In Part 1 of this two-part series about third-party paper, you fought the good fight in the battle of the templates and gathered as much intel as you could about your counterparty’s team, approval structure, and key provisions. You conceded on form and got some value out of that concession, even if it was just some goodwill you can bank for later. You performed a gap analysis of the templates, mapped out the documents, and completed a multi-step, progressively more detailed review of the documents.
Play 3: Crosswalk your templates
By this point, you should have a drawing of the framework and a very colorful marked-up document. The next step is to map and crosswalk the templates, which is just a fancy way of playing “Spot the Differences.”
My low-tech approach here, for which I have yet to find a reliable LegalTech option I am comfortable with, is to use an Excel spreadsheet or table to create a matrix that will help me compare the counterparty’s template to my template or checklist. The matrix should include the key contract provision, the location of the key contract provision in the counterparty’s template (using document file name and section number), the location of the key contract provision in my template or checklist, and notes to myself.
By cross-walking the templates, you can easily compare language, identify missing provisions, and figure out how best to insert your language (more on this below).
For example, my list may look something like this:
Indemnity or reimbursement of expenses
MSA §5 (Taxes), §11 (General and IP); SaaS Addendum §12; BAA §5(a) (Notification) and §9 (General)
Need to reconcile notice and procedure, mutualize, etc.
Add derived data definition, data use section
Some may look at this step as overly granular or methodical, and in many cases it may not be necessary. As I mentioned, the assumption is you are dealing with a complex, multi-agreement project in which having a running list of the sections and locations across the two sets of templates is needed. I have found that taking the time to create a list like this, even if it is scratched on a legal pad, helps as a reference guide when redlining the documents and figuring out which contract or addendum to insert your language into.
Play 4: Minimize the redlines
Take as light a touch as possible when redlining the document, with the obvious proviso of not holding back on substantive points. It can be tempting to empty the entire jar of red ink – rearranging provisions, copying over whole sections from your template, and editing every stylistic nit you come across.
My favorite example of this was when a counterparty once redlined our header text and page number style. In his defense, his was better, and I have since adopted it.
But if you create a “sea of red” in their templates, you are likely to trigger a defensive reaction, or you may be setting them up for a more laborious internal review process. In some instances, you may not be able to avoid it, but I believe that taking the time to try and minimize your markup, and really picking your battles on minor issues of style and construction, go a long way towards yielding a positive result. To ensure you’re on the right track with your contract redlines, be sure to check out these tips on Contract Redlining Etiquette.
I have found this to be especially true as counsel to the smaller party in the transaction. As in-house counsel, your job is to protect the company, but the business team is expecting you to help them “get wet ink on the last page,” as my boss used to say. As much as you like the way a particular clause reads in your template, it may simply not be worth wasting your negotiating capital on the wording of a provision that ultimately will not matter to the business. Stay result-oriented and focus your negotiating capital on the points you need to win. Demonstrating restraint and deference to their form without actually giving up what matters will lead to a successful outcome.
Play 5: Know the battles you must win
The corollary to taking a light touch with contract redlines is being really firm on what does matter for your organization, remembering that you are the smaller party and inherently have more to lose. Beyond the obvious list, must-wins will vary from situation to situation. Be especially paranoid and exacting with the limitation of liability and related provisions, where word choice, phrasing, and punctuation matter. As the in-house lawyer, you are in the zone here in terms of knowing your business and the lines a counterparty cannot be allowed to cross. Have your arguments and counterarguments prepared and be willing to make a zealous case for your position. This is the best part of being a contract expert – finding that extra gear of persuasion or identifying a creative compromise in the language, so you win the battles that matter.
LegalTech Tip: Managing multiple versions of redlines is one of those workflows where I have found LegalTech to be a gamechanger. It is quite time-consuming to run comparisons in Word on every single redline that comes back from your counterparty to ensure that everything is tracked and there are no inadvertent or intentionally hidden changes. Because of how laborious this task can be, it sometimes gets put off until the end, when it becomes a new headache to figure out when exactly a particular change made its way into the document. Some CLM tools do this automatically when importing each new version of a contract. Like I said – gamechanger. Be sure to track changes in an efficient manner using the best technology tool you can gain access to.
As you get down to the shortlist of issues that are most critical to the business, it’s very important to stay in your lane and protect yourself by keeping management in the loop on possible counters and concessions. Ensure you are not unconsciously making any of those decisions on behalf of the business. Your job as a contract expert or in-house counsel is to lay out the pros, cons, risks, and probabilities, and in some cases, argue for a particular course of action. But ultimately you should let management decide, and then document the decision and rationale.
As comforting as the familiarity of your own contract forms can be, there are lots of good reasons to brave the Frozen Tundra of third-party paper. The surest path to safety in taking on this contract review challenge is to gather as much intel about your counterparty as you can, then diligently implement a structured approach to the process. Developing expertise in adapting third-party paper provides great opportunities to refine contract review and negotiating skills, and in the process, make your own templates stronger as well.
Ani Bhat is the General Counsel & Secretary for HealthEC, a leading healthcare technology company specializing in data analytics and population health management. Ani has over two decades of experience helping scale early- and growth-stage companies in the consumer healthcare and technology space while advising on legal and compliance issues, risk management, and strategy. Prior to joining HealthEC, Ani served as General Counsel & COO for Welmedix Consumer Healthcare, where he oversaw legal, operations, quality and HR. Ani is a graduate of the University of Michigan and Case Western Reserve University School of Law.