Teamwork and Communication Versus Too Many Cooks in the Kitchen – Part 1 of 2

Team approaches in contract negotiations can be very effective. In fact, for some contracts, a team approach is essential – particularly when the contract will impact various divisions or facets of a company’s overall existing and future operations.

Consider hypothetical ABC Manufacturing Company (ABC) that has multiple divisions (including Aeronautics and Renewable Energy) operating independently, but within the same general industry groups. Further assume that ABC’s Aeronautics Division wants to license certain technology to Third Party Company (3P), but only for use in wind turbines – not in aeronautics or aerospace – because ABC has plans for use of the technology in those fields, but not in turbines. In this circumstance, it’s likely critical that ABC involve numerous parties in the contract process (although not necessarily in the actual discussions with 3P – see Part 2 on this topic). Who might those parties include, and why?

• Obviously, the heads of the Aeronautics and Renewable Energy Divisions – so that the precise scope and nature of the license can be considered, along with its impact on those divisions (now and in the future). Also likely those who are not division heads, but who may have a deeper understanding of certain products, projects and relationships.
• Research and Development – so that those negotiating the contract terms know what the current state of the technology is, where it may be headed, what rights are licensable, and what rights should be excluded/retained.
• IP – so that there is a clear understanding of what protections exist currently, who will be responsible for maintaining those protections, who has rights to derivative technology, etc.
• Strategic Planning – so that something that seems unimportant now doesn’t “unexpectedly” become important in the future – especially if there are parties within ABC who already knew it’s important.
• Legal – so that rights granted in this contract don’t conflict with rights previously granted to other parties, and the current contract ultimately says what the business people intend.
• Others – there may be any number of others that should be consulted or at least kept informed as to the discussions with 3P – accounting (budgeting and cost), marketing (brand and image), etc.

The point is, many contracts have far reaching and (sometimes) difficult to foresee implications for a company. Involve as many people and divisions as necessary to make sure you are aware of and consider all of these implications.

In Part 2, I’ll discuss the importance of speaking with one voice, notwithstanding the involvement of multiple parties.

Get it Right the First Time

Ever hear the expression – “you never get a second chance to make a first impression”? It’s true in business transactions, and particularly in contract negotiations.

So, what’s my point? After all, many contract negotiations go on for weeks, or even months, and countless drafts are exchanged. So, don’t you really get many opportunities to “get it right”? The answer is, generally, no. Let me explain.

Twice in the past week, I’ve had clients send me a contract for “final review,” only to find out that the contract had actually originated with my client and had already been provided to the other side for review and comment. The problem was, in each case, the contract provided to the other side had substantial problems for my client. By problems, I don’t mean language that I preferred had been worded differently or minor clerical errors. I mean material issues that were overlooked or improperly drafted in such a way that it put my client at substantial risk – business and legal.

This scenario causes problems for a number of reasons. First, it limits your options. Do you (or really, can you even) go back to the other side and ask that substantial changes be made to the contract? If so, do you now have a lack of trust or credibility? Do you give the impression that you are disorganized, or worse yet, unprofessional?

Second, assuming you do go back with changes, do you highlight issues that may have been perfectly acceptable if they had been in the original draft, but that now are subject to strong objection? After all, the initial proposed contract was all about mutual give and take and compromise, whereas these changes are now almost certainly entirely in your favor. Will you have to give something back in return?

Third, by going back, do you delay the process, and perhaps threaten the deal entirely?

And finally, have you placed yourself in a position where you really can’t go back to the other side, and instead simply have to accept the contract as-is?

The moral of the story is, carefully consider the deal (hopefully in cooperation with legal counsel) before you present the first draft of the contract. If you don’t, you may find that you never get the deal that you wanted – or at all.