Sometimes the headache from contract negotiation comes from the process itself. Seemingly endless markups being traded back and forth with progress being painfully slow. With each turn of the draft, it feels like trust between your agency and your client erodes and the parties get further away from the energy about the project that brought them together in the first place.
The Way to Better Contract Negotiations
Fortunately, a better approach to contract negotiations is just four steps away. Our process to simplified negotiations is as follows:
- Original Markup. One party (Originator) delivers contract documents to the other party (Recipient). The Recipient marks up the contract and returns them to the Originator.
- Responsive Markup. The Originator reviews the Recipient’s markup to accept those requests that are OK and to prepare a responsive markup identifying areas of concern.
- Resolution Call. Once the responsive markup is delivered to the Recipient, the representatives and counsel for both the agency and the client get on the phone to resolve areas of concern.
- Prepare for Signing. A document reflecting resolutions agreed to in the call is circulated for final review and signature.
While this process is simple in theory, there are still lots of opportunities along the way to get sidetracked. Let’s walk through this negotiation process in detail using a specific example.
Let’s say your agency is courting a new client for a $100,000 website development project. Your agency prepares an MSA and SOW using results from its recent paid discovery project with the client. Once the MSA and SOW are ready, you deliver them to the client.
1. Original Markup
When your agency delivers its MSA and SOW to the client for review, you should deliver these documents in an easily editable form that supports tracked changes (like Microsoft Word or Google Docs, not a PDF). While you would like your client to sign without negotiating, sending documents over in PDF to discourage negotiation just sets a bad tone for the relationship. No one ever responds well to something presented as “non-negotiable”.
Related, some contract management/proposal delivery platforms don’t make it easy to extract the contract text for editing. While it’s fine to use these tools, if they don’t have an easy way for your client to download a well-formatted, easily editable document, be prepared to send this type of document separately on request.
When you deliver your documents to the client, give a deadline for their response. Your deadline shouldn’t be arbitrary. Talk to the client in advance about their typical response times but also make sure the deadline works for you. While not binding, it can be a helpful tool for encouraging follow-up during the contract negotiation process.
If you really want to put some teeth behind your deadline, put an expiration date on the price presented in the SOW and a consequence of higher prices if that date passes. It can be as simple as this:
“The pricing in this SOW is good until [date]. If the contract is not signed and deposit paid by this date, this pricing will no longer be effective, and we will need to update pricing. At present, we estimate our prices will be approximately X% higher if we need to update pricing.”
While the last sentence is optional, giving a real consequence will be motivating — especially to procurement departments charged with securing the best price. Be sure to follow through on this if the deadline comes and goes or you may lose your leverage in other negotiation areas.
Once received, the contract is mostly out of your hands while your client performs its markup, hopefully before the deadline. Don’t hesitate to check in with your client a couple times while they have the agreement to see if there are any questions or major issues brewing.
2. Responsive Markup
Your agency now needs to review and respond to the markup. You can do this with your internal team or in consultation with counsel. The goal of your review is to (i) accept the items that are OK, and (ii) create a responsive markup on the areas of concern.
This contract is near the top of your client’s mind and inbox right now so move quickly while memories and motivations are fresh. We recommend reviewing and responding quickly to preserve momentum — within two to five business days is best. Yes, your lawyer should be able to respond that quickly (if they don’t, we know who you can call).
As far as the documents themselves, when generating a responsive markup, we recommend accepting all of your client’s proposed changes and then editing just to address areas of concern. This does three things:
- In most negotiations, the list of open items usually gets smaller with each turn of the document. Accepting the proposed changes and just editing back the concerns results in a document with fewer marks.
- Because the document likely has fewer marks, this communicates progress and agreement. Parties like to see their proposals accepted and this does just that.
- This practice makes the document easier to use. Multiple layers of markup by different authors can quickly become very difficult to read and follow.
When creating your responsive markup, be practical without being a pushover. Often you may need to accept terms that are workable even if not ideal. Think about how you might be able to manage risk through project management rather than just contract language. Be creative and flexible. But realize that at this stage of negotiations, it would be very difficult for a client to change agencies. That means you have more leverage to insist on what you really need. Don’t get bogged down on clauses with low or remote value. Use your energy and leverage where it really counts.
3. Resolution Call
Once your responsive markup is ready, deliver it to the client with a request for a call among the business representatives and lawyers for both parties. The agenda for this call is to resolve the open items.
When having this call, focus on the business concerns behind each open item in the contract. Discussing the underlying business concerns ensures that the parties are communicating about the real problem and not just pushing language back and forth. It’s not uncommon that once the parties really understand the underlying business issue behind contract markup, the language gets resolved quickly.
The reason we recommend a call rather than more markup is to minimize posturing. It’s very easy to take an extreme position on a markup when you don’t have to be there in person to take responsibility for it. Having a call can often help those extreme markups dissolve into reasonable discussion and compromise.
A call with all parties also helps ensure that the resolutions discussed can also be approved for inclusion in the contract. Getting agreement on the phone as much as possible prevents another trip around the negotiation block.
The final agenda item in the call should be to agree on who “has the pen” for purposes of preparing the final edit. In our example, Client is probably the best candidate since they just received Agency’s responsive markup. End the call by summarizing the agreements reached, the expected markup, and a timeline for the final version.
In very complex situations, you might need another trip around the block with markups. That’s OK. By now though, the issues list should be narrow. More than a couple rounds of markup usually signals a bigger problem: maybe the parties aren’t really communicating or maybe the lawyers are getting in the way. To that point, if you feel you are stuck in negotiations because your lawyer is slow to turn markups, overly pedantic with edits, making markups that you don’t understand, or more interested in volleying markups than driving resolution, you might want to think about a new lawyer. None of these are acceptable approaches.
4. Prepare for Signing
With negotiations successfully concluded, it’s time to sign. The party with the pen should prepare a markup reflecting the final items approved in the call. Just as with the prior markup, this is best created by accepting all prior changes and just making the edits agreed to on the call.
At the same time, a “clean” version is created for signature. In this version, all the changes are accepted, and the document is flattened into a PDF. In our example, the client has the pen and should prepare both these final documents.
When ready, both the final markup and the signature version should be delivered for final review. The markup is used to ensure that the items agreed to in the call have been incorporated into the document and the clean PDF is for signing.
Some of our clients wonder whether the clean signature version should be checked against the final markup to ensure that the Client didn’t slip something in that isn’t shown in the markup. We generally don’t find that necessary. Not only is this type of behavior extremely rare, but the hidden changes also wouldn’t be enforceable. Contracts don’t work by “gotcha”– they work by agreement. So we recommend avoiding this step.
You can sign with wet ink, a PDF stamp, or an electronic signature service. All are equally valid. Once signed, store a copy of the signed MSA and SOW in the client project file and in a separate legal folder that just contains signed contracts.
It Works Both Ways
Our example involved a contract that started with the agency’s paper. But this approach works the same if the initial form of agreement comes from your client.
- Original Markup. The client delivers contract documents to your agency. You mark up the contract and return them to the client for review.
- Responsive Markup. Your client reviews your markup to accept those requests that are OK and to prepare a responsive markup identifying areas of concern.
- Resolution Call. Once you have the responsive markup, get on the phone representatives and counsel for both you and your client to resolve areas of concern.
- Prepare for Signing. You take the pen to prepare both a markup reflecting resolutions agreed to in the call and a clean version for signature.
You’re Ready to Negotiate
Use this method to negotiate your next service agreement quickly and effectively. Try to focus on understanding the real business concerns so you can best offer creative and flexible solutions. Be practical in your negotiations, but don’t feel like you need to give the shop away. Your client likely can’t easily change course once you are at the negotiation stage so use this leverage smartly. By resolving contract negotiations quickly, you’ll soon have the deposit in hand and your team productively engaged on the project.