Managing the Contracting Process

Managing the Contracting Process
by Eric Goldman
May 2002


· Do non-binding term sheets for complicated/non-standard deals
· Do a cost-benefit analysis of deals early in the process
o Articulate the key assumptions/“must-haves” and recognize when those are being eviscerated mid-stream
· Kill bad deals early
· If we have zero negotiation leverage, consider if it is better to sign without negotiating
· Identify international partners early
· We like to control drafting where possible. Time to closure depends more on clean first drafts than when the drafting gets started
· Setting a schedule for negotiations/signing can help create urgency, but if the schedule is bogus and there’s no consequence to missing deadlines, you can lose credibility


· Always speak to the decision-maker
· Try to keep our decision-maker off the phone
· If the contract is sent with the disclaimer “subject to change,” find out what needs to happen on the partner’s end before reviewing, and consider deferring the review until that happens
· At the beginning of a phone negotiation where we are going to give feedback on a contract, ask the other side if they have any changes since the draft they sent
· Long conference calls can help close a deal in a single call, but remember that 90% of the work gets done in the second half of any allocated time period
· If you want me on a phone negotiation and the other side is represented by a lawyer, the other lawyer needs to be present or needs to waive his/her presence (clients can’t do this on their own)


· Get complete feedback – AVOID CUT ‘N’ PASTE NEGOTIATIONS!!
· Review all agreements/exhibits/appendices at the same time. If something is missing, ask for it before you start your review
· Demand a clean redline. If necessary, remind people before they create the redline
· Be realistic about how much time legal review will take
· Nothing in a contract is just a “lawyer’s point”
· Always review redlines in parallel with your lawyer. Don’t assume your lawyer will catch everything
· I mange comments to a document as follows:
o red pen: my comments and internal comments
o blue pen: changes agreed to with the other side
o I then indicate points for follow-up or negotiation with big boxes. I check the boxes off when I close the issue

Things I Always Circle When Reviewing Contracts

· non-compete clauses
· non-solicitation clauses
· exclusivity provisions
· situations where we can be required to refund money
· declarations of ownership
· unilateral amendment rights (or references to other documents that the partner can change unilaterally)
· provisions we know we’re going to breach
· liquidated damages clauses
· international governing law/venue


· Before giving the other side any comments, gather complete feedback from everyone in the company who should be involved
o Get Finance involved with non-standard deals early
o Don’t promise engineering/production/reporting work without consulting them first, even if it sounds easy to do
· Generate clean redlines
o Save document under a new name (i.e., [partner name][name of contract][date])
o Accept all redlines in the document
o Turn on track changes function before making any edits
o Tell people if you make a change that is not reflected in the redline
· Usually it’s helpful to send a cover letter with a redline explaining key changes
o This can help “soften the blow”/explain ambiguous or undiscussed changes
o Contentious changes may warrant a heads-up phone call
o I also use cover letters to aggregate and summarize all outstanding points. This is especially helpful when a deal goes on hold for a while
· Sometimes it’s quicker to negotiate on the phone than to swap redlines
· Be honest and truthful when converting verbal negotiated agreements to a revised draft
· Don’t send a draft that contains changes you aren’t prepared to stand behind 100% (i.e., don’t send a draft you didn’t prepare unless you have reviewed and approved all of the changes)
· Don’t send incomplete drafts. You should assume that every draft you send will be accepted verbatim for signature


· Don’t preannounce a deal. A deal’s not “done” until you have 2 signatures (or, better yet, cash in the bank!)
· If you’re hustling to sign a deal on a deadline, confirm the signatory’s availability
· We usually like to initiate the final signed version of the contract to ensure it’s the right version. If we don’t, I always read the contract version being signed to confirm no unannounced changes.


· Verbal or email changes to a contract rarely have legal significance
· Always store the mutually-signed original contract in a central file, NEVER IN YOUR DESK DRAWER.
· Prepare a “deal summary” after the deal is signed. This can capture both the key business terms in summary fashion as well as some of the desired outcomes/assumptions for future evaluation of the deal’s success. (I also prepare a legal summary of material agreements)
· For complex/non-standard deals, a post-mortem/implementation meeting should be held
· After the deal is signed (especially if the negotiations are tough or long), send valuable partners a little love (such as schwag, or slinkies if you want to really impress them)