Strategic Contract Advice
One of the trickiest questions a contracts adviser can get is "Please send me a precedent for my so and so contract". You do so innocently trying to help and then about a week later comes the phone call or email that says "Why on earth did you send me that contract template, it wasn't what I wanted at all!"
Well of course it wasn't because the client wanted help on the cheap and not a proper engagement.
I learnt long ago that what may appear a simple request for a draft contract almost always masks a much more complex requirement. Here at the start of the transaction is when the best advisers really can add value by, for example, asking the simple questions "who, what, where, why and when". Another good question is "forget the detail please tell me who is paying whom for what". Also the size and content of the deal inform the contract drafting and negotiation. A small software company contemplating the biggest deal of its corporate life is in a different position than a multinational procuring what it sees as standard supplies. See our page on Dealing with Big Corporates.
In other words drilling down into the deal, find out what is really going on and providing strategic advice not just wordsmithing is a critical part of the work of a professional contract adviser. I sat in a negotiation for three hours once in the City of London whilst we negotiated key elements of a computer service agreement such as price, performance and timetable. The lawyer on the other side said not one word until we had just concluded. Then he woke up and said he had some points to make. On no I thought he has found some flaw in the grand scheme of things. Not at all - he had in fact spotted six typos which he had been diligently looking for whilst the real deal was done.
I recall standing on a station platform in Surrey waiting for a train to London when I overheard a conversation along the following lines between two fellow commuters. "How did that big deal you were working on go?". "Ah yes very well. We completed last week. Mind you the lawyers were such a nightmare. Really pedantic. In the end we sent them to a separate room to sort out the formatting whilst we concluded the real deal."
Either of these scenarios is for a contract adviser an abdication of responsibility. How if this is your approach can you advise on the right form of contract to use, or on what points are really going to matter in a negotiation or what risks to protect against?
In this context I rather liked this quote from Sun Tzu, The Art of War:
“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
In order to provide a true strategic contribution it is also essential to be brought in early on in the proceedings in order to find out what is happening to your side and "the enemy". Several years ago I went to visit a City lawyer for a first meeting on a strategic outsourcing contract in the public sector being carried out under the old Private Finance Initiative (PFI). I asked for a summary of the state of the contract. Ah well I was told the terms and conditions are quite well advanced and here is the draft. It looked reasonable as a starting point and was based on a standard government contract, but it had thirty schedules. I asked quite innocently to see the drafts of these as well. Thought you might ask that they said. We don't actually have any yet! Nine moths of hard negotiation later we signed the contract for a major IT supplier after extensive work on the principles and the detail. The service was developed and delivered on time and then provided in accordance with the agreed service levels.
I understand of course that professional advisers can appear expensive and clients need to contain and control their costs. However I suggest it is truly a false economy to seek to limit your contracts advisers to secondary roles in the creation and negotiation of a complex agreement. Select and choose them for their strategic knowledge and ability as well as for their grasp of detail. In the long run this will pay dividends and is in my experience far more likely to result in successful, timely and cost effective delivery with the supplier making a reasonable return and the customer receiving an impeccable service.
After all getting the words right is one thing, but contracting for what the customer really wants and the supplier can really deliver is of immense strategic importance. Get it wrong and the parties will regret it all the way to the courts. Here is what Decca Records said when rejecting the Beatles in 1962:
“We don’t like their sound, and guitar music is on the way out”
Boy did they get that wrong at a strategic and detailed level!
Well of course it wasn't because the client wanted help on the cheap and not a proper engagement.
I learnt long ago that what may appear a simple request for a draft contract almost always masks a much more complex requirement. Here at the start of the transaction is when the best advisers really can add value by, for example, asking the simple questions "who, what, where, why and when". Another good question is "forget the detail please tell me who is paying whom for what". Also the size and content of the deal inform the contract drafting and negotiation. A small software company contemplating the biggest deal of its corporate life is in a different position than a multinational procuring what it sees as standard supplies. See our page on Dealing with Big Corporates.
In other words drilling down into the deal, find out what is really going on and providing strategic advice not just wordsmithing is a critical part of the work of a professional contract adviser. I sat in a negotiation for three hours once in the City of London whilst we negotiated key elements of a computer service agreement such as price, performance and timetable. The lawyer on the other side said not one word until we had just concluded. Then he woke up and said he had some points to make. On no I thought he has found some flaw in the grand scheme of things. Not at all - he had in fact spotted six typos which he had been diligently looking for whilst the real deal was done.
I recall standing on a station platform in Surrey waiting for a train to London when I overheard a conversation along the following lines between two fellow commuters. "How did that big deal you were working on go?". "Ah yes very well. We completed last week. Mind you the lawyers were such a nightmare. Really pedantic. In the end we sent them to a separate room to sort out the formatting whilst we concluded the real deal."
Either of these scenarios is for a contract adviser an abdication of responsibility. How if this is your approach can you advise on the right form of contract to use, or on what points are really going to matter in a negotiation or what risks to protect against?
In this context I rather liked this quote from Sun Tzu, The Art of War:
“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
In order to provide a true strategic contribution it is also essential to be brought in early on in the proceedings in order to find out what is happening to your side and "the enemy". Several years ago I went to visit a City lawyer for a first meeting on a strategic outsourcing contract in the public sector being carried out under the old Private Finance Initiative (PFI). I asked for a summary of the state of the contract. Ah well I was told the terms and conditions are quite well advanced and here is the draft. It looked reasonable as a starting point and was based on a standard government contract, but it had thirty schedules. I asked quite innocently to see the drafts of these as well. Thought you might ask that they said. We don't actually have any yet! Nine moths of hard negotiation later we signed the contract for a major IT supplier after extensive work on the principles and the detail. The service was developed and delivered on time and then provided in accordance with the agreed service levels.
I understand of course that professional advisers can appear expensive and clients need to contain and control their costs. However I suggest it is truly a false economy to seek to limit your contracts advisers to secondary roles in the creation and negotiation of a complex agreement. Select and choose them for their strategic knowledge and ability as well as for their grasp of detail. In the long run this will pay dividends and is in my experience far more likely to result in successful, timely and cost effective delivery with the supplier making a reasonable return and the customer receiving an impeccable service.
After all getting the words right is one thing, but contracting for what the customer really wants and the supplier can really deliver is of immense strategic importance. Get it wrong and the parties will regret it all the way to the courts. Here is what Decca Records said when rejecting the Beatles in 1962:
“We don’t like their sound, and guitar music is on the way out”
Boy did they get that wrong at a strategic and detailed level!
Other Sources
Here are some other perspectives relevant to the provision of strategic contract advice.
- See this advice from Computer Weekly on negotiating software contracts that illustrates the holistic strategic approach I am advocating.
- This article assesses the importance of preparation and understanding the strategy before embarking upon a contract negotiation.
- This Contract Management Guide from the Institute of Purchasing and Supply emphasises the importance of being clear about why the contract is being entered into in the first place.
Personal Examples
Only look at the terms and conditions. I have seen examples where the lawyers or other key advisers are instructed by their clients usually on the grounds of cost to confine themselves to one part of the contract, such as the terms and conditions. This is short sighted and in the long term a poor bargain. The true value of a contract professional is to advise on and contribute to all components including the descriptive, performance and pricing schedules.
Don't worry we'll draft the schedules - we've done something like this before. Maybe but it generally seems to turn out that what was done before was for a completely different type of agreement and these draft schedules are more often than not very inadequate and end up being rewritten often very late in the day.
Don't worry we'll draft the schedules - we've done something like this before. Maybe but it generally seems to turn out that what was done before was for a completely different type of agreement and these draft schedules are more often than not very inadequate and end up being rewritten often very late in the day.
1. Have a personal rule that you will only get involved in advising on a contract if you are able to understand and contribute to the whole deal.
2. Avoid being seen as a pedant only worried about words and demonstrate how you can deliver strategic added value.
3. Be prepared to take a leadership role in establishing the strategic vision for the contract and what your client wants to achieve. After all you will have done this sort of transaction many times before and will have extensive experience to draw upon.
2. Avoid being seen as a pedant only worried about words and demonstrate how you can deliver strategic added value.
3. Be prepared to take a leadership role in establishing the strategic vision for the contract and what your client wants to achieve. After all you will have done this sort of transaction many times before and will have extensive experience to draw upon.
