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Do’s and Don’ts for Negotiating Key Agreements

By January 21, 2019 No Comments

DO identify your Company’s general posture with respect to the specific negotiation.  How important is this transaction to your Company?  Do you have realistic alternatives to this relationship (empowered customer negotiation is generally driven by the existence of current competitive quotes)?  What deadlines may be affected by the delays resulting from disagreements in negotiation?

 

DO identify your Company’s posture with respect to critical business and legal issues.  Not all issues are created equal, and identifying the key legal and business issues for a contract is critical to effective negotiations.  One way to do this is to have the different Company stakeholders come up with a “Top 10” list of critical open issues important to them.  These lists can then be compared and a prioritized.

 

DO message uniformly.  Especially where concluding negotiations in a short time is imperative to your Company, maintaining an effective discussion is all about maintaining a consistent message.  Vendors will often look for proxies in discussion to determine that leverage has shifted in their favor.  Very common examples would be: (1) a Vendor asking you to confirm that they are going to win the business; (2) a Vendor looking to avoid any discussion between their legal team and yours because you can “just work this out between yourselves” (we often call this the “trust me” approach).  While it is normal to reassure an increasingly trusted partner that they are in the driver’s seat, or that they trusted by you, doing so before they are entitled to this level of confidence under a definitive agreement will empower them to reject business and legal terms that would otherwise be accepted in an arms-length negotiation.

 

DO establish a uniform negotiation process.  Typically, the strategy most efficient for negotiation of contracts is for the recipient to turn a responsive markup of the original draft.  If the parties are close with respect to issues raised by the responsive draft, they may conclude negotiation through the exchange of execution copies or further redlined contract changes progressing to execution in one or two rounds (e.g., without person to person negotiation).  If the parties are relatively far apart on key contractual positions, ordinarily, a person to person negotiation is most appropriate because in discussion, people can more quickly identify real disagreements versus acceptable compromise—and establish a post-call process for resolving the real disagreements.  It is best practice for the recipient of new contractual terms to provide a detailed Issues list or detailed markup of all open critical issues within the new contractual terms.  This enables the conversation to efficiently move to critical points.

 

DON’T open a negotiation call with a closing call mentality.  Don’t expect to resolve all of your real disagreements on the call.  Each party is hoping not to have to move from their position and so will be unprepared to make other than minor concessions on the initial negotiation call.  By approaching negotiation with a closed mind or excessive internal pressure to close, you short-circuit your ability to adapt solutions and resolve differences.  Coming to the table with detailed knowledge of, and the intent to resolve, your real disagreements, is the hallmark of a successful negotiation.

 

DO expect Vendor to provide an authorized team.  You are entitled to expect that the team joining call should be authorized to negotiate on behalf their respective party.  This does not mean that recourse to other subject matter managers may not be required (e.g., to adjust warranty obligations may require higher level approvals), but the team on the call should be prepared to make compromises with respect to the large majority of issues raised.

 

DON’T lose your calm.  As mentioned above, Vendor representatives are well trained to recognize weakness in your negotiating team.  For instance, knowing that a company does not have internal legal counsel provides immediate information regarding the strength of the negotiating team.  As a result, a very common approach to negotiation from Vendors is to seek to divide your business team from your legal team.  Insisting upon a professional approach from the vendor that maintains the integrity of your internal team is a successful negotiation strategy.

Zac Kline

Author Zac Kline

EnhanceLaw is a boutique law firm focusing on technology transactions and general commercial matters in the areas of corporate procurement and customer contracting. Enhance Law works with large private and public companies across the breadth of their operations with a focus on delivering big firm legal and business acumen at lower cost. Enhance Law is always looking for talented people who want to live better and make a difference.

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