Shall versus will: A sales-related reason to use the latter
November 19, 2008
Contract drafting maven Ken Adams writes again about shall versus will in contracts. I agree with Ken about using shall, at least when you have two parties who are committed to the deal. On the other hand, I’ve drafted a lot of commercial contracts for enterprise-software companies and other vendors where the customer isn’t completely ’sold’ yet.
(In the case of enterprise-software deals, the customer often isn’t psychologically ’sold’ until the software has been installed and rolled out and its users are so comfortable with the software that they wouldn’t want to give it up.)
In those cases, I like to soften most mandatory language by using will. EXAMPLE: Instead of, Licensee shall renew maintenance annually for five years, I might say, Licensee will renew maintenance annually for five years.
The use of will strikes me as being a bit more deferential to the customer, and respectful of the reality that even on a whim the customer can walk away at any time before signature. I think it helps to reinforce the impression, especially in the mind of the customer’s contract reviewer, that the customer will be undertaking the obligation voluntarily, as opposed to somehow being forced into it. (I know, every contract obligation is undertaken voluntarily, but we’re talking sales psychology here.)
Language tweak: Master services agreement customers aren’t obligated to provide X amount of work
November 18, 2008
In Business Sys. Eng’g v. IBM, No. 08-1081 (7th Cir. Nov. 10, 2008), a subcontractor alleged that IBM had agreed to provide the sub with $3.6 million of work on a project for the Chicago Transit Authority. IBM provided the sub with only $2.2 million worth of work. The sub sued IBM in federal court, claiming that IBM owed it the remaining $1.4 million.
The court granted summary judgment in favor of IBM, and the court of appeals affirmed. One could take the position that all’s well that end’s well. But IBM presumably still had to incur the expense of the discovery phase in this lawsuit (document production, depositions, etc.), because courts are seldom willing to grant summary judgment against a party before the party has had the opportunity for discovery.
With this case in mind, I tweaked the “Statements of work” clause of the Services section. It now reads as follows (subject of course to change without notice):
[[ProviderShortName]] will provide services for [[CustomerShortName]] as described in any written statements of work that may be signed by the parties in their discretion.
(Emphasis added.) The intent is to make it clear that to make it clear that neither party is obligated to agree to a particular number of statements of work or a particular quantity of work.
How to help your assistant do a first-draft markup of the other side’s contract form
November 12, 2008
If you’re a lawyer, you know that reviewing and marking up the other side’s contract draft can be a real time sink. With Drafter’s Choice, your junior associate, your admin, or other assistant can do a first-pass ‘legal review’ markup in a few seconds. That way, you can spend your time providing more value-add input to the deal.
Here’s a hypothetical example: Suppose your client is a potential customer that wants to enter into a services agreement. The service provider is eager to get the sale. It sends your client its standard contract form; it’s long and detailed, with lots of small print. You’re fairly busy and are concerned about the time it will take for you to do a thorough job of reviewing the contract form.
Here’s how you can use Drafter’s Choice to let your assistant do a preliminary legal-review markup for you:
1. Get the other side to base their draft on a Drafter’s Choice contract form
First, have your client tell the services provider (or you tell their lawyer) that they can propose any contract terms they like, but only if they do so by customizing the appropriate Drafter’s Choice plain-English contract form.
That should not be a burden on the provider: It should take no time at all for them to generate and send your client a Word document.
2. Choose a reference document that’s close to what you want, for comparison
Next, have your assistant download a Drafter’s Choice contract form that comes reasonably close to your preferences.
In our hypothetical transaction, your client is the customer, so you can tell your assistant to use a Drafter’s Choice form with customer preferences built in. Alternatively, you can choose a ‘fairway’ form that tries to stay down-the-middle. (You can even customize the form before downloading it as a Word document.)
We’ll call this the reference document.
It doesn’t matter if the Drafter’s Choice reference document isn’t a perfect match for your needs in this transaction — you’re not going to use it as ‘the’ contract draft you’d like to sign, but only as an initial screening tool to help flag problems with the provider’s draft.
3. Have your assistant redline the provider’s draft against the reference document
Now your assistant can use Microsoft Word’s compare-documents feature (or other comparison software) to compare the provider’s draft against the reference document. That will generate a ‘redline’ markup document, giving you an initial snapshot of potential problems with the provider’s draft.
If you watch any of the doctor shows like ER, you could think of this first markup as being like the intake screening that an intern or nurse does before the attending physician sees the patient.
4. Proceed with your legal review
Congratulations — in just seconds, using Drafter’s Choice, your assistant has made your legal review a whole lot easier. Instead of having to manually redline and annotate every clause that needs it yourself, you can simply do touch-up work on the redline your assistant created.
In doing your legal review, you can consult Drafter’s Choice’s extensive clause-by-clause annotations and commentary.
How to kill a big-company deal in the cradle:
Refuse to use the other side’s contract form
November 8, 2008
If you’re an entrepreneur and want to kill a deal with a big company in the cradle, then follow the advice of ‘Uncle Saul’ in a post (otherwise full of good advice) on negotiating such contracts. See Kiss of Death – Contract Provisions Entrepreneurs Should Avoid at All Costs (hat tip: Hacker News). The author explains why he thinks an entrepreneur should "never agree to … allow the other side to draft the agreement …." That’s unrealistic, if you ask me.
For reasons good and bad, big companies usually want to use their contract forms, not yours. Certainly it’s important to offer to draft the contract. And if the big company reeaally wants to do a deal with you, then you might get away with insisting on controlling the typewriter.
But bad things can happen, though, if you simply fold your arms and refuse to negotiate the other side’s contract paper. Even if the big company’s negotiators grudgingly agree to work from your draft contract, they’ll start the negotiation thinking your company is less than cooperative (which isn’t good for the business relationship). Then later, when you ask for a substantive concession that’s important to you, they may be less willing to go along. In any case, their agreement to use your contract form, in their minds, will be a concession on their part, meaning that you now owe them a concession.
For a vendor lawyer, there’s another danger in insisting on using your own contract form: Your client’s sales people will blame their lack of progress on you. Sales folks are always having to explain to their bosses why they haven’t yet closed Deal X. Your insistence on using your contract form gives them a ready-made excuse: They can tell their boss that you’re holding up the deal over (what they think is) some sort of petty legal bulls__t. Even if that’s not the whole story, it’s still not the kind of tale you want circulating among your client’s business people.
Related post: How to convince a big customer to use your contract form - and get your sales people to support you in it
Cut negotiation delays with a balanced contract form
August 13, 2008
In a prior life, I was vice president and general counsel of a medium-sized, publicly-traded software company. Whenever a customer asked us to agree to a change in our standard contract form, we treated it not as an adversarial challenge, but as a marketing opportunity: Customer A thinks its life will be better if we can make this commitment. It’s willing to give us money if we do. Hmm — maybe we can tailor our business processes so that we can comfortably make this commitment. That might give us yet another thing to tout to other customers as a reason to buy from us.
Thinking along those lines, in many cases we went back and changed our form, so that our standard offering included what Customer A had asked for.
This approach paid big dividends: As our contract form thus evolved, it began to get rave reviews from customers’ lawyers. My sense was that this significantly sped up our sales-negotiation cycle.
I made notes of customers’ favorable comments, and then finally got smart and quoted the comments (anonymously) on a cover page of the contract form. This turned out to be a good move, because it helped us “sell” customers’ legal people on the idea of using our contract form. Here are a few of the comments, all made by in-house counsel:
- When I first looked through this, I wondered ‘did someone already negotiate this for us?’ It’s a pretty nifty document you’ve got there; I liked it very much.
- I told our business people that if your software is as good as your contract, we’re getting a great product.
- I giggled when I saw the ‘movie reviews’ on your cover sheet. I’d never seen that before – customers saying this was the greatest contract they’d ever seen. But the comments turned out to be true.
Needless to say, our sales people were not unhappy about getting to signature faster.
The above information is not confidential, by the way: With my CEO’s permission, I talked about our approach in continuing-legal-education seminars, and even included a copy of our standard contract form in the written materials.
You might wonder whether we ever experienced legal problems from having a customer-friendly contract form. I’ll note only that my CEO let me talk about our approach in public, and that we were eventually acquired by one of the world’s largest software companies.
Procurement people are shooting themselves in the foot - IACCM
July 12, 2008
The July IACCM Newsletter reports on its research results suggesting that procurement people at many companies are jamming onerous contract terms and conditions down the throats of their suppliers — but that this approach may in fact be counterproductive.
“Ironically, as so much IACCM literature explains, this approach to risk management is self-defeating. By pushing onerous terms onto suppliers, the buyer has not achieved reduced risk - in fact they have frequently increased the probability of things going wrong.”
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CAUTION: Don't rely on Drafter's Choice materials as a substitute for legal advice; ask your lawyer if they're right for your situation, and use at your own risk.
