How to Improve Contract Negotiation With Redlining

How to Improve Contract Negotiation With Redlining
by Deirdre Leone

Imagine you are in the middle of an important contract negotiation related to a significant purchase, sale, or corporate merger. But you are uncertain whether or not the other party changed the original agreement terms. And you do not want to leave it to chance that they did.

Fortunately, contract redlining builds confidence between negotiating partners. It prominently highlights any concerns the third party has with the agreement before signing off.

Now, let’s explore five other ways your team can leverage redlining tactics to accelerate and enhance your business and contract negotiations with outside parties.

1. COMPLIMENT REDLINES WITH COMMENTS

Quite often, it helps when your in-house counsel and their business colleagues add comments beside redlined paragraphs. Complex agreements often include vague or poorly articulated terms that can be confusing.

Simply striking out phrases, sentences, or paragraphs signal that the negotiation of terms will be a contentious process. Yet, by using the ‘comments’ function in your word processing app, you can justify your position on a particular change, even before meeting in person or on the phone. It demonstrates you are open to a discussion, and willing to voice your objections and concerns. In the best-case scenario, some term change requests may be accepted before a meeting, which would save time for more significant matters.

Naturally, your in-house legal and sales teams may enjoy the back-and-forth chess game of negotiating contract terms. Still, most professionals would rather address the many “pawn-sized” concerns with redlines and comments, before addressing the more substantial issues – in person – during the endgame.

 

2. CHANGE YOUR PERCEPTION OF REDLINES

Let’s say every contract you sent to prospective employees, customers, or partners was returned signed – and absolutely free of any redlines or concerns. That would likely mean that you undervalued the value of your products or services, or found it difficult to live up to your contract terms. Or maybe the other parties failed to review contracts thoroughly, which is another cause for concern.Contract redlining builds confidence between negotiating partners

Contract redlining builds confidence between negotiating partners. Redlines can direct your colleagues’ attention to key points that need to be reviewed, changed, or approved before the document version is sent back to the other party for confirmation.

Just like lines in the sand, contract redlines may represent a bargaining partner’s position at a given moment. But while preparing for contract negotiations, you can discover ways to erase or move those lines. You can understand the other party’s motivations for not accepting the original terms and find a mutually-beneficial middle ground.

Granted, a contract with multiple redlined clauses does not necessarily mean a contract is in jeopardy. The other party may be testing you. Or they may need you to concede on a few items to demonstrate to their superiors that they are working in their employer’s best interests. So, try to find some redlined terms with which you can give them some minor wins.

3. SEEK REDLINE PATTERNS TO HONE YOUR CONTRACT NEGOTIATION SKILLS

If you are on the receiving side of a redlined document, seek out themes or patterns in the terms and conditions that are annotated by the other party. Does it seem like they are most concerned about the financial implications of the agreement? Do their concerns about dispute resolution or termination clauses suggest that their business has been “burned” in other relationships before?

Modern versions of Word enable users to change redline colors from red to blue, green, and colors. Each color can indicate how important a change is to the process, who made the modification, or who needs to approve a change.

However, contract readiness reveals itself like ‘tells’ in a poker game. Even if your negotiating partner does not specifically state that they are unsure about the long-term implications of doing business with you, their redlines may speak volumes. So, instead of addressing each highlighted term individually, be candid about your company’s position on particular topics. Think intellectual property, early contract termination, or how your business would make up for missing out on service levels.

And instead of writing new and untested clauses, search your contract repository for historically accepted clauses to better address a certain theme.

4. NEGOTIATE ON FACTS, NOT ON FEELINGS

Contract analytics is a great tool to gather statistics and proven facts to argue a redlined point. Does your business have a history of meeting or exceeding your contract service levels? Do you have a strong track record of contract renewals? So, why not leverage these individual truths in your negotiation.

Your historical ability to deliver on your contract promises is a good indicator of future performance. It could be just enough to convince your negotiation partner to accept your existing terms. Accordingly, give the other party to the contract negotiation some quantifiable reasons to accept your terms. It could be just the information they need to sign off on your business deal!

Redlining transforms a static contract document into a platform for engaging discussions.

5. FIND WAYS FOR BOTH PARTIES TO GET A WIN IN CONTRACT NEGOTIATIONS

A redlined clause can present opportunities for you to be flexible around one of your company’s standard terms. This is in exchange for your bargaining partner putting more skin in the game on their end.

For example, a customer may look for fixed-price terms on a project. As an early adopter of your services, they may ask for a price discount. You can counter this by requiring that the client allow themselves to be profiled in a “success story” – published on your website after a specified period of time.redlining transforms a static contract documents into a platform for engaging discussions

Find multiple points of agreement, too. And negotiate toward a positive, collaborative note just in time for the contract signing. Start by identifying any highlighted terms that you cannot budge on to comply with industry-specific, local, or national laws. Then, decide what disputed terms you are not willing to do without in your agreement. You could be protecting your company’s intellectual capital or preventing an unacceptable level of legal or financial risk. Then, you can choose what clauses you are willing to concede to earn some goodwill.

Though contract redlining is generally thought of as a tool for editing and revisions, it is also a great way to better understand a bargaining partner and form the basis of a long-term business relationship. Simply stated, redlining transforms a static contract document into a platform for engaging discussions. And, it also keeps business and contract negotiations focused on what really matters to both parties.

The good news is a contract lifecycle management (CLM) tool helps businesses manage multiple redlined versions of agreements. That way, you can learn from your past contract negotiation wins and losses.

Discover how essential CLM functionality improves the control of contract lifecycles. Download and read our Express Contract Collaborator Datasheet today!

Author:

 Deirdre Leone
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