The Art of Redlining in Contract Negotiations

art of redlining contractsContrary to what’s portrayed in TV shows like Suits, most attorneys don’t meet in person to negotiate contracts anymore.No more looking someone in the eye when you ask for more money or reading their body language when you broach the elephant in the room. In reality, the bulk of all contract negotiations takes place within the redlines of a document. Shouldn’t we spend time mastering the ins and outs of something that we spend most of our time doing? Here are three reasons the art of redlining in contract negotiations is so important for all in-house counsel to master.

1. Uncover Important Clues

Redlines tell us something that the original words don’t. When we read between the redlines, they tell us what the other party is thinking, wanting, feeling, reconsidering, ready to reject, or willing to accept. Smart in-house counsel will accompany their substantive redlines with comments. This is where the meat of the contract negotiation takes place.

Comments can serve two main purposes. One, to justify your position on a change. Two, to understand the other party’s position on a change. It is important to be thoughtful and strategic about what you choose to say and how you choose to say it. If you were in person, would you show all your cards? Or would you reserve a bit of mystery as a negotiation tactic? Similarly, when you use comments to try to understand why the other party is pushing back on deleting that word, do you take them at face value? Was their silence intentional or an oversight? Even redlines have body language, hidden clues to be uncovered, if you are paying close enough attention.

 

2. Speed Up Negotiations

In business, time is money, and there is usually strong pressure on in-house counsel to complete contract negotiations as quickly as possible. Even small efficiencies contribute to faster negotiation timelines. The faster a contract can be updated, the faster it can be exchanged, and the faster it can be finalized. Redlines provide numerous efficiencies that can help you do your job better and faster.

As a law student, I interned at a software licensing company where I was taught how to manually redline paper contracts with a red pen. A strike-through meant delete. Three underlines meant the letter should be capitalized. Commas and colons were circled. There were arrows everywhere. And important questions, comments and follow-up notes, were scribbled sideways in the margins. Manual contract redlines were disjointed, frustrating, and time-consuming. Thankfully today we have word processing tools, like Track Changes in Microsoft Word, that enable us to create contract redlines and share comments externally in a much more organized, legible, and efficient manner. The best legal technology for contracts incorporates Word into the automation process. Further improvements to the contract negotiation process are coming our way soon by way of artificial intelligence (AI) capabilities.

3. Facilitate Internal Collaboration

During the initial internal review of a contract, every deletion, addition or change, reflects your work product and needs to be well thought out and frequently reviewed with others (such as business clients, subject matter experts, stakeholders, approvers and signatories) before landing on a final recommendation. Without contract redlines, you would have to meet with each person separately to manually obtain and record their input. With redlines, the contract is transformed from a lifeless piece of paper into a lively discussion forum. From there, its easy to delete comments that were resolved internally, fine tune clauses based on guidance from your boss, and update questions that need to go out to the vendor.  Using a holistic approach, you can create a draft that accurately reflects your client’s position in the best terms possible.

One way I like to streamline the internal review is by using colors to direct each person to a specific point or clause. For example, comments highlighted in red indicate there is a high-risk item flagged for escalation. Blue is for internal review by the business client. Yellow indicates a note-to-self where I might want to come back to something later or review with my boss first. Green means its ready to go to the vendor.

By Nada Alnajafi

Nada Alnajafi currently serves as Corporate Counsel for Franklin Templeton, a Fortune-500 global financial services organization. She has been practicing in-house for 11+ years and created Contract Nerds to connect with and serve the people who love contracts just as much as she does.
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