Maybe the same kind of thinking is behind this clause in an RFP, which I’ve not seen before:

“Does your firm agree with the attached Contract Terms and Conditions? If no, redline the attached document, reattach the revised file using the Attachments icon in the activity bar, and reference the file name in the Additional Info section below.
Vendors are strongly discouraged from non-compliance, as failure to agree will result in factoring of bid prices by at least an additional 20% and may result in disqualification of your bid.”

If they were buying commodities that approach may make sense, but in this case they are buying specilized and sophisticated software and/or services. It’s possible the buyer in this case has developed a very fair contract that a seller should be able to accept, but more likely it’s one-sided and and unreasonable contract, at least in some respects.

Seems like this approach might reduce initial transaction costs, but if the seller caves in to this, what are the implications? It seems the buyer’s main goals are risk shifting and low cost. Certainly not facilitating the trust, collaboration, and innovation Tim writes about above.

I wonder who thought that up. Procurement? Executives? Lawyers?

There are a couple of things that bother me.

I think many Legal groups feel that today’s risk environment means that they must be more involved. Others are becoming more involved because the business people are frightened of making decisions. But whatever the driver, it is resulting in a noticeable trend for Legal to reduce empowerment - which in my view is completely the wrong direction. They need to think more creatively about how to maintain control without the need for personal involvement or completely rigid rules.

For example, you are right about those long and devious procurement contracts. But if you push beneath the surface, our research suggests that Legal are ‘the power behind the throne’. Unreasonable behavior by the negotiator from procurement is often because they have no authority to negotiate; this power is reserved to the legal group. And those ‘carefully crafted terms’ you reference rarely come from Procurement - they are not typically authorized to write contract terms, especially those related to areas like liabilities or indemnities.

Second, I am finidng growing inconsistency between in-house groups over how much they want to be involved in the business. Some feel they should be conversant with - and advise on - wider commercial issues. Others see this as a threat to attorney -client privilege and outside their remit. I don’t mind so much which route they take as long as they then think through the consequences in terms of workload management, control systems and their rights and obligations in respect of the wider contracting process. Either take control AND accountability, or step aside and focus on enabling others.

My hope in writing this is solely that people will sit back and think; we need far greater coherence and that would be enabled if there was greater consistency in the rules and the ways they are applied and negotiated.

While I don’t disagree that lawyers are often guilty of the kinds of excesses you cite (e.g., “renewed focus on standard terms and conditions that are blatantly unreasonable and confrontational”), I don’t think it’s fair to blame only the lawyers.

In my experience (as a lawyer typically representing the seller) it’s at least as common to see this type of overreaching behavior on the part of the buyer’s procurement organization. It’s as though they are all going to seminars where they learn the latest techniques for making life difficult for sellers and coming back to the office and adding clauses to their form contracts to cover every possible thing that could go wrong.

The typical 50 or 60-page contract we receive from the buyer’s procurement group is not only “blatantly unreasonable and confrontational,” it’s also mind-bogglingly complex in the way it intertwines concepts like indemnification and limitation of liability throughout the document in ways that seem designed to trip up even the most sophisticated negotiator. While reading these types of contracts may help stave off Alzheimer’s, this approach does little to facilitate getting a deal done efficiently or creating “the right balance between control, collaboration, empowerment and innovation.”

In many ways the lawyers on the sales side truly are accountable for the economic consequences of the deals we work on. The last thing we want is to be accused of preventing a deal from getting done (the old “sales prevention department” criticism of Legal). So we work hard to try to be creative and to understand the buyers’ needs and to get deals done in ways that make sense for both sides. What we’re often confronted with, however, are rigid approaches by the buyer’s procurement people, who all too often are unwilling or not empowered to bend from their unreasonable positions. In my experience it’s much better to deal with an experienced, smart, and creative lawyer for the buyer than with their procurement people.

I do, however, agree with your basic premise that businesses should take more control of the contracting process and not give the lawyers (or procurement groups) undue control. Too often the business abdicates responsibility to the lawyers for dealing with what should be business issues. At the same time lawyers need to realize that most issues we tend to think of as legal issues (e.g., indemnification and limitation of liability) can be boiled down to a business issue of risk allocation in the end. While lawyers can play a valuable role in calling attention to situations where there is real risk and exposure, they need to understand that the business people ultimately need to be empowered to make decisions and take risks, which we hope they will do while taking into consideration the broader goals and best interests of the organization.

David Munn