REDLINING B2B CONTRACTS
Internally, redlining a B2B contract is a team effort generally involving input from the company’s business advocate, internal subject matter experts (privacy, security, risk), drafting counsel, and the ultimate decision maker – possibly the chief legal officer or another C-suite officer. And while a counter-party’s approach to its redline may be inefficient or frustrating, there are standard practices that help one’s own team to stay focused on the collective goal – closing contracts as quickly as reasonably as possible. Here are five practices to consider.
DON’T redline for the sake of redlining.
New or law firm lawyers, and sometimes internal subject matter experts (not to point fingers but privacy, security, risk) may be tempted to redline an item to make it “better” or demonstrate one’s expertise – and feel smarter. Resist the temptation. Often one best gains leverage within one’s team – and with counterparties, by knowing when not to redline. It takes a certain confidence to review another party’s template or marked up provision and say, “I could redline “x” or “y,” but it’s not vital to me/us, so we’re going to accept this to move forward.” Focus on what truly matters by identifying the “nice-to-haves” and letting them go.
Balance your risk analysis with time to close.
Reviewers must balance an agreement’s legal and business risks against the team’s ultimate objective and deal timeline. The less time your team has to close a deal, the fewer redlines you should propose. A big part of letting the “nice to haves” go is consciously not letting perfection get in the way of getting the job done. In-house lawyers and subject matter experts frequently don’t have the luxury to perfectly review each and every agreement: Perfection is a time-consuming art that often carries little weight against a “just get it done” business reality.
Know your best alternative to a redline.
Just as you don’t always have to redline a provision because it isn’t exactly how you prefer it (or doesn’t exactly follow the company playbook), it is important to know your best alternative to redlining a given item. Alternatives include accepting the term as it is in the interest of time and finding a way to mitigate the risk. This can be by either adjusting an internal procedure or practice, or within the agreement by adjusting another section such as limitations of liability (possibly adding supercap tied to insurance proceeds) or indemnification provisions – possibly excluding an item from its scope but otherwise allowing a straight damages claim for direct damages subject to the base or a super cap.
Include explanatory comments.
People are more likely to agree with you when they understand your position and why it is taken. The purpose of your comments is to convince the reader that your edit either materially clarifies an item – for everyone, or, is simply required if the deal is going to get done. Really think about what you are going to say, strategize it, edit it, and say it as succinctly as possible. Explain why you made those changes or why you’re not willing (or unable) to accept the language as-is. Don’t hesitate to include both business and legal justifications to support your position. Finally, never underestimate the power of signaling “no” when appropriate: “Given this deal’s commercial value, we can’t increase our balance sheet exposure further.”
DON’T show for a live B2B negotiation without having reviewed the latest redlines.
The last thing you want to do is attend a call and say, “I didn’t have a chance to review the redlines yet.” Preparation is generally the most important step to deal negotiation. This means making time for the stakeholder pre-call with negotiating counsel so your team as a whole is ready to respond to each markup/item as appropriate – either posing a question, accepting it as-is (while possibly adjusting another section in response), saying “no,” or accepting it subject to a required “clarification.”