Making contract negotiations easier
Once upon a time I helped review a vendor’s Master Services Agreement (MSA). (if you’re unfamiliar with the concept, an MSA defines the relationship between a service provider and a client. Specific pieces of work are spelled out in what are alternately called Task Orders or Statements of Work.) Among the provisions in this gem: [...]
Once upon a time I helped review a vendor’s Master Services Agreement (MSA). (if you’re unfamiliar with the concept, an MSA defines the relationship between a service provider and a client. Specific pieces of work are spelled out in what are alternately called Task Orders or Statements of Work.) Among the provisions in this gem: Should the relationship go awry, the vendor had the right to terminate with 60 days notice. The client received no right to terminate.
- A prospective client once asked me to use its standard MSA to govern some consulting work. Had I signed it, any intellectual capital my company used in the engagement would have become their property. Not satisfied with asking for the unrestricted right to use it themselves, they figured I shouldn’t get to use it anymore myself. After roughly seven hours of my life I’ll never get back, we came to the same agreement we should have started with.
- More recently we were asked to sign an MSA with a provision requiring us to continue our work in the event of a dispute over terms, schedule, effort, definition of deliverables, or what have you. It had another provision, on a different page, asserting the client’s right to withhold payment in the event of the same kind of dispute. Either of these terms is reasonable. Together, they gave our client the right to compel us to continue working without ever getting paid. I don’t think so.
- Getting back to vendor-driven unilaterality, I once saw a contract that gave an outsourcer the right to increase its hourly rates more than three times the rate of inflation each year. I saw another that included a non-solicitation clause preventing the client from recruiting vendor staff while leaving the vendor free to solicit as it liked.
I’ve been on both sides of this issue enough times to recognize a time-wasting trend: These documents increasingly are written to be one-sided. Really, what’s the point? Does anyone want to do business with a company careless enough to fall for this kind of thing?
I blame the dot-com era. No, really … the dot-com era, and especially the so-called experts who promoted “digital marketplaces” and focused the business world on obtaining the lowest-cost goods in every purchase. Prior to that, the business world had, for the most part, figured out that strong supplier/customer relationships provide more value at lower total cost than when each party views every interaction as a negotiation in which it tries to gain maximum advantage.
Awhile back, KJR introduced the idea of ROT — Relationships Outlive Transactions. You should remember ROT when dealing with suppliers and clients just as much as when dealing with managers and peers within your organization. This isn’t about being a mensch (although aspiring to mensch-hood isn’t a bad personal goal). It’s about personal and organizational effectiveness.
Compare the reputation of two vendors. Of the first, clients say, admiringly, “What a sharp company. It doesn’t miss an opportunity — its people always try to find an angle. They’re shrewd — if our attorneys hadn’t been on the ball they’d have taken us to the cleaners.” Of the second, clients say, “What a great company. You can always trust its employees to be fair. We just do business, and haven’t once had to pull out the contract — we’re always able to work things out.”
You have to choose one. If you choose the first, you know before you start that you’ll have to invest quite a bit of extra time looking for loopholes. You’d have to have a very good reason to go through the trouble.
It works the other way as well: When service providers look at you, are they more likely to say they have to negotiate hard for every point, or that you do your best to establish a working relationship that’s reasonable? And before you say you don’t care, consider that the best service providers can afford to turn down bad business, and are generally smart enough to do so.
Writing fair contracts isn’t all that difficult. The social philosopher John Rawls provided the key concept in his definition of a fair society — it’s one you’d design without knowing in advance where you’d be born in it. To apply his approach to the world of business relationships, when you ask your attorney to draft a contract, don’t reveal whether you’re planning to be the buyer or seller.
The only possible outcome is a contract both can accept.