This document discusses the importance of collaboration between legal and business teams when negotiating contracts. It provides examples of both poor and effective contract negotiation processes. Key elements of an effective process include: having both legal and business teams review contracts to ensure mutual understanding; negotiating any points that are not agreed upon; and maintaining the contract after it is signed. Poor outcomes can result when legal is not involved until after problems arise or when contracts are not properly maintained after signing. Effective collaboration between teams leads to contracts that meet both legal and business requirements.
3. KEY ELEMENTS OF A CONTRACT
“Legal” “Both” “Business”
Indemnification PaymentTerms / Milestones Term
Warranties / Representations Termination Price
IP Ownership / Residual rights Data Security / Security Compliance Scope of work / Services to be
rendered
Termination charges / fees
Auto-renewal
Marketing / Promotion rights
Exclusivity / Non-Compete
4. WHAT MAKES FOR A GOOD CONTRACT?
• COLLABORATION between Legal and Business
• READ what you’re agreeing to
• UNDERSTAND / CONFIRM what you’re agreeing to
• NEGOTIATE what you don’t like in what you READ / UNDERSTAND
• Be willing toWALK AWAY from the negotiations
• MAINTAIN your contract after it’s signed
5. FINER POINTS OF NEGOTIATION
• 2Tools – Knowledge and Leverage
• You may not to be able to improve your leverage; but
• You can always improve your knowledge
• Believe it or not . . .
• Legal can (sometimes) help improve your knowledge!
8. SAMPLE COLLABORATIVE CONTRACT PROCESS
• Business engages in initial negotiations
• Business seeks Legal support:
• After initial read of contract, while negotiations still ongoing
• Legal review focuses on “Legal” areas, but confirms mutual understanding of all points
• Legal can participate in negotiations, or simply review and confirm final draft of contract before
execution
• Consider bringing Legal in early if there are any disagreements or concerns after contract is signed
(ideally before work is complete)
• Could be informational only
• Could be to assist with resolution
9. EXAMPLES
• Enterprise-level HRIS – poor negotiation
• Enterprise Cloud Storage agreement – effective negotiation
• Services agreement for large financial institution – successful collaborative negotiation
• AcquisitionTSA – effective collaborative process
• Enterprise-level ERP system – poor maintenance
10. ONE – POOR NEGOTIATION
• Business operated independently of legal in negotiations
• Scope of work was “understood”, but not clearly defined – very general
• Payment milestones equally vague
• Vendor failed to deliver what client expected – but, no clear breach of agreement
• Legal involved only after vendor and client reached standstill – end result:
• Led to over 12 months of frustration and rework
• Client didn’t receive effective solution, and had to spend substantially more time and effort in
implementation
• Vendor didn’t get paid for over a year
11. TWO – EFFECTIVE NEGOTIATION
• Started with standard language, pushed back on several points, prior to involving Legal
• Bandwidth restrictions
• Storage of data outside the United States at provider’s discretion
• No liability clause for deletion (related to recoverability)
• Unilateral ability to change vanity id on URL
• Ability to market using our name without any consent
• Clarity around service level (99.9%, on what basis) and Support hours (definition of local)
• Renewal term same as initial term, rather than month to month
• Successfully clarified / negotiated desired position on all but one point withVendor
• Collaborated with Legal on final product to ensure both Legal and Business term requirements met
12. THREE – EFFECTIVE COLLABORATIVE
NEGOTIATION
• Financial institution had many specific requirements, including robust data security
• Some “requirements” were unreasonable based on company’s technology configuration
• Business and Legal collaborated beginning early in negotiations – end result:
• They worked together to identify:
• Key contract requirements
• Capabilities of company
• Effective work-around solution
• Negotiations focused on making sure final agreement was consistent with the solution
13. FOUR – EFFECTIVE COLLABORATIVE PROCESS
• TSA can be a critical component of any acquisition
• Effective collaborative process – cross-functional collaboration across entire company
• Designated leads from each discipline (including from target company)
• Met regularly to identify and hone key dependencies
• Each iteration viewed in light of existing business operations to capture essential services and
appropriate pricing
• Final agreement subject to regular maintenance through integration process
• Regular, cross-functional meetings for extended period after closing
• Follow up negotiations with seller, as necessary
14. FIVE – POOR MAINTENANCE
• Business and Legal collaborated on contract negotiations
• Result was specific and detailed agreement, with appropriate concessions on both sides
• Payment milestones were specifically outlined and clear
• Problems arose in implementation – company requested substantial customization
• Vendor objected, declared milestone completed
• Business did not collaborate with Legal until after it (reluctantly) agreed milestone was complete
• Legal involved after payment dispute – end result:
• Implementation substantially delayed (vendor ceased work)
• Opportunity costs for both client and vendor were much higher
• Negotiated settlement ultimately led to delay in date milestone deemed complete, but payment still required
before solution was fully usable by client