Contract Negotiations: How To Avoid Negotiation Peaks? Part 3
𝗩𝗲𝗻𝗱𝗼𝗿 𝗖𝗼𝗻𝘁𝗿𝗮𝗰𝘁𝘀
Picture the moment of buying new software, finalizing the lease on that dream workspace or formalizing your agreement with the new accountant via engagement letters. These are not just signatures or digital approvals of external contractual terms, they are important business decisions. Welcome to the world of vendor contracts!
Building on our previous discussion how to negotiate your 𝘰𝘸𝘯 𝘤𝘰𝘯𝘵𝘳𝘢𝘤𝘵𝘴 like customer contracts (Part 2), let’s focus now on contract of other parties.
𝗦𝘁𝗮𝗿𝘁𝗶𝗻𝗴 𝗽𝗼𝗶𝗻𝘁
One key principle we always advocate for: be cautious and hesitant to approve external template vendor contracts (referred to as Customer Paper) replacing your own template customer contract. Even though it is advised that large companies have their own template vendor contract for their vendors, only approve the use of such templates in exceptional and pre-approved cases. This will not only prevent delays, protect your business interests but also streamlines the negotiation process.
𝗠𝗮𝗶𝗻 𝗶𝗻𝘃𝗼𝗹𝘃𝗲𝗱 𝘁𝗲𝗮𝗺𝘀
𝟭. 𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁:
Roles:
· Strategic direction
· Alignment other teams. ´If the Sales Team wants to buy this software tool, let’s involve Procurement, Finance and IT to check the suitability of the tool´.
· Final decision
* Best practice:
– Keep overview of vendors to align with company’s objectives.
– Work on communication between teams, especially for large vendor contracts.
𝟮. 𝗣𝗿𝗼𝗰𝘂𝗿𝗲𝗺𝗲𝗻𝘁: Acting as the bridge between your company and the external vendors, having the overview and responsibility for all vendor contracts.
Roles:
· Budget & Pricing; Assess value and benefits of vendor contracts.
· Relationship building and primary vendor point of contact
· Negotiating contracts.
· Contract compliance with company policies/procedures
* Best practice:
– Inform all teams early of anticipated engagements with vendors.
– Keep the management updated with vendor list
– Involve the legal team 𝗲𝗮𝗿𝗹𝘆 (avoid end of quarter requests) to review contracts with clear timelines.
𝟯. 𝗟𝗲𝗴𝗮𝗹.
Roles:
· Review, advice and negotiate contracts
· Streamline process
· For large companies: create vendor templates
· Create questionnaire for all vendors (create with Compliance / Data Security Team)
* Best practice:
– Create a vendor questionnaire
– Stay proactive (not reactive) to avoid review of vendor contracts in peak periods
– Improve communication between legal, procurement and other teams to avoid delays and last minute reviews.
Prioritize vendor contracts for Quarter start periods. handling contracts based on $value and potential impact.
Tip 8: Consistent terms & definitions in your documents
𝐂𝐨𝐧𝐬𝐢𝐬𝐭𝐞𝐧𝐭 𝐭𝐞𝐫𝐦𝐬 & 𝐝𝐞𝐟𝐢𝐧𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐲𝐨𝐮𝐫 𝐝𝐨𝐜𝐮𝐦𝐞𝐧𝐭𝐬
Make sure that you use the same terms and definitions in your contracts and other important documents. It is also advised to follow the same rule for commercial documents like pitches / offers and even your website.
𝗪𝗵𝘆?
1. To ensure that everyone knows what is meant exactly by a certain term that you use in your company.
2. To create the best possible customer experience.
3. To avoid any misunderstanding on what service or product the customer has purchased from you exactly, and under which conditions.
4. In case of commercial discussions (and even litigation) about a term in the contract for whatever reason: e.g. exact services purchased (and under which conditions), the price for the service, termination possibilities, volume commitments, compliance and system requirements, etc.
𝗘𝘅𝗮𝗺𝗽𝗹𝗲
For a typical SaaS/Software company this means that the same terms/definitions should be used for the following documents (depending on the contractual set-up):
– General Terms and Conditions
– End User License Agreement
– Customer Contract / Master Ordering Agreement
– Order Form / SOW (Statement of Work)
– Annexes likes the Data Processing Addendum (DPA), Data Security Addendum and the Pricing Annex
– Disclaimer on the website
𝘓𝘦𝘵 𝘮𝘦 𝘬𝘯𝘰𝘸 𝘪𝘧 𝘺𝘰𝘶 𝘯𝘦𝘦𝘥 𝘩𝘦𝘭𝘱 𝘸𝘪𝘵𝘩 𝘺𝘰𝘶𝘳 𝘤𝘰𝘯𝘵𝘳𝘢𝘤𝘵 𝘵𝘦𝘮𝘱𝘭𝘢𝘵𝘦𝘴!
Tip 7: All templates in one place
𝐀𝐥𝐥 𝐭𝐞𝐦𝐩𝐥𝐚𝐭𝐞𝐬 𝐢𝐧 𝐨𝐧𝐞 𝐩𝐥𝐚𝐜𝐞
Remember to store all your (contract) templates in one central place to make sure that everyone is (i) able to find the correct templates quickly and (ii) using the correct template.
Sounds very straight forward, but in reality I rarely see companies that store all templates in one central place easily accessible for all involved team members.
Storing all contract templates in one central place is challenging for most companies, but especially in case of:
– fast-growing companies
– mergers/acquisitions
– activities in multiple countries
– large groups with many subsidiaries or a complicated corporate structure
– contracts in different languages
– involvement of different departments (Account Management, Sales, Partnerships, Sales Operations, …)
𝐖𝐡𝐚𝐭 𝐢𝐬 𝐭𝐡𝐞 𝐞𝐚𝐬𝐢𝐞𝐬𝐭 𝐰𝐚𝐲 𝐭𝐨 𝐦𝐚𝐤𝐞 𝐭𝐡𝐞 𝐭𝐞𝐦𝐩𝐥𝐚𝐭𝐞𝐬 𝐞𝐚𝐬𝐢𝐥𝐲 𝐚𝐜𝐜𝐞𝐬𝐬𝐢𝐛𝐥𝐞?
Best options are:
(a) fully/partly automate your contract creation and be strict that this is the only way that contracts can be generated. This way the relevant, most up to date and correct Contract Template is used and all templates are stored in one spot as you should only be able to use this automated system; and
(b) create a central place (usually an internal website or – less ideal – a shared folder).
𝐂𝐫𝐮𝐜𝐢𝐚𝐥: give training – at the start of employment and regularly thereafter – to your employees to make sure they know where the contract templates are located and how to correctly use these templates.
Tip 6: When making your specific contract, start with the correct template
Introduction
Previously in the series “How to improve contract templates”, we emphasized knowing the content of your contract templates. See the full article here: https://amstlegal.com/tip-5-review-the-contents-of-your-templates/. Now we’re zooming in on perhaps the most common issue with contract templates: How the templates are used daily. Because even with all the technology available to automate contract creation, most contracts are still created in word processing software such as MS Word. The templates are often saved in unstructured ways too. Additionally, the people that use the template contracts on a daily basis for a specific customer contract do not always use the correct template, i.e. the latest version, when making a new contract. While simultaneously doing that without using contract automation, unexpected risks can show up later on. Keep reading to learn what risks you could be facing, and how you can manage them.
When making a specific contract, start with the correct template
Why is it so important to start with the correct template?
Naturally, it sounds very convenient to use a contract of another client or the contract template that you have been using for years when making a new contract. However, this is the biggest risk associated with contract creation for companies that do not use contract automation. More time and money will need to be spent on the (re)negotiation of the contract and/or potential mistakes or claims in the future because your contract did not fit with the client or the specific situation. Using the correct template can be a step on the way to minimize encounters with these risks.
How do you minimize this risk?
So how do you avoid the risks connected to not using the correct template? There are many options to minimize those risks. However, we have found from experience that the two best ways to minimize these risks are:
- Fully/partly automate your contract creation and be strict that this is the only way that contracts can be generated; and
- Create a central place (usually an internal website) to store the contract templates, and give your employees regular training.
Unfortunately, the first tip can take some time to set up and requires recources for it to fully work. The pros outweigh that though, so don’t fear the power of technology when making contracts. For the second tip to fully work, we advise to provide training to the employees regularly. For example at the start of the employment followed by regular consistent training after that. This is our standpoint because you want your employees to know where the templates are located and how to use them.
Another tip that could be conjoined with the other two is to make sure that the importance of this is discussed regularly in your team or during company meetings.
Conclusion
To sum this article up, it can make a major difference on the aftermath of your contracts whether the correct template is used or not. Therefore we do advice to invest in good templates and good training for the employees. Doing this will make your contracting process much easier. If you feel like this is something that you would benefit from, contact us at AMST Legal for further personalized advice.
