Key Takeaways:
- Do help your counterparty understand what’s important to you and why.
- Don’t assume that inefficiencies in the contract redlining process are intentional or meaningful.
- In commercial contract negotiations, the contract redlining process should be collaborative, transparent, and efficient.
For anyone who gets offended or frustrated by their counterparty’s redlining habits, keep one thing in mind the next time you feel as red as the contract may look. Seventy-nine percent of lawyers and contracts professionals learn how to redline contracts on-the-job as opposed to a formal training program.
The lack of a standard approach to contract redlining over the years is the most likely reason that your counterparty is redlining the way they are redlining. Simply put, they don’t know any better. While there is a psychology to redlining contracts, there’s also an education gap. As skilled contracts professionals and master negotiators, we want to respond strategically to a counterparty redlines and not get swept away by false assumptions or particular pet peeves. Feeling insulted or frustrated is not efficient or productive.
Let’s stay focused on our collective goal—close contracts as quickly and efficiently as possible.
Contract Redlining Etiquette® is a standardized approach to redlining and negotiating contracts. Here are eight dos and don’ts that you probably wish your counterparty knew (or that you should be aware of the next time you’re a counterparty to a contract negotiation).
1. DO balance your risk analysis with time to close.
Those of us who work in commercial contracting are working against tight deadlines with busy stakeholders and a high volume of contracts in our queue. In-house lawyers don’t have the luxury to perfectly review each and every agreement because perfection is a time-consuming art that carries little weight against a “just get it done” business mentality.
Instead, we are tasked with balancing the legal and business risks presented in an agreement against the business needs and timelines. So the less time you have to close a contract, the less redlines you should be proposing. The more time you have to negotiate, the more terms you can comfortably negotiate.
2. DON’T redline something for the sake of redlining.
New or law firm lawyers may be tempted to redline a contract for the sake of redlining to justify billables, participate in the “game”, or simply to feel smarter. But if I rethink some of the times that I have been most impressed with my counterparties, it’s the ones that know when not to redline that really impress me. It takes bravery and confidence to review another party’s template and say, “I could redline this or that, but they’re not vital to my client, so I’m going to accept and close this deal.” Focus on the redlines that truly matter and let the nice to haves or feel goods go.
3. DO know your BATR.
Best Alternative To a Negotiated Agreement (BATNA) is a well-known negotiation philosophy that encourages negotiators to know what your alternatives are (and have or create alternatives if you don’t have any) in order to increase your power during a negotiation. Similarly, in contract negotiations it is important to know your Best Alternative To a Redline (BATR). Viable alternatives to a redline include accepting the term as it is in the interest of time or finding a way to mitigate the risk internally such adding internal policies. You don’t always have to redline a clause just because it isn’t exactly how you want it to be worded or because it doesn’t exactly follow your company playbook. Meet with your business stakeholders and decision-makers before sending off your redlines to verify that the markups you think are important are also important to them and understand which ones are nice-to-have versus a must-have.
4. DON’T simply mark up the contract without any explanatory comments.
People are more likely to agree with you when they understand you. Your words in the comments form your persuasive argument, your client advocacy, your opportunity to convince the other side that your language is better. The trial attorney’s equivalent to the closing argument. So don’t just scribble a quick note that says “Rejected” or “We cannot agree.” Really think about what you are going to say, strategize it, edit it, and make as much use of that little comment box as you can.
Your explanatory comments should include any information that would assist the other side in understanding the “why” of your redlines. Explain why you made those changes or why you’re not willing (or unable) to accept their language as-is. Give examples and share references where helpful. Don’t be afraid to include both business and legal justifications to support your position.
Learn More: Grab your copy of Contract Redlining Etiquette® by Nada Alnajafi to master the art and skill of efficient contract redlining.
5. DO explain the “why and because” of your proposed changes in the margins.
According to a social study implemented in 1978 at Harvard University, the word “because” triggers the brain to go into autopilot mode and assume that anything following the word “because” is a good enough reason to justify the ask. Where the stakes are high, think indemnification or limitation of liability clauses, you’ll need to follow the “because” with a legitimate explanation in order to convince your counterparty to agree to your proposal.
6. DON’T use the “Reject” button to reject redline insertions or redline strikethroughs.
Most lawyers and contracts professionals use Microsoft Word Track Changes to redline contracts. But it’s not a perfect tool.
One major issue is that use of the Reject Button will disappear a markup, making it difficult for a counterparty to identify key changes. This undermines trust and can disrupt, delay, and frustrate the negotiation process.
As a workaround, I recommend you backspace the markup you wish you to reject so that your counterparty can see the action you’ve taken. Then, add a comment explaining why you rejected their markup. To reject a rejection, I recommend you reinsert the original text as a markup and add an explanatory comment.
For a longer-term solution, we need to improve the Reject button feature in Microsoft Word. Sign this petition to help us create real change. Our goal is to gather 1,000 signatures so that we can show Word developers that their contracting super users need a better Reject Button.
7. DO take mental breaks in between long contract redline reviews.
I have been working with contracts for over 15 years and I nerd out on contracts, but even I need to take mental breaks in between long review sessions. Another tip is to group the redlines into smaller buckets and address one bucket at a time. For example, if you’re negotiating a SaaS Agreement, you can bucket all of the SLA related terms into one sub-review that you work on in the morning. Then you can address the redlines on the attached DPA in the afternoon.
8. DON’T show up to a live negotiation without having reviewed the latest redlines.
The worst thing you can do for your leverage or even your personal brand is attending a call and say, “I didn’t have a chance to review the redlines yet.” Especially if the redlines were sent to you well in advance of the call. Every negotiation expert agrees that preparation is the number one most important step in any deal negotiation. To prepare for your live contract negotiation, make sure you set aside time to review the latest set of redlines, meet with internal stakeholders to verify your position on each of the open points, and be ready to respond to each markup with either a counterproposal or a question.
The contract redlining and negotiation process should always promote these three values: transparency, efficiency, and collaboration. The dos and don’ts in this article tie into these core values. For more expert tips on smarter redlining practices, check out my book Contract Redlining Etiquette on Amazon.
⚠ Warning: Forward to a counterparty at your own risk.
