In the world of business, contracts are the grease that makes the wheels turn and ensures each party receives what they expect. The art of negotiation is the fine tuning that can make or break a deal. While some of the points touch upon negotiation techniques, the main thrust of this blog is about the process of conducting successful negotiations.
- If it doesn’t seem right, don’t do it. If the deal (or the other party) smells rotten, it probably is. If people are asking for things that don’t make sense, or if they bluster when asked for information about their organization, there is probably a hidden agenda.
- Keep it simple and conventional. Overly creative deal structures are fraught with difficulties. The structures often require much more extensive legal drafting than parties may realize when they dream up the structure. Our attorneys prefer to see simple, straightforward deals that everyone understands, even if they don’t achieve all the subtle advantages (e.g. tax or liability) that are obtained by more complex arrangements.
- Agree about the main elements of the contract before drafting a written contract. These main aspects include work and price. In essence, don’t get bogged down in details. If you are using a term sheet, it should be no longer than two to four pages. If it gets any longer, tear it up and start again, focusing only on key points. If presented with a lengthy term sheet that has pages of IP-related definitions, push back and go for something much simpler, or go straight to drafting and negotiating the final agreement.
- Involve your lawyers. Successful contracts are a team effort. Choose high quality, user-friendly lawyers and involve them at an early stage. They bring useful skills, such as clear and accurate recording of the commercial terms of the deal and they may have experience that will assist you in the negotiations.
- Manage your colleagues. In some organizations, the leader will seek input from colleagues in different departments, e.g. finance, sales, patents, tax, et al. This may result in a shopping list of terms that the business requires, which the leader must propose in the negotiations. That is fine as far as it goes, but someone needs to ensure the company speaks with one voice and can make decisions.
- Think a few steps ahead. Some business leaders don’t plan ahead; others are very good at planning. If you need to have the agreement signed by a particular date, think about whether there needs to be a board meeting to approve the agreement and how much notice is required to hold a board meeting. None if this is rocket science, but mistakes of this kind happen frequently enough to make it necessary to make these obvious points.
- Give yourself time and space to negotiate the final contract. Sometimes, a client’s commercial representative is so eager to get the deal done that they make concessions too early (assuming that the other party will reciprocate), or make other unwise decisions.
- Try to understand the other party’s point of view. Try to work out what the other client wants from the negotiations. Ask lots of questions. Don’t assume they have the same objectives as your organization.
- Don’t lose focus when you think the deal is done. There is a tendency when the last negotiating point has been discussed, agreed, and struck from the list, for parties to relax and start making assumptions about the contract process. If it is important, try to discuss and agree to everything, down to when the final version will be prepared for signature, who will be signing it and when. Similarly, if you don’t intend to involve your lawyers in the signing of the agreement, you need to manage the signing process with the same attention to detail that the lawyers would bring.
Having trusted legal counsel helps to protect your interests throughout the entire negotiation process. Involve an experienced attorney early on in your deal-making to avoid roadblocks, delays and unwanted outcomes later on.