Contract Negotiation Playbooks: Why, What, Who & How

Key Takeaways:

• Contract playbooks are essential tools for streamlining contracting processes and minimizing risks.
• They describe preferred and fallback positions on key contract negotiation points.
• Playbooks require legal expertise to integrate input from diverse subject matter experts.

As the business landscape grows increasingly complex, contract negotiation playbooks have become essential tools every company needs to prepare for new commercial relationships. This article outlines the why, what, who, and how of contract playbooks.

Why?

An effective playbook will:

• remove ambiguity by clarifying the company’s positions on key topics,
• facilitate the efficient and consistent negotiation of contracts based on those positions,
• streamline the contract negotiation and approval process, and
• help the organization mitigate and manage risks inherent in its operations.

Without such a tool, negotiation teams may:

• become paralyzed as they navigate corporate bureaucracy seeking input and approvals,
• approve contract provisions that unknowingly increase the company’s risks, and/or
• lose the opportunity because it took them too long to negotiate the contract.

A clear, concise, well-documented playbook would prevent these problems.

What?

Playbooks are internal documents that clearly describe a company’s strategy for allocating risks and responsibilities between themselves and their contract counterparties. Ideally, the playbook will focus on the most important issues for the business – typically a mix of operational, financial, compliance, and legal topics that are frequently points of discussion in negotiations.

Common playbook elements include:

• the position on the topic (e.g., we do not want unlimited liability),
• internal guidance (i.e., an internal reason for the position),
• a preferred clause expressing the position,
• negotiation comments (i.e., an external reason for the position),
• a deviation approval process (i.e., who can approve something other than the position),
• one or more fallback positions, and
• one or more preferred fallback clauses.

Examples of topics that might have positions documented in a playbook include:

• limitations of liability
• indemnities
• governing law
• dispute resolution mechanisms
• insurance requirements
• payment terms
• warranties
• financial security requirements
• INCOTERMS or other delivery requirements
• regulatory compliance requirements

Essentially, the playbook details the company’s comfort zone for doing business, along with the “plays” they will run when a commercial partner pushes them out of that comfort zone.

Who?

Although the legal or contract operations department will likely be the “owner” of the negotiation playbook, it is important to gather input from key stakeholders across the organization to ensure that all essential elements are covered. For example, the following groups play critical roles in developing an organization’s playbook on key positions related to their areas of subject matter expertise:

Operations:

• Scope of work limitations
• Performance requirements (e.g., timelines, warranties, delivery terms)
• Safety and personnel requirements

Risk Management:

• Insurance types, limits, and conditions
• Indemnities
• Limitations of liability

Compliance:

• Data protection and privacy
• Bribery and corruption
• Human rights

Finance:

• Financial security and parent guarantees
• Payment terms
• Cost and margin expectations

Legal / Contract Operations:

• Use of the correct corporate legal entities
• Governing law and dispute resolution
• Boilerplate provisions

In addition, legal experts play a pivotal role in bringing the entire playbook together. By combining their awareness of the overall business context, changing laws, and market trends, they will:

• identify any gaps in the playbook related to compliance and risk mitigation
• ensure the playbook is holistically consistent in how the company’s positions are applied
• draft preferred and fallback clauses that are clear and enforceable.

In summary, if an organization has a department that manages a specific area, then that department likely has some important positions to contribute to the playbook.

How?

For businesses that do not yet have a formal contract negotiation playbook, building one from scratch can be a daunting task. The company’s preferred and fallback positions may exist as “tribal knowledge” – buried in emails, outdated contract templates, old drafts of contracts, and the minds of long-time employees. It may be helpful for these organizations to engage the help of experts who build playbooks for a living.

Absent such an approach, the following steps should be considered:

• Identify the internal owner of the playbook – often legal or contract operations, but sometimes sales or operational teams.
• Review recently executed contracts to infer positions, preferred clauses, and fallbacks.
• Gather input from all stakeholders – asking them to identify the most important positions in their area of expertise.
• Prepare a draft playbook and share it with all stakeholders for review and comment – including the legal team for overall consistency, completeness, and effectiveness.
• Present the playbook to senior executives to ensure that the playbook appropriately balances the company’s desire to mitigate and manage risks with its goals to grow the business.
• Communicate the playbook internally to teams involved in negotiating new contracts.
• Implement supporting processes and systems for deviations from the playbook and contract approvals.
• Keep the playbook up to date! Periodically review the playbook and make necessary updates to account for new legal and regulatory requirements, market trends, and a changing business environment.

The development of a contract negotiation playbook is a strategic move for any organization looking to streamline its contract processes and minimize risks. However, without human expertise, even the most well-intentioned playbooks can fall short, leaving the organization exposed to unnecessary risks and inefficient practices.

By involving legal professionals in the creation of the playbook, companies can ensure that it not only reflects business priorities but also adheres to legal standards. The result is a tool that empowers negotiation teams to work efficiently, protect the company’s interests, and build lasting business relationships with confidence. For more information about how LegalSifter can help your legal team build better playbooks, visit our website.