Five tips to level up your vendor contract negotiations

Daniel van Binsbergen, 15 December 2020

Vendor contracts can be a headache for high-growth businesses. Lexoo's CEO, Daniel van Binsbergen, has five hacks that can help teams reduce risk and speed up the contract process.

Many legal teams are focused on keeping up with rapid business growth while helping non-legal colleagues close commercial deals at pace. 

Vendor contracts create a number of problems for organizations. Without guidance on how to approach them, sales, marketing or finance don’t have the confidence to get started with the negotiation so they often land on legal’s desk. This increases the contract lifecycle and delays commercial output. Also, without a consolidated approach to these contracts, inconsistency can creep into the contractual positions agreed with vendors which introduces risk for the organization.

It’s legal’s responsibility to protect the business from risk, but they have to balance this risk with the commercial interest of the contract

There are ways to combat this issue and minimize the risks introduced by vendor contracts all while speeding up the contracting process:  

1. Focus on what matters 🔎

It’s well known that lawyers can be seen as being “overly cautious” and “risk averse”. Many lawyers may admit to being a bit overzealous when it comes to red-lining a vendor’s contract.

It’s the legal department’s responsibility to protect the business from risk, but they have to balance this risk with the commercial interest of the contract. If that balance strays, lawyers can push back on far more terms than necessary to protect the organization. For example, they may expand their markup to changes which are just personal preference or which only protect against purely hypothetical scenarios.

Refine the clauses you will push back on to those that will really make a difference to the business. By filtering the things that can result in damage for the business, you can greatly speed up the contracting process.

2. Agree minimum standards for contracting 👍

One of the biggest problems with negotiating vendor contracts is that there can be a lot of variation in what is finally agreed with vendors. This inconsistency creates risk for the business, but a simple way to address this is to agree your minimum contracting standards.

This would require your team to consolidate their ideal position on key terms as well as the minimum standard you can accept before agreeing a contract. This ensures that the business can always guarantee this minimum standard without too many concerns.

To enable the business to progress deals on their own, it can be easier to provide a number of fallback positions which they can attempt before agreeing to the minimum standard. This also guarantees that commercial teams can lead with and push back on the most important clauses with confidence.

3. Create a theme-centric playbook 📖

Once you have aligned on these fallbacks and minimum contracting terms, you can consolidate them into a theme-centric playbook. This means you can capture your stance on indemnities, warranties, audit rights and confidentiality terms etc. without them being tied to a specific contract.

This playbook can also include escalation guidelines on when to get an explicit internal approval.

Rather than redrafting clauses in their entirety, one way to speed things up is to bullet point the changes you want to see in the contract

4. Bullet point changes before amending ✏️

During contract negotiations, think of all the time spent drafting terms that are ultimately redrafted or not accepted. This time really adds up, especially if your organization finds itself pushing back on more terms than would usually be accepted.

Rather than redrafting clauses in their entirety, one way to speed things up is to bullet point the changes you want to see in the contract. Not only does it save you drafting time (which is the most time-consuming and complex part of the contract process) but is a lot easier to digest than deciphering a redlined document with a number of tracked changes.

For example, if you pursue 30 changes but only 15 are ultimately accepted then you will have saved all the time of redrafting 15 clauses which were rejected and excluded from the final draft.

5. Use a cover sheet to kick off negotiations with vendors 📄

If you have consolidated the points that are make or break for your negotiations then you can let vendors know upfront before the first draft is even provided. This can be presented as a short cover sheet to give an overview of contracting with your organization, including the key points that must be present in order for the contract to be agreed.

You can provide your sales, marketing and other teams with this cover sheet to be shared with the vendor’s legal team which can make the whole process faster. This is particularly easy if you have already consolidated what is important to your business.

Lexoo is a flexible legal outsourcing for in-house legal teams and scale-ups. They can take entire contract workstreams off your plate to improve turnaround times and free your team up for business-critical strategic work. Find out more about Lexoo here

Topics: Legal operations

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