Wednesday, March 28, 2012

Closing the agreement fast.

Sudhir is a frequent reader of my blog and provides suggestions for posts to add to the blog. Recently he asked "When you are pressed for time, how do you do close the agreement fast?"

Closing agreements quickly requires a combination of negotiation, program management and people skills on the part of the negotiator or contract manager.Here are some suggestions on how to do that

1.Make sure that management of both companies are committed to closing it fast so they support the intense effort that will be required over the short time frame. When management agrees the troops have to follow.

2.Use all of the electronic tools available to you to help speed and facilitate the process.

3.Use electronic tools such as instant messaging to get needed information and support quickly if not real time during the process from your team.

4.Manage the content of the contract documents to only what you need. Including things you don’t need so you can later make concessions only wastes valuable time.

5.Get all the documents to the other party immediately.

6.Get the supplier to commit to review the documents in no more than one day so the negotiation can commence the next day.

7.If economically feasible and if all individuals can free up their time, schedule face-to-face negotiations.

8.If #7 cannot be done, get both parties to commit to have all individuals required to participate or agree to be available for calls or have them give authority to agree to those who will participate.

9.Make sure all participants understand the urgency and schedule and ask them to clear their schedules for negotiations and review meetings. Pull rank if needed to re-prioritize their schedules.

10.After the initial negotiation, schedule follow up negotiations/review meetings at the same time daily, including weekends until it’s closed.

11.If you are dealing with another geography where there is a time zone difference, have your people available to meet when it works best for the other party or at a mutually agreeable time.

12.Be prepared to spend long hours until you close.Each day will require time for negotiations and reviews, internal reviews, documenting status, updating the agreement and expediting open internal actions
13.Have the supplier identify their key issues or concerns and focus on those first.

14.Probe to understand their concerns, as they may exist only because of a misunderstanding. If needed use your own words to describe the intent, what you need and why you need it.

15.Manage the discussions so they are short, clear and accurate. Avoid valuable time being wasted on things that don’t add value.

16.Have side discussions be taken “off-line” to discussed by the interested parties rather than tie up all participants with the discussion.

17.Provide daily progress updates to leaders on both sides to keep pressure on delivering.

18.At the end of each meeting state and get confirmation on what has been agreed and what remains open identifying who is responsible to close the issue and when it must be closed by. Add that to your action item list.

19.Update the drafts to reflect agreed changes and highlight open areas to narrow down what gets reviewed or discussed. Only allow going back to previously agreed issues when the current point being discussed has an impact on what was agreed.

20.Focus your negotiation on key issues. Eliminate wasting time on small points. Demand the same from the other party.

21.Make sure your agreement has a counterparts provision that allows the document to be signed in counterparts so you aren’t managing signatures serially once you have agreement. (see post on counterparts).

22.When successful, make sure you acknowledge and thank everyone of your team that helped copying their managers. When someone goes over and above make sure management knows it. The individual will be more willing to help you the next time if they are recognized and praised.

23.When successful, make sure you thank everyone on the supplier’s team and their management for helping close the agreement quickly. That starts to build a positive relationship after what may have been an intense negotiation period.

If you have other things you would suggest, please add them as comments. If there is a topic that you haven't found address and would like it addressed please let me know.

Making terms mutual

Beware of anyone using Latin phrases in a contract. I was involved with a negotiation and received a mark up to a number of sections in the agreement where the supplier’s outside counsel had added a statement that the clause would apply to them “Mutatis mutandis”. This wasn’t a term I was familiar with after many years of negotiations so I needed to do research. What I found was it meant “by changing those things which need to be changed" or "the necessary changes having been made". What they were proposing was that those terms be mutual without coming out and saying that. Armed with that knowledge I reviewed the changes a second time to determine if it made sense for the supplier to have those same contract protections.

I work off a general rule that since the relationships under a contract are different the commitments should be different.

For example, under law the parties to a contract are treated different. A buyer who hires a supplier is considered a principal, the supplier is consider an agreement of the buyer. This means a buyer can potentially be liable for the actions of a supplier under the concept of agency. As agents aren’t liable for the acts of the principal, the supplier cannot be liable for the actions of the buyer. The only exception to that would be where the buyer specifically directs what the supplier must provide (such as making something to a buyer provided designs) or directing how they must implement their design. That latter situation is usually already addressed in most contracts where the supplier is excused from in indemnifying the buyer for those acts. Since the legal relationship and risks aren’t the same, why should the commitments be the same?

The second thing to consider is the obligations of the parties under the contract. In the vast majority of purchase contracts, the buyer’s primary obligation is to make payment for the goods or services they purchase. The supplier has far more obligations. For example the buyer may ask for a number of warranties regarding the product or service the supplier will be providing. What warranties does the buyer really need to provide when their primary obligation is to make payment? The terms don’t apply equally to both parties simply because the obligations of the parties aren’t equal, and the risks aren’t equal.

When it comes to the supplier’s product or services, the supplier is the one that has the ability to manage and control the risks associated with that product in terms of how they design it, how they manage production of it. They can be protected by specifying how the item may be used, the environment, the tolerances. When it comes to intellectual property infringement, how does a buyer protect against the supplier’s product infringing a third party’s intellectual property. They have assumed that risk by agreeing to sell their product or service and can manage against that risk by the way they design their product. When a contractor has control over a site and is responsible for managing safety on the site, how does a buyer manage against the risk of damages or injuries? The contractor can manage against those risks by hiring skilled personnel and implementing safety programs and not taking risks during the performance of the work.

I didn’t agree to any of the sections where they proposed mutatis mutandis. If my company caused the problem such as providing instructions that would be infringing what would be the best thing for the supplier to have. They were looking for the indemnification to be mutual. An indemnification only provides value if they were actually sued for the infringement. In most cases since the buyer was the one selling the infringing product that the supplier produced, it would be the buyer that would be sued.

If I was sitting on their side of the table, rather than pursue a mutual indemnification I would have sought a warranty from the buyer that any buyer specified designs or instructions do not infringe upon the intellectual property rights of a third party. With that warranty if there was an infringement claim made they could claim breach of the warranty, terminate the contract and claim damages.

Very few things in contracts need to be mutual.