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Defend, Indemnify and Hold Harmless: What They Mean and How To Use Them

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Some phrases turn up regularly in contracts, e.g., a party that “represents, warrants and covenants” something; the grant of a “right and license”; a set of “terms and conditions”; and a party owning all “right, title and interest” to something. When drafting, reading and/or interpreting a contract, you may view each of these phrases as a single concept. However, the component terms in these phrases often have different meanings. I have previously written about the differences between representations, warranties and covenants, and why those differences can be extremely important.

A core element of every contract is risk allocation. Most agreements contain risk allocation clauses such as limitation of liability, disclaimer of consequential damages, insurance obligations, and indemnification obligations. A contractual indemnification provision often begins with a statement that a party shall “indemnify, defend and hold harmless” one or more other parties from and against losses, damages, etc. arising from or relating to certain acts, omissions or occurrences. There are three separate and distinct concepts in this phrase – an obligation to indemnify, a duty to defend, and an obligation to hold harmless. Should these always be used together? Or are there circumstances when only one or two should be used, or used separately? Understanding what each of these concepts mean and how to use them strategically (as a whole or in parts) is critical to ensuring an agreement contains the right risk allocation.

Here’s a handy summary chart to differentiate these three concepts:

The obligation to indemnify

An “indemnity” is a core risk shifting provision of a legal contract, obligating one party (the “indemnitor” or the “indemnifying party”) to compensate and reimburse (or “indemnify”) the other party (the “indemnitee” or the “indemnified party”) for certain losses such as monetary costs and expenses (the “indemnified losses”) which arise from, result from or relate to certain acts, omissions or occurrences defined in the contract (the “scope of the indemnity.”) Properly defining the scope of the indemnity and any exclusions to scope, the indemnified parties, and the indemnified losses are especially critical. For example, the scope of an indemnity may include, among other things, the material breach of a representation or warranty; a violation of a law, rule or regulation; a party’s negligent, grossly negligent, and/or willful acts or omissions; a breach of confidentiality or security obligations; and a claim that a product infringes the intellectual property of a third party. Common indemnified losses include attorneys’ fees and costs (whether or not the contract includes a duty to defend), losses, expenses, costs, damages, fines, and penalties.

Indemnification obligations can be either “third party” (protection against damages and losses claimed by a third party and not the other contractual party) or “first party” (protection against damages and losses claimed by the other contractual party). Most parties do not use a first-party agreement in contractual indemnification clauses, preferring that any damages and/or losses claimed by the other contractual party be governed by general breach of contract principles. Some courts have interpreted an indemnity as a third-party indemnity absence express language as to the parties’ intention to cover first party claims.

If you are thinking this sounds a lot like insurance, you’re right – an insurance policy is a form of an indemnity pursuant to which the insurer (the indemnitor) agrees to compensate and reimburse a policy holder (the indemnitee) for losses and damages relating to losses, expenses, or other damages suffered by the policy holder in connection with an indemnified claim. Another important point is that indemnification is not automatic – it requires the indemnitor to accept its obligation to indemnify for a particular claim, or alternatively a finding by a court, arbitrator, or similar that the claim giving rise to the loss or damage was within the scope of the indemnity. For example, if Party A is required to indemnify Party B for third party damages and losses (including attorneys’ fees) arising from Party A’s negligence, and a third party (Party C) sues Party B for damages arising from Party A’s negligence, if the court finds that Party A was negligent, then Party A’s indemnification obligations are triggered. An indemnitor may sometimes contest their obligation to indemnify, which can lead to additional litigation over the obligation to indemnify itself.

The duty to defend

Like indemnity, the duty to defend has its roots in insurance. If you tender a claim to your insurance carrier and the carrier accepts your claim, your carrier will “step into your shoes” to defend you, by either having their in-house attorney handle the matter, or more commonly, by hiring an attorney to defend you against the claim. Similarly, if in a contract you accept a duty to defend the other party in the event that other party receives a claim, is sued, or some has other cause of action or proceeding commenced against it arising from certain specified occurrences, you are agreeing to step into their shoes and be responsible for their defense, whether or not you are also sued. This includes hiring attorneys, retaining experts, retaining e-discovery providers, and taking on other obligations associated with the defense of the claim. A duty to defend includes an obligation to bear the costs of providing the defense such as attorneys’ fees, expert witness fees, electronic discovery fees, court fees, and the like. Keep in mind that the defended party will still need to be involved the defense of the claim. While a party imposing a duty to defend on the other party gives up their ability to defend the claim as they see fit, the cost-shifting generally outweighs the loss of control.

If a party feels it must maintain direct control, e.g., where the reputational risk from a claim is so significant that they want to call the shots or where a party has outside counsel that they feel is essential for a particular type of claim), that party may want to negotiate out a duty to defend and rely solely on the duty to indemnify for reimbursement of incurred defense costs. However, this is often not palatable to indemnitees who insist on a right to defend; the most common argument is that if a party has the obligation to indemnify against costs of a judgment or settlement, that party must have control over the defense of the claim so they control the outcome. Some parties shifting the duty to defend will preserve the right to retain their own counsel at their expense in the procedures section, so they retain some say in the defense strategy. Remember that the damage from a legal proceeding may be non-monetary, e.g., reputational damage, so having a say in the other party’s defense may be important.

When offering a duty to defend and an obligation to indemnify, consider separate but sequential obligations to defend and to indemnify to narrow the scope of both obligations. In this approach, a party would provide a duty to defend the other party against third party claims arising from certain acts, omissions, and occurrences, and with respect to such claims, would indemnify the other party from and against defense costs (attorneys’ fees and other litigation expenses), indemnitor-agreed settlements, and court-awarded damages resulting from such claims. This approach avoids applying the broad categories of “damages, losses, expenses, costs,” etc. to either the duty to defend or the obligation to indemnify, which language often results in a broader risk shifting to the indemnitor than was intended.

The obligation to hold harmless

A hold harmless is an agreement by a party to assume responsibility for, and to not hold the other party liable for, damages resulting from the occurrence of certain acts, circumstances or events. In practice, a hold harmless and an indemnity are functionally equivalent in that both require a party to assume responsibility for losses incurred by another party in connection with certain acts and circumstances. Some argue that while an indemnity shifts losses, a hold harmless shifts both losses and liability. However, shifting liability is often not realistic or achievable. There is no way to assume responsibility for negative and equitable intangible liabilities such as damage to reputation, bad press, a public court record, an injunction or specific performance requirement, etc.; a party can only compensate the other monetarily for such intangible liabilities.

There is one important difference between a hold harmless and an indemnity – a party granting a hold harmless not only shifts risk to itself by taking responsibility for another’s losses associated with that risk, but also assumes the risk directly and agrees not to shift it to the other party even if the other party is ultimately responsible. This may prevent a party granting a hold harmless from shifting liability to the other party if the other party turns out to be the one that caused that liability to occur. Consider whether to ensure contractually that a contractual indemnity and hold harmless excludes liability and damages caused by the other party’s own acts and omissions.

To limit the scope of risk you or your client will accept, consider providing a duty to defend and obligation to indemnify only, and negotiating or leaving out an obligation to hold harmless. If the paramount concern is shifting as much risk as possible, ask for a hold harmless as well. A hold harmless provision can be unilateral (one party retains risk) or mutual (each party retains its own risk associated with certain acts, events or occurrences). Be very careful with mutual indemnity and hold harmless provisions. If you receive an indemnity, granting a hold harmless back for the same acts or circumstances as the two provisions may result in two conflicting provisions that may cancel each other out and leave you without indemnification protections.

Final thoughts

Using the obligation to indemnify, the duty to defend, and the obligation to hold harmless properly in contracts helps ensure a party is taking on the right amount of risk under the relationship. Use of common legal phrases without thinking through whether that use is correct for a particular circumstance may cause your company or your client to take on more risk than they realized, or to give up rights you thought you had. The obligation to indemnify, duty to defend, and obligation to hold harmless also relate directly to, and may be impacted by, the language in other contractual provisions, including indemnification procedures and exclusions; disclaimer of consequential damages; limitation of liability; and insurance provisions. Working with your in-house attorney, or retaining a subject matter expert, is often a worthwhile an investment of time and resources up front to help you navigate the risk allocation terms in your agreement — such as the obligation to indemnify, duty to defend, and obligation to hold harmless — to ensure the risks you take are properly balanced against the expected rewards.

Eric Lambert is counsel for the Transportation division of Trimble Inc., an geospatial solutions provider focused on transforming how work is done across multiple professions throughout the world’s largest industries. He supports theTrimble Transportation Mobility andTrimble Transportation Enterprise business units, leading providers of software and SaaS fleet mobility, communications, and data management solutions for transportation and logistics companies. He is a corporate generalist and proactive problem-solver who specializes in transactional agreements, technology/software/cloud, privacy, marketing and practical risk management. Eric is also a life-long techie, Internet junkie and avid reader of science fiction, and dabbles in a littlevoice-over work. Any opinions in this post are his own. This post does not constitute, nor should it be construed as, legal advice.

Don’t Overlook These 6 Important Contract Clauses

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Managing the review and negotiation of contracts involves regular stack ranking of projects. With many agreements to review and other job responsibilities for both in-house counsel and business counterparts alike, the value or strategic importance of the agreement often determines the amount of attention it receives. Given this, attorneys and their business counterparts generally do not have time for a “deep dive” into every nook and cranny of an agreement under negotiation. They focus their available resources on the big-ticket items — obligations of the parties, termination rights, ownership, confidentiality, indemnification/limitation of liability, and the like — and may only have time for a cursory review (at best) of other contract terms that appear in most agreements, called the “legal boilerplate.”

If you have a little extra time to spend on an agreement, here are six clauses that are worth a closer review. Why these? If worded improperly, each of these clauses can have a significant adverse impact on your company in the event of an issue or dispute involving that clause.

(1) the Notices clause.Failure to provide timely notice can case major issues. So can failing to receive a notice that was properly served. If mail can take some time to be routed internally, consider avoiding certified or first-class mail as a method of service. Personal delivery and nationally or internationally recognized express courier service (FedEx, UPS, DHL, etc.) with signature required on delivery are always good choices. Notice by confirmed fax or by email to a role address (e.g., “legal@abc.com”) are also options to consider, either as a primary method of notice or as a required courtesy copy of the official notice. Use a role and not a named person in the ATTN: line – if the named person leaves, routing of the notice may be delayed. Consider requiring that a copy of every notice be sent to your legal counsel. Consider whether to make notice effective on delivery, versus effective a fixed number of days after sending (whether or not actually received). It is also worth considering making notice effective on a refused delivery attempt – the other side should not be able to refuse a package to avoid being served with notice. Ensure delivery is established by the delivery receipt or supporting records.

(2) the Dispute Resolution clause. Ensure the agreement’s dispute resolution mechanism (litigation vs. arbitration), and any dispute escalation language, is right for your company given the potential claims and damages that could come into play if you have a dispute. Make sure you’re OK with the state whose law governs the agreement (and ensure it applies without regard to or application of its conflicts-of-laws provisions). If neither home state law is acceptable, consider a “neutral” jurisdiction with well-developed common law governing contracts e.g., New York. Ensure you’re OK with the venue — consider whether it is non-exclusive (claims can be brought there) or exclusive (claims can only be brought there), and whether a “defendant’s home court” clause might be appropriate (a proceeding must be brought in the defendant’s venue). Finally, ensure the parties’ rights to seek injunctive relief — an order to stop doing something, such as a temporary restraining order or injunction, or an order to compel someone to do something — are not too easy or hard to obtain. In some cases, whether a party needs to prove actual damages or post a bond in order to obtain an injunction can play a critical role.

(3) the Order of Precedence clause.If your agreement has multiple components (e.g., a master services agreement, separate Terms and Conditions, incorporated policies from a web site, service exhibits or addenda, statements of work, project specifications, change orders, etc.), which piece controls over another can become critically important if there is a conflict between the two (e.g., liability is capped in Terms and Conditions, but unlimited in a Statement of Work). Ensure the order of precedence works for you. Consider whether to allow an override of the order of precedence if expressly and mutually agreed to in an otherwise non-controlling contract component. Don’t forget about purchase orders — they often have standard terms which can conflict with or override the contract terms unless they are specifically excluded. If you are negotiating a SaaS agreement, consider how acceptable use policies, terms of use, and other online policies may relate to the agreement. Watch out for other agreements/terms incorporated by reference, or on the other hand, consider incorporating your standard terms and having them control in the event of conflicting terms.

(4) the Assignment/Change of Control clause. If consent to assignment or a change of control is required, the clause can create significant headaches and delays during an M&A closing process or during a corporate reorganization. A client or vendor with “veto power” could leverage that power to get out of the contract, or to obtain concessions/renegotiated terms. Consider whether to include appropriate exclusions from consent in the event of a reorganization or change of control, but keep a notice requirement. Consider whether a parental guaranty is an appropriate trade-off for waiving consent. Also consider whether consent is needed in a transaction where the party continues to do business in the same manner it did before (e.g., change of control of a parent company only).

(5) the Subcontractor clause. Ensure you have approval rights over subcontractors where necessary and appropriate, especially if they are performing material obligations under the agreement or will have access to customer data or your systems. A service provider may not be willing or able to give an approval right to a subcontractor providing services across multiple clients, but may be OK with approval of a subcontractor providing services exclusively or substantially for your company. Include the ability to do due diligence on the subcontractor; remember that subcontractors can be an attack route for hackers seeking to compromise a company’s network. Ensure a party is fully liable for all acts and omissions of the contractor. Consider pushing security obligations through to the subcontractor. Require subcontractors to provide phishing training.  Consider limitations on what obligations of the other party can be subcontracted.

(6) the Non-Solicitation clause. Consider limiting a non-solicitation clause to those employees key to each party’s performance under the agreement, and other named personnel such as executive sponsors or corporate officers. Most often, neither party can live up to a clause that covers every employee at the company. Ensure there are appropriate exclusions for responses to job postings, recruiter introductions, and contact initiated by the covered party. Consider whether the clause prevents soliciting an employee as well as hiring them, and whether you want to restrict one or both.

Refresh your Contract Templates for Shorter Negotiations and Happier Clients/Customers

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The old adage “if it isn’t broke, don’t fix it” was never meant for contract templates.  Businesses and business processes are always changing and evolving, and contracts need to change and evolve along with them. Over time, your contract will diverge from your marketing materials and sales proposals, the current operational reality of your business, and/or your company’s current risk profile.  When that happens, the contract may slow down a fast-moving customer sale by prolonging the negotiation cycle as you work through the inconsistencies or outdated commitments, or worse, a client or customer may look to hold your company to perform obligations you can’t satisfy as written.  Refreshing your contract template helps ensure you are keeping the negotiation cycle as short as possible and ensuring what you commit to contractually aligns with your actual performance under the agreement, which contributes to a positive client/customer relationship.

Setting Refresh Goals.  The first thing to do when starting a contract refresh cycle is to ensure the business and legal teams are aligned on the goals of the contract refresh.  In most cases, the goals include:

  • To ensure the contract template accurately reflects the operational reality of the business;
  • To shorten and clarify the contract template;
  • To make contract negotiations go more quickly and smoothly;
  • To remove as many ambiguous terms from the contract template as possible; and
  • To ensure the contract template is as fair and balanced as possible while protecting your company’s interests.

Once your goals are set, the following steps can help you get the most out of your contract refresh.  Keep your refresh goals in mind as you go through each of these steps.

  1. Re-evaluate (and if needed, optimize) the contract model.Take a look at the core model of your contract.  Is it a Master Services Agreement with Statements of Work, Project Assignments or Service Orders?  One single contract containing terms for all products and services offered by the company with a checklist and pricing to select the products and services to be provided? The first step in a contract refresh is to ensure the contract model is the best one for your business and the business offering. The contract model should present the terms for your product or service in the simplest way possible, while allowing for flexibility of adding on services if needed. Your current model may be the right one for your business, but it’s important to ask the question.  For example, if your clients/customers consistently try to push their own paper on you with a different contracting model, think about whether their model (or elements of it) might make sense for your business.While you want to ensure your agreement anticipates how you’ll do business generally for the next 12-24 months, be careful trying to “future-proof” your contract by adding terms for service offerings you plan to roll out in the future.  You don’t want to make the agreement longer than it needs to be, and until the service offering is finalized the terms relating to it may change, meaning the terms you put into the contract will need to be changed anyway.  In this case, design your template with add-on services in mind so they can be added later.  Also, consider whether on-line terms, or an online policy such as an acceptable use policy referenced in and incorporated by reference into the Agreement, may help streamline the contract and allow for greater flexibility in changing those terms to reflect changes in your business.The appearance and readability of your contract matters just as much as the content and model. Ensure the contract is readable — use a common font and a readable font size.  Be sure to use headers and footers with page numbers and a confidentiality legend if appropriate. If you don’t use version numbers on your templates, consider adding version numbers to make sure you can easily track different versions of your contract templates (e.g., v2016.02.24 for the version released on February 24, 2016).  Consider running your template by your marketing department for their suggestions on making it look good.
  2. Confirm alignment with the sales proposal and marketing collateral. It’s a good idea to compare the contract template against the sales proposal and your company’s corporate website and marketing collateral. While there is always marketing fluff in sales proposals and marketing, ensure that the contract accurately reflects the proposal terms and commitments in marketing materials. If there are inconsistencies, ensure they are resolved.  Few things will cause a contract negotiation to bog down right out of the gate than the other side thinking the terms in the contract don’t match the terms in the proposal or the company’s marketing collateral that led them to want to do business with your company.Consider gathering all of the pricing and key business terms into one section or appendix.  Having pricing and key business terms scattered throughout an agreement can be very confusing.  The pricing and key business terms in the contract should match up to those in your sales proposal or deal term sheet, and where possible should follow a consistent format, structure and layout.  That way, when the other side receives your contract and compares the contract terms to the proposal or term sheet, they’ll see a 1:1 match which can help keep positive momentum going.
  3. Review previous redlines, look at previous business disputes, and talk to sales personnel.Quite often, there are standard compromise or fallback positions that become commonly used in negotiation as the contract template diverges from the operational reality and/or company risk profile.  Go back through previous redlines to identify compromises or fallback provisions that are agreed to on a regular basis. Consider whether that fallback provision should become the new standard provision in the agreement to remove it as a common negotiating point. Also, look at any business disputes you’ve had with your clients/customers that arose from or related to an ambiguity or issue in the contract, and look at any resulting operational changes that were made. Consider whether revisions to the contract would help avoid similar disputes in the future or better reflect the revised operational process.Talk to sales personnel involved in the negotiation of agreements based on the template, either individually or as a group, for their input on what sections are most frequently negotiated.  Identify terms or provisions in the agreement that are regularly negotiated – e.g., the non-solicitation provision, press release language, security and data breach language, termination for convenience language, indemnities, limitation of liability, etc.  Look at those terms/provisions to see if there is an alternative provision, or alternative wording, that works for your company and will eliminate the need to negotiate that point every time.  For example, if your contractual payment terms are net 15 but most parties ask for net 30, and you don’t really charge interest on late payments until they are at least 30 days past due (45 days from invoice date), it may be worth changing the payment terms to net 30 in the contract to eliminate this negotiation point.
  4. Streamline and simplify the template. Review the contract template to streamline and simplify it as much as possible. Don’t say something in three sentences that can be said in one.  Use a defined term to avoid having to repeat a lengthy phrase throughout the agreement.  Avoid including fluff in the agreement, such as a full page of WHEREAS clauses, unless there’s a compelling need for it. Ask people at your company who don’t normally read contracts to read it and highlight any language that seems confusing, and see if clarifying revisions make sense.  Avoid legalese wherever possible. Ensuring your contract is as clear as possible helps avoid disputes with your clients/customers by minimizing the chance that an ambiguous term is interpreted differently by the parties (or worse, that a party relies on that interpretation to take a particular course of action that can’t easily be undone).
  5. Validate the pricing and terms/obligations with stakeholders.Obtain (or make) a list of all of the department heads and business owners in your company whose team/group/division has operational responsibility for terms in the agreement (for simplicity, we’ll call these department heads and business owners “stakeholders”).  The review should include not only the business terms with business stakeholders, but also the legal and risk allocation terms (e.g., representations/warranties, indemnifications, disclaimer of warranties, limitation of liability, etc.) with legal and compliance stakeholders.Mark up a copy of the template to identify which pricing and business terms and obligations are tied to which stakeholders.  Circulate the draft to each stakeholder, and set up a meeting with each to review, modify and obtain sign-off on contract language and provisions related to that stakeholder.  If you’ve already identified potential changes to streamline the contract (such as in #3 or #4 above), review those with the stakeholder to obtain buy-in, and ask the stakeholder if they have any additional suggestions on ways to streamline and simplify the agreement terms relevant to that Stakeholder. If a stakeholder indicates that your company doesn’t really do what a particular contract provision says, either remove the obligation from the agreement or ensure the stakeholder commits to the company’s performance of that obligation.

A few closing thoughts:

  • Once the contract refresh is complete, determine who needs to sign off on the new template before it’s introduced for use, and obtain their approval to start using the new template.
  • Consider using communication plan to introduce the refreshed template to personnel involved in negotiating the agreement such as your sales and Finance teams.  Also consider whether the creation of a companion explanatory document such as a contract FAQ, or embedded comments in the draft itself, would help your clients/customers better understand your agreement and further shorten the negotiation cycle.
  • If you are updating a set of online terms or an online agreement where the changes will automatically apply, ensure you follow any notice requirements for amendments or changes to the agreement.
  • Make sure you archive a copy of the contract template being refreshed.  You may need to refer to it later, e.g., if there is a client/customer dispute involving the older template.
  • Finally, set a regular review cycle (ideally no less than once a quarter) to check with Stakeholders and ensure there have been no major changes from a business or legal perspective that require changes to the agreement template.

10 Common Negotiation Positions and How To Work Through Them

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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.