There are countless books, articles and resources on negotiation strategies and techniques. I’ve listed a few of my favorites in the footnotes.[1] But because they aren’t specific to contract negotiations, almost all of them overlook one of the most powerful negotiation tools in contract negotiations – the redlines.
In addition to Nada Alnajafi’s advice in Contract Redlining Etiquette on how to effectively use redlines, below are a few tips on making redlines one of the most powerful tools in your negotiation toolkit, particularly during complex negotiations.
1. Know When to Save Your Bullets
A former mentor of mine who spent much of his career negotiating $100M+ syndicated credit facilities and who is currently general counsel for a publicly traded bank, first introduced me to the concept of “saving your bullets” in contract negotiations. In his analogy, each red marking in a contract redline was a “bullet.”
Anyone who has ever watched a respectable action movie understands the concept of saving bullets. If John McClain (Bruce Willis) emptied the entire clip of his trusted Berretta in the opening scenes of Die Hard, he wouldn’t have had the two remaining bullets needed to finish off Hans Gruber and his remaining henchman in the closing scene of the holiday classic.
The same is true when negotiating within redlines. If you are inclined to make every possible edit in the never-ending pursuit of the perfect contract, you will quickly frustrate not only your counterpart, but even your own client. In so doing, you will have wasted most of your negotiating capital (your bullets) on immaterial issues and find yourself with none left when negotiating the most critical issues.
Just as you would be well served to save a few bullets when saving the world, it’s a good idea to refrain from adding more redline markings if they don’t improve the contract in a material way.
2. Build trust through draft integrity
In Chapter 7 of Contract Redlining Etiquette, and her October 2022 Contract Nerds article: How to Reject Redlines the Right Way and Avoid Dissapearing Redlines, Nada explains the idea of disappearing redlines. This is particularly relevant when dealing with complex agreements that will undergo many rounds of edits and be reviewed by multiple parties.
Not everyone is versed in redlining etiquette and the concept of draft integrity. As a result, it only takes one person to click “Reject” in tracked changes, to covertly modify an agreement. Even if the action is innocent, once caught, it erodes trust and often brings negotiating momentum to a grinding halt. This is probably why it is still industry standard in big law (at least in M&A and Finance) to exchange (i) a clean Word version and (ii) a .pdf redline marked against the previously received draft.
It is well established that productive negotiations are built on a foundation of trust. While there continue to be different redline customs depending on the audiences and circumstances, one key ingredient remains – everyone participating in the contract negotiation must know the “rules of the road” and agree to abide by them in order to conduct an effective contract negotiation using redlines.
3. Let Your Counterparty Solve Your Problem
I’ve seen it many times in my career: a contract is sent back and forth between parties deleting and re-inserting the same provision(s). The exercise is usually a waste of time and frustrates everyone involved. Nada’s advice of accompanying redlines with explanatory comments and getting on a call after the first round of redlines goes a long way in solving this problem.
When a counterpart reinserts a previously deleted provision or vice versa, try the following. Instead of simply reverting to the prior language, explain the problem you need to solve and give your counterpart the opportunity to propose language for the solution. This is most effective in an in-person discussion rather than an e-mail explanation. Carefully defining the problem helps avoid the perception of “re-trading” after the call. If the problem is complex, it may be helpful to follow up with a bullet-point list of the main elements that you expect your counterpart’s proposed language to address.
Psychologically, this will help your counterpart take a step towards solving your problem without feeling as though they have ceded control of the negotiation.
4. Understand and Define the Risk
Contract negotiations are all about mitigating and allocating risk to the parties. Once you have survived the initial volley of redlines and have identified the few remaining key issues to be negotiated, it is important to fully understand the risk that each party hopes to address.
Doing so allows the parties to: (1) determine who is best positioned to bear that risk, and (2) agree on how to appropriately define the scope of the risk and the appropriate protections provided by the contract. Carefully defining the nature of risk allows the parties to avoid spending unnecessary time and effort narrowing a contractual protection that is much boarder than is necessary to address the identified risk.
By following the best practices outlined in this article and Contract Redlining Etiquette, you will be better equipped to leverage redlines as you negotiate complex contracts like a pro. For more tips on negotiating contracts, check out my other article on Three Experts Tips for Preparing Your Contract Negotiation for Success.
[1] (i) Cialdini, R (2006), Influence: The Psychology of Persuasion; (ii) Cohen, M. (2020), Collywobbles: How to Negotiate When Negotiating Makes You Nervous; (ii) Fisher, R., Ury, W., & Patton, B. (1991), Getting to Yes: Negotiating Agreement Without Giving In; (iii) Latz, M. (2005), Gain the Edge!; Negotiating to Get What You Want; and (iv), Stone, D., Patton, B., & Heen, S. (2010), Difficult Conversations: How to Discuss What Matters Most – to name a few.
One Response
Dear contractnerds.com admin, Thanks for the well-structured and well-presented post!