≡ Menu

Announcement: The Common Draft collection of contract clauses and templates is posted (in draft); it includes several hundred clauses, with extensive annotations, explanations, and commentary. If you’d like to be notified of significant developments, please subscribe to updates at right. See also my first e‑book, Signing a Business Contract? A Quick Final Checklist for Greater Peace of Mind.

When a contract negotiation gets tough, try to make it about money, not about “legal stuff”

The problem: A hyper-conservative customer lawyer

When I was a software-company general counsel, a prospective customer’s lawyer once sent me a markup of our standard software license agreement. His markup was practically bleeding red ink with all the changes he wanted us to make. This was odd, inasmuch as a number of other customers had said our contract was by far the best they’d ever seen.

After checking out the other lawyer’s bio page, I concluded I had essentially zero chance of persuading him to back off on the changes he was demanding. Our customer was in Florida; the other lawyer worked for a law firm in that city, but in his firm’s New York satellite office. The other lawyer seemed to be a specialist who had been called in because of his particular expertise. My hunch was that he had few if any other dealings with his firm’s client, our customer, and probably not with his firm’s account partner either.

Because of these factors, I guessed that this deal held essentially no personal career upside for the other lawyer — if anything, what it held was career downside, if later it turned out that he’d failed to catch something ‘bad’ in our contract. So in hindsight it wasn’t a huge surprise that the other lawyer had drastically marked up our contract, demanding the moon from us so as to cover his own flanks.

But knowing these things didn’t help me. In the sales folks’ minds, this deal was already closed, because they’d done their part, and “all” that was left was “legal stuff.” The shot clock was running down on the fiscal quarter. We had a lot of other deals to close, so there was only a limited amount of bandwidth we could devote to negotiating terms and conditions for this one particular deal.

What to do?

The solution: Turn a legal negotiation into one about pricing

After getting approval from our senior sales exec in charge of the account, the sales rep and I got on a conference call with the business customer and the other lawyer, with the senior sales exec listening in.

Me to the other lawyer: “We’ve had a lot of customers tell us they love our contract. But I’ve been in your shoes and know where you’re coming from. Unfortunately, there’s not really time for us to go point-by-point through your changes so I can try to talk you out of them, and I probably can’t do that in any case.

So you win: Aside from two points that are deal-killers for us, we’ll agree to all your changes.

But the pricing we offered your client was predicated on their accepting our standard contract terms. You’re now asking us to accept greater legal risk. That means the pricing has to change. I’m the one who decides how much.”

And then I quoted him a 40% price increase.

The other lawyer, sputtering: “That’s outrageous. I never heard of such a thing.” (Etc. etc.)

Me: “I’m not sure you understand what I’m saying: You win. We’re agreeing to nearly all of the changes to the contract that you asked for.”

We continued in that vein for a few minutes. The sales rep and the senior sales exec were both grinning.

I suggested that we recess the call and let the business people talk. All agreed this was a good idea.

The next thing I heard, the customer had agreed to sign our contract pretty much as-is, with one or two minor changes.

Lesson: When the going gets tough in negotiating contract terms and conditions, try to make it about money.

Comments on this entry are closed.

  • randomjohn August 20, 2009, 8:36 am

    This works both ways. On the customer side, I’ve asked vendors to tell me how much it would cost to get the deal terms I want (usually I phrase it as “how much would it cost me to get this product on standard commercial terms, because what you’re offering on the contract is way below market”). That usually makes the sales team wonder what their lawyers are doing to them. Of course, this only works when price is a significant driver of the choice of vendors, in which case the sales team usually knows they’re in a commoditized market and will lose the sale due to the lawyers.