How to respond: It depends on what is more important to your company — getting the deal done quickly, or taking the time to negotiate your point. If it’s a “nice to have” point, discuss the pros and cons internally of giving on the position in the interests of time. If it’s a “must have,” call the other side’s bluff and let them know that while you understand that digging into this point may impact the negotiation or launch schedule, resolving this point must take precedence. If you do that, be aware that the other side may try to “forum shop” and reach out to one of the negotiating parties, or a superior, who they think is feeling pressure to close the deal and can exert leverage to get past this point. Propose alternative or compromise positions, and offer to work on a compromise in real-time on a call or via a WebEx or GoToMeeting session to keep the ball rolling.
6. Take Our Word For It (“I know the contract doesn’t say that, but it’s our practice.”)
Why you hear this: The contract template you are working from may be old and no longer tracks to the operational realities of the parties’ obligations and duties. It’s also used where the other side is unwilling to commit contractually to a negotiating or marketing statement or position.
How to respond: Stress that the contract needs to accurately reflect the business and operational reality of the relationship. If it’s their practice, they should be willing to give you a contractual commitment on it. If they refuse, let them know that if they can’t back up their statement with a corresponding obligation in the contract, that’s a red flag and you’ll need to discuss their position with your business team (in other words, give them a Don’t Stop Now). Consider ending the call/meeting early to huddle with your business team on this point – it can send a message to the other side that you are serious about this issue.
5. We Can’t Afford That (“That will affect our revenue recognition.”)
Why you hear this: The requested change could require them to spread the revenue across a longer period of time, or shift it from one fiscal month/quarter/year to the next. If the sales rep has already committed a contract close to the business, or is planning on it to meet quota or get bonus, this can be a major stumbling block for them. For example, a termination for convenience clause can often affect revenue recognition.
How to respond: This can be a legitimate argument. However, there is often a creative way to structure terms that meets their revenue recognition requirements yet gives your company the flexibility it needs. Put on the creativity hat and work with your business/legal counterpart, and your finance team, to try to find an alternative that will work. If not, you’ll need to stand firm and see whether they want the business even with altered revenue recognition terms.
4. You Don’t Need To See That Now (“We don’t give our [customers/partners] our [documentation/policies] before they sign the agreement.”)
Why you hear this: If an agreement has policies that apply to your company and are referenced or incorporated by reference in the agreement (e.g., Terms of Use, Terms of Service, Vendor Code of Conduct, Conflict of Interest Policy, Trademark Guidelines, etc.), taking the time to review these policies can extend the negotiation cycle. They agreement may also contain a warranty that the product or service conforms to the documentation, which you’ll need to review to understand how strong of a warranty you’re getting. If there’s anything in there that your company can’t abide by, you could be setting your company up for a problem out of the gate.
How to respond: Explain that your company can’t fully commit to an agreement until it has reviewed and signed off on all terms and policies related to the agreement. If they’re balking at providing documentation relating to a warranty section, let them know you need to see the documentation first. See if there’s a group within your company that can play “bad cop” here, e.g., “Internal Audit needs to see it before we can sign.” Consider adding a 30-day right to rescind to the agreement in your client’s favor, which lets you sign first, but lets you back out if you don’t like the terms of their policies. Search online — many times you can find a policy on the other side’s own website.
3. I Can’t Believe You Said That (“We take offense to your position that we might [lose your data/breach the warranties, etc.]”)
Why you hear this: The “rightful indignation” argument is common when the other party wants to avoid a discussion on a topic, or truly doesn’t understand why you would be asking about that. They may be confusing your risk management with an insinuation that you don’t trust they can live up to their obligations.
How to respond: Explain why the issue is important to your company. If your company has been burned by the issue in the past, or your General Counsel/management team is focused on this issue, let them know — almost every company has some hot-button issue that can impact its contract negotiations. You can also let them know you’ve seen recent articles about this issue and it’s top of mind. Be sure to stress that you’re not playing Devil’s advocate and looking at the worst-case scenario, but you’re rather be prepared for the worst and have some extra words in the contract than be caught unprepared when the unthinkable happens.
2. That Comes Later (“We will [address/schedule] [your implementation/that topic] in a [SOW/Addendum] after we sign.”)
Why you hear this: Punting on a contentious or time-consuming issue, such as ownership of deliverables, can help move the agreement to completion. Once the contract is signed, however, you may lose your leverage to negotiate that provision. Alternatively, the other party may attempt to include a provision in the SOW/Addendum that will take precedence over a corresponding provision in the base agreement, essentially renegotiating it.
How to respond: If a provision is material or critical to the agreement or to your company, insist that it’s negotiated as part of, or at the same time as, the agreement. Ensure you have a strong order of precedence clause so your negotiated wins in the agreement aren’t undone in a later document.
1. That One’s New (“No one has ever asked us for that before/we’ve never given that to anyone before.”)
Why you hear this: Unless a company is very new, it’s very uncommon that no one has ever asked for a particular request before. It’s more likely that the person you are negotiating with has never heard anyone ask for that before.
How to respond: Ask them to confirm they are saying that no contract the company has ever signed has had that provision. If they hold firm, use it as an opportunity to push for a contractual representation to that effect (putting their money where there mouth is), and/or push for a “most favored nations” (MFN) clause on that term so that if they do offer that term to anyone in the future it will be automatically incorporated into your agreement. These approaches often lead to a change of tune. They may try to limit a rep or MFN clause to similarly situated clients/partners – consider whether this makes sense.