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The Neglected Sales Opportunity: Contract Negotiation

The Neglected Sales Opportunity: Contract Negotiation
Pat Dickson - Sat May 19, 2012 @ 09:16AM
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Contract Negotiation is a Sales Opportunity! 

In my experience, many in-house counsel and outside lawyers don't understand this concept. I don't know why. Time and time again, they simply refuse to touch the most important parts of a contract. These are the parts which increase revenues or reduce costs. My legal comrades make excuses like, "It isn't my job to deal with that," or, "I only work on the legal terms and stuff." I'm dumbfounded because what else could possibly be more important when negotiating a contract? Can there really be anything more vital? Why are we in business?

Maybe I missed something in law school, but I seem to recall price, quantity, and a description of what is being sold are pretty important. Nevertheless, many lawyers skip over all of this entirely, or in part. As I said, it isn't the "legal stuff" to them. They'll spend all day marking up indemnity, warranty, or force majeure clauses too difficult for anyone to understand anyway. How the contract ties in to the company's revenue and cost structure, or affects its cash flow, is someone else's problem. I would argue this approach is sometimes no better than not even looking at a contract, and just signing the thing.

In defense of my legal comrades, it is true the pricing and details of the statement of work have usually been hammered out by the time the 100 page goliath, called the contract, hits their desks. They rightfully argue Finance and Operations already dealt with the numbers. Now it is down to the legalese. Plus, in all fairness, what the indemnity, force majeure, and warranty sections have to say is important. You do have to give consideration to these "legal terms and stuff." There are bad legal terms out there that can really kick you in the teeth if you don't catch them and throw them out. I'm just saying this myopic approach to legal practice isn't always good enough. You still may have a chance to make a few sales when the contract lands on your desk. Don't pass them up!

So, how can you sell once the pricing and the detailed terms of the statement of work have been stipulated? I'm glad you asked! Had we just signed off on the agreed pricing and statement of work and gone straight to work, there would likely have been no chance for additional selling.

Your opportunity comes the moment your customer tacks 100 pages of legalese to your mutually agreed pricing and statement of work, slams it down on your desk, and demands, "sign it!" The nerve! But never fear. By taking this bold move, your customer is being your friend, not your enemy. From this upset and affront, you shall seize victory. How?

His trying to add those extra 100 pages of "legal stuff" is going to cost him! It will improve your margins! None of this tree killer was ever included in the pricing and the statement of work you mutually worked so hard to put together. You had a deal before he threw this ugly 100 page goliath down on your desk. It isn't fair he now attempts to burden you with all sorts of additional requirements, expenses, and penalties, all at the original price. If he wants more, he can buy it!

Here are three examples of sales I've made when a customer's 100 page goliath hit my desk. They involve the warranty, indemnity, and force majeure clauses previously mentioned. And in defense of my lawyer comrades I've perhaps insulted in this article, they are right these clauses are important "legal stuff." They just sometimes miss good sales opportunities when they stop at a few legal strikeouts, and additions of esoteric Latin phrases:

1. Warranty: You offer a standard 3 year warranty. You even emailed your customer this information when you were putting the agreed statement of work together. When the 100 page goliath comes, it asks for a 7 year warranty. This is your chance to say, "I'll sell you 4 more years of warranty at $xx.00!" 

2. Force Majeure: This clause says if there is a work stoppage for any reason, even rain, you can't charge for the labor you have allocated to the project. When you priced the job, you figured $xx.00 per day for labor to be provided. You never figured in the fact it rains 1 in 10 days in your area. Your customer knows this based on the detail provided in the estimate he accepted. This is your chance to increase the labor portion of your contract price by 10%, plus your expected margin.

3. Indemnity: You went into this deal with the belief everyone would bear the legal cost of his own actions. Now this 100 page goliath says you have to indemnify your customer 100%. This means if he helps you break something, you have to pay the entire bill. In this case, it is a toss up. Maybe the criticized typical lawyer approach of fairly apportioning negligence is wise? But on the other hand, what if you could increase your contract price by 10%, by agreeing to a bit more risk? This may be a good conversation to have with your CFO.

I'll end here, but will say these are only three of many examples of opportunities to make sales during contract negotiation. Keep your eyes open. Also, in many cases you'll find your customer will like the idea of your signing his contract as-is, in exchange for increasing his price. This way he may be able to avoid sending the contract you would have otherwise marked up through the slow wheels of his company's legal department. By this approach, he just has to get a quick pricing approval from his Finance department. You can sign the contract and get to work!

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