Negotiating and drafting contracts
Q: What is a good process for
A: Negotiating and drafting
a commercial contract is a top-down exercise similar to the process of developing
software. If you discuss issues with the other party conceptually before reducing them to
concrete language (i.e., design before you code), youll establish a process that
leads to a finished document to which each party can easily make a legal and emotional
1. The Requirements
Analysis. Start the contracting process with a requirements analysis that
identifies conceptually what each party brings to the table and what each party wants out
of the relationship. Identify contributions and benefits, as well as dangers and concerns
for each party.
By staying conceptual and focusing
on interests (rather than concrete positions in a contract), the parties are better able
to steer around potential deal killers. For example, each party may want to own the
resulting custom work product. Upon further probing for their reasons, the customer may
only be trying to protect its R&D investment, while the developer may only want to
reuse generic code on projects for other industries. It may be possible to reconcile these
interests by conveying ownership to the customer, but reserving a license for the
developer to re-use generic code on projects that do not compete with the customer. Again,
stay conceptual and probe with questions to understand the other partys real
2. The Design Document.
Once major points of agreement are negotiated at the conceptual level, the next step is to
reduce those points to a design document or "term sheet." Exchange the term
sheet with the other party and adjust it, as necessary, to reflect issues that may have
occurred to a party since the first meeting. If you hit a sticking point, revert to the
conceptual level and probe for the reasons.
3. Drafting the Agreement.
If feasible, volunteer to prepare the first draft of the Agreement. If you steered the
transaction toward a conceptual structure that you have used in the past, you may already
have a standard agreement that reflects your interests down to the details. If not, you
will at least control the initial drafting process to ensure your issues are addressed.
Protect your interests, but also be sure to address issues of importance to the other side
fairly. Their lawyers will be looking for that.
4. Attention to the Details.
If the parties stayed "conceptual" initially, reduced those concepts to a term
sheet and then fairly translated those terms into a contract, then reviewing and debugging
the contract should be quick and congenial. If you find a party has inserted language that
appears unfair, step back to the conceptual level and ask them to explain the business
purpose behind the clause. Explain your own concerns to see if each partys competing
interests can be reconciled conceptually. Then translate the adjusted concept into new
language and debug.
5. Sign the Agreement.
It is usually a mistake to begin a project without a signed written agreement. Premature
commencement of work often signals a lack of consensus on important issues. This breeds
disputes. ("What do you mean I dont own the software; I paid for it!). At the
same time, outstanding issues may reflect work to be done far in the future. If project
work must commence, consider breaking it into phases, starting with a "Preliminary
Engagement Letter" to perform some initial consulting or analysis work, while
negotiations on the larger agreement continue. If the larger deal falls through, at least
issues important to the preliminary work will have been addressed in writing.
6. Legal Drafting Systems.
If you cant afford to hire experienced counsel to negotiate and draft custom
agreements each time, consider using a legal drafting system. QuickForm Contracts Online (http://www.quickforms.com) automates designing and
drafting 30 types of agreements for computer industry and web site transactions. The
system focuses you on conceptual design-level questions, then automatically drafts a
near-custom agreement that can be reviewed by legal or contracts professionals. It can
also quickly generate a collection of standard agreements that reflect your preferred
business model. QuickForm Contracts is available on a simple pay-per-use basis.
[from John Newman, email@example.com]
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