How to negotiate a document

This article gives some tips on how to negotiate a contract. While it’s aimed more at business people, it’s awfully close to what lawyers should do.

I think almost every document can be fixed in one round of changes, unless there are open business issues that were deliberately left open at the term sheet or LOI stage. Term sheets should not be skeletal – they should include the material deal terms as well as those common areas where deal folks, rather than lawyers, make the final call or that are commonly negotiated, such as a knowledge qualifier on an IP rep for a startup.

If you’re a startup, ask your lawyer about what you can do to speed the process along. As my friend Mike likes to say, “Time kills all deals.”

Here’s how the process should go. First draft gets prepared by whoever is supposed to be doing it (that begs the question of who it should be, which is worthy of a whole separate post on controlling the drafting, industry standards, and sensible approaches). Mark Suster has an interesting proposal to get deals done even faster by eliminating the asynchonicity of the typical process (which we love in email and text) and doing the deal finalization session live. When the issues are known, and there aren’t major unknown facts (i.e., diligence is complete), then meeting in person is a great idea. I think it would absolutely speed up the process.

That draft goes to the other side who marks it up, in as much detail as they think is necessary. The goal is, however, to at least identify every single issue so that the number of things on the negotiating table only goes down, not up. Sometimes new things come up as the deal changes or as other solutions in other documents trickle back and affect the one you’re in, but those should be conforming changes not new deal points. The general model is that you identify all your issues at once. It’s also courtesy and good faith to signal what you’re negotiating about, so the other side doesn’t give in and make tradeoffs and then you raise a whole new issue that they can’t really balance without taking something back, which they’re loathe to do. Very hardball tactic. Don’t do this to me: I will put issues back on the table and tell my client, and yours, about your tactics (fair warning).

I get the markup and then run through it quickly, accepting whatever doesn’t matter or is fine, and schedule a call to negotiate the rest. Then, on that call, we run through the whole document and all the changes — accepting, rejecting, editing, deferring, or delegating “the business issues” to our clients to resolve. Now the original drafter turns the draft and preserves the open issues however was agreed on the call: sometimes that means keeping one version or the other or adding a comment, even just a “TBD,” to highlight the open issue.

The drafter then sends out a MARKED copy. DO NOT send only a clean. REALLY REALLY DO NOT SEND A DOC with UNMARKED(!!) changes. People will hate you, assume you’re an inexperienced idiot, and then distrust every document you send. You have just screwed the pooch. The only way out is to apologize profusely and explain why the oversight happened. (Accidentally hit accept to clear out formatting changes or something like that….) Of course, we also know that that’s bogus. Word makes it much easier these days to compare the two versions and create a marked copy. Just do it.

“Marked against what?” you ask. When you are drafting and have done things this way, you can conceivably mark against draft 1. This is because you have individually negotiated, live, each change so that the other side knows your position on each one. The more upstanding practice, though, is to accept the changes from the other side and unmark the ones you are rejecting. The end document is the same but now you have shown a modicum of respect to the other side and signaled what you are rejecting. That makes it easier for them to assume/believe/understand that you have accepted their other changes. By having the marked version show only the potential disagreement, the number of open issues is reduced and review is made simpler and faster.

Finally, many of my colleagues are annoyed by lawyers who only send back versions marked against their own prior versions. This practice is too common when they are negotiating by drafting rather than by actually negotiating. It strikes me and others as passive-aggressive and subtly deceptive, as though you’re hoping to slide a rejected change past me by making it harder for me to see that you’ve rejected it. Why? Why bother with the penny-ante games?

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