Some people dread having to go to their legal counsel with a contract for review and negotiation. “It’s the department of business prevention”; “we’ll never get it done”; “my attorney doesn’t understand what the business needs.” Quite the contrary. In-house counsel want to partner with you to facilitate the company’s business objectives and help the company succeed, while at the same time managing risk to our client – the company. Ensuring you and your attorney work together as effectively and efficiently as possible is key to this process. Here are 6 tips to keep in mind when working with your attorney in contract negotiations.
- Contract negotiation is a partnership, not a handoff. Contracts contain both legal and business terms. We will largely defer to you on the business terms (unless it’s something we’ve seen before that we know is a problem), and will focus on ensuring the legal terms are in order. You need to be a part of the negotiation process to provide guidance and approvals on business terms as they are negotiated. If you submit a contract for review and then just wait for an email saying it’s done and signed, it will slow down the process as we’ll have to reach out to you, or worse, make assumptions about what your business needs are or what you are OK agreeing to in the contract.
- Negotiations can take time – don’t wait until the last minute to engage Legal. Negotiations can take time, but attorneys don’t want to drag them out – we have a lot of work on our plate, and we want to enable you to start working with the company or vendor so you can meet our corporate objectives. However, part of our job is also to negotiate terms that protect the company, and to help you navigate around the pitfalls and mountains. If you come to us at the last minute and there are major issues (e.g., risks we can’t accept without high level approval), it’s a no-win situation – we feel you’re not giving us time to do our job as attorneys, you’re unhappy because the agreement can’t get done by your desired completion date, your boss is unhappy because you missed your deadline, others whose work depends on the negotiated partnership or vendor relationship are negatively affected, etc.
Build time for the legal review process into your project timeline, and if you’re unsure ask your attorney how much time they think it will take before you even get to the contract phase. Engage Legal with questions on business terms or legal terms early in the process if it will help streamline the negotiation later on — we can help you structure business terms up front while they are being negotiated, to make the negotiation process go more smoothly.
- Provide complete business terms when you submit your contract request. Unless you are requesting a standard form agreement on your company’s paper, we need to know as much detail on the business terms as you can provide when you submit a contract request to Legal. Otherwise, we may have to make assumptions about what you’re looking for, and if we’re wrong it will mean redrafting work which will slow down the process. If you have a term sheet, attach it. If not, summarize the business terms in the request with as much detail as you can provide. Include the full legal name of the other party, and their street address. We’ll call you to flesh out any terms on which we have questions or need more information or detail. Also, read the draft carefully before you forward it to the other side. If the contract doesn’t match the business terms that were discussed, we’ll stumble right out of the gate on the contract negotiation.
- When you get a draft or get back redlines, add your comments on the business terms before submitting it to Legal. If you send a draft on the other side’s paper or you receive redlines from the other side, go through it before you send it to Legal and mark it up with your comments and edits to any business terms. If you need to reach out to internal business owners for their input or approval (e.g., Finance on payment terms, IT on SLAs, etc.), either do it before sending the draft to Legal, or indicate in the draft that you’re following up on an open business point before you send it to Legal. Otherwise, the internal discussion draft you get from Legal will just include notes on where you need to provide input on business terms, slowing down the process.
- Listen to your lawyer’s suggestions – we’ve done this before. We have been in many contract negotiations, and have seen most contract provisions before. We often know what provisions work with the company’s internal processes and requirements, and how third parties are likely to negotiate and come out on a given provision. If you come in with a business term or a position on an open point that we think may be a tough sell to the other party or is “out of the box” from an internal process perspective, our experience can help you avoid going down dark alleys or dead ends in the negotiation. Good attorneys don’t just spot problems, but also offer alternatives to try to find a workable solution. We may be able to offer an alternative provision or wording that meets your business needs, works for the other party, and satisfies your internal processes.
Attorneys usually have a sense as to which approach to contract negotiation (exchanging redlines right away, hopping on a call with the other side right away, exchange redlines first then get on a call, etc.) will be most effective for a particular contract or third party. Your instinct may be to jump on a call with the other side as soon as you send or receive a draft, but in some cases that may end up unintentionally slowing down the negotiation. Tech-savvy attorneys may also suggest leveraging technological tools to increase speed and efficiency, e.g., WebEx online conferencing to make edits to the draft in real-time as if all parties are sitting in a conference room together.
- Attorneys will advise on the risks and share their opinion, but the business needs to “call the ball.” Every contract involves risks and rewards. My job is to shift as much risk as I can (e.g., through contract terms), and to help explain how to mitigate risks (e.g., through internal process or procedure to control it). Any remaining risk needs to be accepted (we understand but the benefits are worth it) or rejected (the benefits aren’t worth it) by the business. Unless something is illegal or there’s simply too much pure legal risk to proceed, the attorney isn’t the one who should be making that risk decision. We may share our opinion, but we can’t make the decision. You (or someone higher up in the company) needs to make the risk decision after weighing the pros and cons. If no one wants to be the decision-maker, the negotiation will grind to a halt.