Contract Negotiatons: How to Avoid Negotiation Peaks? Part 1
Negotiating commercial contracts is always a daunting task, but is particularly complicated at the end of Quarter. We have written a series of tips on how to avoid these negotiation peaks, using my experience gained on this topic since 2004, as I have found that now a great time to start preparing for the end of Q3 and especially for the highest peak of the year (end of Q4).
If we all embrace the goal of reaching a steady negotiation rhythm, we are able to unlock benefits like improved decision making, streamlined processes, more joy at work and stronger relationships. Replace rushed contract negotiations & discussions with a strategic plan that allows for efficient and optimal contract negotiations.
As Commercial Contracting Experts, we focus on the following two scenario’s:
Scenario 1: negotiating your own contracts with buyers of your Products & Services: Customer Contracts.
-Teams involved: Sales, Account Management, Legal, Finance, Management, etc.
Scenario 1: negotiating contract of other companies to buy their products: Vendor & Supplier Contracts.
-Teams involved: Procurement, Finance, Facility, IT, Legal, Management, etc.
Top 10 common Commercial Contracts
– Confidentiality Agreement (NDA)
– Order Form
– Master Services Agreement (MSA)
– General Terms & Conditions (GT&C)
– License Agreement
– Framework Agreement
– Partner Agreement (Reseller, Distribution, Incentive Agreement)
– Service Level Agreements (SLA)
– Statement of Work (SOW)
– Data Privacy Agreement (DPA)
First Tip: start your preparation & planning and list your priorities now.
Are the teams your work with aware that the contracts you are working on need to be signed soon – particulary before end of Q3 or Q4??
Contact your team members this week to inform them of any upcoming contract negotiations.
Four Critical Factors: The following four Critical Factors will prepare you to work towards a steady negotiation cycle:
1. Early Preparation, Planning and Prioritization
2. Communication & Cooperation
3. Standard Templates & Procedures.
4. Implement Legal Tech & Digital Solutions
Bonus: specific actions for the last weeks of each quarter.
In the next posts in this series we will provide you with the specifics of the four Critical Factors and share practical tips for the teams involved, especially Legal, Sales, Procurement and Management.
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 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.