Seven Common Contract Annoyances and Tips for Dealing with Them

Seven Common Contract Annoyances and Tips for Dealing with Them, by Paul Swegle, for Contract NerdsA lawyer friend told me a work story I found amusing.

He had asked a new colleague to get an unlocked version of a contract they had just received. My friend told the new colleague he couldn’t make or accept edits, saying he had “tried the usual tricks.”

The new colleague said, “I’d rather not. It seems unnecessary. Do you want help with Word?”

A little annoyed, my friend corrected him gently, “I know Word, but thanks for the kind offer. The document is locked. Word does not have a magic tool for unlocking locked documents. Please get an unlocked version.”  And the new colleague did.

This story was amusing not just for the work dynamics, but also because it involved a shared pet peeve, locked documents.

Annoyances Abound – Stay Cool, Stay Focused

A day later, a serendipitous Twitter storm arose. Everyone was suddenly ranting about locked documents. Amid the venting, a consensus emerged – “Rise up people, do not put up with locked documents!”

One of the rebels even shared a worthy suggestion – “…try converting the locked Word doc to a PDF, and then back to Word again using Adobe Pro.”

But, aside from likely infecting the document with some PDF conversion voodoo, this only works if you want to accept all marked changes and work from there. That is rarely my preference, so I will continue to assert my right to review and edit unlocked marked documents. I suggest you do the same.

The Twitter thread reminded me that venting about shared annoyances can be cathartic and educational. And annoyances abound in the world of contracts.

I have decided to share some others in this brief post, in hopes that they might stir some informative and healing discussions among fellow contract negotiators.

1. Non-Negotiable Online Terms, Subject to Change Without Actual Notice

As consumers, we frequently click “agree” to non-negotiable online terms and conditions, even ones that might change without notice. Just keep using the product or service, and you have accepted any changes.

Big enterprise-class vendors started imposing unilateral terms in commercial relationships years ago. But lately, more and more companies, even very small ones, are trying to play that game.

When a vendor says, “It’s company policy to not accept changes to the online terms and conditions,” I generally respond that our policy is not to purchase products or services that way.

Many vendors come around quickly and at least have some form of addendum for negotiating adjustments to the terms and conditions, but not all.

Sometimes there is little choice. You have to accept non-negotiable online terms. And they can be changed at the other party’s whim if you just keep using the product.

In those situations, I study the online terms and conditions closely. I look for reasonableness and balance. Sometimes unilateral contracts are perfectly mutual and reasonable. If everything is sufficiently mutual and there are no big red flags, I sometimes relent.

But that doesn’t happen until I have pushed two or three times for thirty-day, advance written notice of any material changes. Anything less is completely unreasonable.

In the case of unilateral agreements with specific issues, I make my concerns known. Sometimes this kills deals. Sometimes bad deals go forward.

When bad deals go forward, I emphasize to business and operations leads the need to monitor closely and quickly report any issues.

2. Soft Negotiating Partners

Many contract negotiators have experienced the frustrations of negotiating deals with timid or uninterested colleagues.

Timid negotiating usually stems from inexperience or a gentle disposition. Personal sales bonus motivations can also soften up a team member, as can personal relationships that create conflicts of interest.

When frustrating negotiating dynamics arise, figure out the causes and come up with two or three potential responses to the colleague and the situation. The goal should be to generate support for the larger mission of negotiating a good deal. This might require stirring up some cognitive dissonance about not doing so by raising fiduciary obligations or reputational risks.

Here are some suggestions:

  • Well, we have a fiduciary obligation to our company to push back and get the best deal we can, so let’s….”
  • “These terms could blow back badly on the company and I don’t want to be associated with that. I don’t think you do either, right?”
  • “I think we can get them to a better place. Do we have a few days to push back and see what happens?”

3. The Cumulative Marked Changes Curse

Some companies, mostly bigger ones, insist on what are called “cumulative marked changes.”

This means no marked edits go away through an entire negotiation until the agreement is finalized and ready for signature. With each round of edits, the document gets messier, more marked up, and harder to read.

Ideally, with each round of edits, the reviewing party accepts and unmarks all acceptable edits and only leaves marked edits where issues remain. For more best practices on tracking changes during a contract negotiation, check out Contract Redlining Etiquette™ – Rule # 7 On Tracking Changes.

Cumulative marked changes happen mostly in deals with enterprise-level counterparties. In very large companies, nobody on the front lines of the deal actually has decision-making authority. So they leave the document completely marked up so that the ultimate decision-making authority can see everything that was discussed.

But cumulative marked changes can wear down a reviewer and make it difficult to focus on key issues in a document. This can lead to mistakes.

As a result, it’s always smart to push back on cumulative marked changes. You can always suggest to a counterparty that they simply run a document comparison at the end of the negotiation to show their decision-maker a full report of all changes.

If you’re stuck with cumulative marked changes, be extra vigilant and know every marked change in the document, right through signing.

4. Marking Changes with a Colored Font and Manual Strikeouts Instead of Track Changes

This annoyance is a cousin to locked documents and fortunately less common. Every now and then some weirdo sends a Word document with proposed edits that are not created with MS Word’s Track Changes tool, but rather by some strange combination of colored fonts and manually entered strikeouts.

I have no idea how or why anyone does this. But my logical brain and cranky disposition no longer allow me to actively participate in this game. The one or two times I tried to accommodate this strange approach to document marking, I quickly realized that it is messy, inefficient, and annoying.

In fact, it happened yesterday, so I have been reminded exactly how I respond. I put the work back on the sender by using the “New Comment” tool to enter my drafting requests in the right margin, including ones like these:

  • Restore deleted text
  • We cannot accept this change
  • This change is fine
  • Let’s discuss
  • Please explain why you do not agree to maintain insurance

I have no idea if this annoyance is intentional. It comes across as either inexperience or a passive-aggressive affectation – “Look at me, I’m different!” My message back was effectively – “You have the pen now, please re-write the agreement with my suggested changes.”

It would be perfectly acceptable to require the sender of such a document to re-do it entirely with proper marked changes using the Track Changes tool.

Please do not be the type of person who uses colored fonts and manual redlines instead of actual tracked changes. It makes you look strange and incompetent and slows down the drafting process.

5. “As-Is” Goods or Services

The phrase “As-Is” can be found plastered on the windows of cars on a used car lot. Cars and other goods sold “as-is” are sold with no representations or warranties against any defects, known or unknown, and with no recourse should anything be wrong. These disclaimers have no place in business-to-business commerce, but some vendors do try to get away with them.

More commonly, sellers of goods and services will make certain basic promises about their products or services, but then disclaim the existence of all warranties “except as provided herein….”

This promise-but-disclaim approach is fine as long as (i) the promised specifications or performance metrics meet your business needs and (ii) nothing in the warranty disclaimers undercuts the promises made or creates other issues, like “title” or “non-infringement” disclaimers, when those things have not also been covered by explicit assurances.

In my opinion, every seller of goods or services should make basic promises about the nature and quality of their goods. These generally include assuring that goods will conform to stated specifications, that services will be performed in a professional manner, and that neither will result in confidentiality breaches or infringe the intellectual property rights of others.

A contract without reliable promises is usually not worth signing. No reps and warranties means no basis for a refund, damages, or even the right to terminate the agreement for breach. Without a promise, there cannot be a breach. Few things are more annoying than a “non-performing” contract that cannot be terminated, either for breach or “for convenience.”

Where the promises in an agreement are weak, vague, or narrow, it is all the more important to scrutinize warranty disclaimers and root out any possible conflicts or other lurking surprises. As noted earlier, disclaimers of “title” and “non-infringement” are particularly troubling. A title disclaimer means that the other party is disclaiming any assurance that it owns what it is selling and a non-infringement disclaimer means the other party is disclaiming that its products or services do not infringe the rights of third parties.

Requests to delete these disclaimers are rarely resisted.  If necessary, injecting cognitive dissonance into the conversation can help. This involves posing questions like, “Is there a concern that you do not own the services you are selling?” Or “It sounds like you are concerned about a specific, known situation in which your product infringes the rights of a third party – can you tell us more about that?”

In summary:

  • Force sellers to make basic promises regarding product conformity, service standards, safety, security, and confidentiality.
  • Reject sellers’ nonsensical disclaimers, like title and non-infringement.
  • Make sure all disclaimers, including but not limited to merchantability and fitness for a particular purpose, are subordinate to the caveat, “Except as represented and warranted herein….

Any counterparty resisting such efforts is signaling that its product or service may well be useless and even potentially risky. Take them at their word and find providers that are not reluctant to stand behind what they are selling.

6. Damages Limited to Fees Paid, Including Indemnification

It is common for sellers of goods and services to cap their direct liabilities at some measure of the fees paid. A common approach of software vendors is to cap damages at the amount of fees paid in the most recent six or twelve months.

This is an understandable starting point for product and service providers. I start there too on that side of the table.

An even more aggressive capping strategy involves also capping indemnification obligations – i.e., costs and expenses to defend a product or service purchaser from lawsuits and other claims from third parties.

All good negotiating strategies involve trying to anchor at a very favorable position – like having no liability no matter what harms or losses one’s products or services cause.

But that is all it is, a negotiating position. I expect vendors to stand behind what they sell and to be the ones primarily required to respond to any unexpected harms or losses. As I often tell vendors – “this is why you have insurance.”

Ironically, someone pulled that same insurance card on me the other day. I had a suspicion they were playing a hand from page 91 of my book, Contract Drafting and Negotiation for Entrepreneurs and Business Professionals:

“If the other party is stubborn, one tactic is to explain that ‘the commercially reasonable practice’ is for each party to insure against the risks its performance creates, since the other party is often not in a position to buy that insurance for itself. Whether or not true in the specific case, this has a reasonable ring and often wins the day.”

So true – if a product or service might cause harm, the seller should have product liability or professional liability coverage.

Most purchasers of products should push back and demand appropriate recourse in the event of harms caused by products or services. Tying that recourse to insurance is often an effective tactic.

7. Venue and Jurisdiction in Small Towns and States with Less Developed Commercial Law

A contract’s choice of law, venue, and jurisdiction are always important, and the general goal should be to get your state, your city, and your courts. That is not always possible though, especially when negotiating positions are uneven. But there should be an unwritten rule against insisting on venue in cities or towns with populations of, say, 250,000 or less. It is also concerning and a bit awkward when an opposing party pushes for governing law in a state with possibly under-developed commercial law.

Although I frequently insist on Washington law when I can, I know Washington’s commercial and corporate law is not as well developed as New York’s or Delaware’s. The idea of going even more “small time” than Washington rarely sits well with me. I can readily accept Delaware, New York, Illinois, Texas, and California, and I also wouldn’t put up too much of a fuss over Pennsylvania, Massachusetts, Virginia, New Jersey, or Florida, but I’d be starting to wonder about the ramifications.

Much below that fairly arbitrary line, I push for a mutually inconvenient but gold-standard state like New York or Delaware. Mutual inconvenience has its advantages.

Venue in small towns raises its own issues. A key concern is the possibility that you will not be able to pick from the best lawyers and firms in a counterparty’s small town due to conflicts of interest and other “special relationships.”

As a contract negotiator, do not be shy about pushing back on questionable governing law and venue provisions. It is better to be threatened by a mutually inconvenient suit than one in the counterparty’s no-doubt charming small town.

Did I Miss Your Most Annoying Contract Peeve?

For those who are newer to commercial negotiations, it may be useful to realize that these annoying issues are out there and headed your way. As with most endeavors, knowing in advance there may be ups and downs and having tools to address them can help us maintain perspective and good judgment.

I kept this short so as not to keep all the fun for myself. Please share your top contract annoyances and suggested responses and remedies in the comments below.

Author:
Paul Swegle helps entrepreneurs build, fund, launch and market innovative products, services and technologies and he has written two books used widely in law and business schools, “Startup Law and Fundraising for Entrepreneurs and Startup Advisors” and “Contract Drafting and Negotiation for Entrepreneurs and Business Professionals.” Paul has served as general counsel to sixteen companies and has guided exits to Capital One, Abbott Laboratories, ING, and Nortek. He has been involved in more than $13 billion of financings and M&A deals, and recently helped Porch.com through its SPAC IPO. Paul currently serves as in-house GC to four startups in the health information, retail technology, and recruiting sectors. He is outside counsel to companies in e-commerce, consumer products, fintech, financial services, and technology security. Paul began his legal career with the U.S. SEC and DOJ. Paul is an Adjunct Law Professor at Seattle University School of Law and at Gonzaga University School of Law, teaching “Counseling Startups: Law, Regulation and Fundraising.” He speaks almost weekly to law, MBA and entrepreneurship classes around the country, and to other business, legal, and investment groups. Contact Paul at businesslawseminargroup@gmail.com.
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