The success of failed contract negotiations

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Today, join us as we celebrate two failed contract negotiations

Yep, that’s right. I have recently been involved in two contract negotiations that have broken down.

Thanks in no small part to my involvement, the deals fell through and we all walked away.

I can just hear the critics now….

“Another classic case of The Lawyers putting obstacles in the way of their clients’ innovation”

“Here we go again – were The Lawyers holding up progress or complicating the issues?”

It’s true, I hold my hands up. After many hours of negotiation, we all left with nothing.

Or did we?

After taking some time to reflect on the initial disappointment of the deals not completing, and some internal debate with my Team Serenwood colleagues, I saw things very differently.

Yes, some money, time and effort had been spent. But it was invested, not wasted.

Time consuming and costly problems further down the line had been avoided.

That potential dispute or energy sapping relationship had been dodged.

The power and importance of the humble contract negotiation became ever-more clear.

The Contract is a tool for great trading

You see, so many disputes and conflicts (both in business and the wider world) are based on misunderstanding, mismatched priorities or misaligned goals.

The simple failure to communicate clear boundaries, values, aims and desired outcomes at the right time in a deal-shaping process is what is responsible for many a difficult and complicated dispute.

At Serenwood, we fundamentally believe that to be successful in supporting clients with their legal and commercial needs is not about churning out long wordy contracts that baffle and confuse with their archaic legal jargon. We aim to be jargon-free, curious, commercial and strategic, honest and creative.

There’s no point even writing the contract if the parties’ aren’t on the same page.

A great legal advisor will ask the right questions at the right time, be continuously curious, listen hard and build strong relationships based on trust. A truly engaged adviser will help parties to express themselves, listen to and understand the other and enable the parties to fully think through what is being proposed and how that will affect their business and stakeholders. It’s also about playing devil’s advocate with your client – helping them to emphathise with the other point of view, choose the battles, decide on the points to score and the ones to give away. Take the emotion out of the negotiation and focus in on hard business facts, aligned with strategic direction and a longer term view.

It’s about getting the parties on the same page and aligned in their business objectives. It may well be that one party has a stronger bargaining position than the other in any given case (think David vs Goliath) but that doesn’t mean that a fair and just outcome can’t be teased out. After all, if the parties enter into a contract for the wrong reasons or where there is anger, distrust or sneaky game-playing – we can all take an educated guess where that transaction is headed.

So… only when the parties are aligned in in agreement…Only then should a contract be drawn up.

(We can use lots of helpful tools in the interim, of course. Heads of Terms, letters of agreement, Schedule of Works…capturing in writing the parties’ intentions is an essential part of the process. And sometimes drafting individual clauses can be really helpful too – if there’s a particularly fruity debate about the way an indemnity should be granted, then getting it in writing early doors is massively useful to move matters along.)

Jargon-free 

And once we put pen to paper, the contract should be written in a way that both parties can understand it and can refer back to it regularly (without a feeling of dread) to help support the relationship. It’s a tool for good trading, common understanding, and it should also be easy for the parties to agree any changes or developments as the relationship matures (or sours).

Going back to the specifics of two recent “failures”, one was for a joint venture between two parties who had been working together for only a short period of time, but both were excited and engaged and keen to move forward together. The other was a longstanding supplier relationship, where one party wanted to change how they worked together.

The contract negotiation for the JV agreement helped both parties to see past the “honey moon period”. By exploring both parties’ expectations around commitment to the business (should this be fluid and reactionary or should time parameters be discussed and set out now), it became clear that they had very different expectations. Success looked fundamentally different to each party. Whilst everything had been moving along well up until this point, inevitably there would have come a point when these different values and expectations would have made it difficult – if not impossible – to carry on working together. If you think it’s hard to discuss personal commitment or money now, imagine how hard it is once resentment has built up or the relationship is strained – or even broken down!

Not only did my intervention in the contract negotiations save them from a potential future dispute, it also helped them to crystallise their aims and vision for the business and what they would be looking for in any future JV partner. We shaped their commercial strategy & plans for future growth in the process. The client walked away happy.

The second contract negotiation was more straightforward – the parties had been working together for years in the same way. The supplier wanted to change this, to give itself some more security around minimum volume commitments and pricing. Simple Heads of Terms were drawn up by the supplier and passed to a traditional solicitor to document. I won’t “name and shame”, but suffice to say, what was produced is a perfect example of why the traditional lawyer has such a bad reputation! The Heads of Terms were simply copied and pasted into a template contract, with no further detail. The document gave rise to more questions than it answered and was unworkable due to the ambiguity and confusion it caused (shame on the solicitor who dared charge its client for this – although from a Serenwood perspective, this is of course exactly the gap in the market we are here to fill!)

When I was asked to review the document, I immediately asked curious questions about the parties’ intentions and motivations as well as the status of their relationship…

  • what did each party contribute?
  • were they reliant on each other?
  • how critical is the relationship relative to their wider businesses?
  • where do they see the relationship going in the short/medium/longer term?
  • what disputes have arisen previously and what issues are they wanting the new contract to solve?

By drawing out this basic yet fundamental information, it became clear that actually it was better for both parties to retain the status quo. The discussion and evaluation that these questions had facilitated meant we could dispense with the second contract and continue working in accordance with the existing agreement. More time and money saved and a long standing relationship strengthened and reinforced.

AH, THE SWEET SUCCESS OF FAILURE….

So, I shall continue championing the humble contract and importantly, the process of its negotiation. It is worth so much more than just the sum of its parts.

If you would like to speak to one of our contracts experts, please drop us a line. We’d love to hear from you. No templates provided.

E: hello@serenwood.co.uk