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Negotiation Approach

Overview

When a contract is ready to be negotiated, it is shared with the counterparty for review, with a view to align on language/terms in the contract such that both parties are willing to sign the contract.

During the negotiation cycle, the review and update cycle (see Collaboration / Preliminary Approval) will potentially be used and repeated (several times) as internal reviewers consider any updates from the counterparty.

(Although there are cases where a contract is ‘take it or leave it’, (i.e. no negotiation possible), this will be the exception. Where this is the case, a CLM system is typically not required.)

Design Options

The first design decision is whether the process will incorporate a negotiation playbook. This is strongly recommended and may also influence who will lead the negotiations with the Counterparty. If there is a playbook, it is further recommended that it be updated/extended to incorporate the steps/functions in CLMA. (This will help encourage the customer to take ownership of the full process/design, but also will serve as a basis on which Test Scripts can be developed from.)

With regards to CLMA functionality, there are a few options to support the negotiation process:

  • Off platform with Manual managing of correct reviewers:
    • Final Draft checked in (which is also applicable for 3rd party paper contracts)
    • Interim versions checked in
  • Off platform but using on platform workflows to manage reviews:
    • Facilitated using manual OOTB workflows (not recommended)
    • Enforced using bespoke workflows (not recommended)
  • Via Contract Interview - facilitated by the smart template implementing the clients business rules for negotiation e.g. fallback clauses (not recommended)

To facilitate negotiation and the capturing of any changed contract data, CLMA will be introducing two features:

  • MS Word add-in
  • Clause library

These features are in the early stages of development, but when complete will allow the user to update contract data based on negotiated / red line changes, as well as search for and insert clauses from the Clause Library - directly from MS Word.

Until these features are released, the best practice is to use Check out and manually manage the negotiation process, checking the final agreed version back in.

Considerations

  1. If internal collaboration is required, ensure there is a step in the process to first clean up the document (i.e. accept redlines, delete comments, etc.) before the document is sent to the Counterparty.
  2. Who / what is being negotiated?  For a given contract type, or contract instance, different negotiations and negotiators maybe involved:
    • Legal text within the limits of an approved legal playbook - negotiating using approved ‘fall back’ legal positions - generally led by the business/buyer with legal support (no review cycle before approval required)
    • Legal text outside of approved legal playbook rules - negotiating legal clauses - generally led by the legal department
    • Commercial negotiations inside of commercial guidelines - negotiating pricing, discounts volumes, payment terms etc. within approved commercial guidelines  - generally led by the business/buyer (no review cycle before approval required)
    • Commercial negotiation outside of commercial guidelines - negotiation pricing, discounts, volumes outside of approved commercial guidelines - generally led by procurement team/managers
    • Non-standard Subject Matter Expert (SME) negotiations - specific legal or financial contractual matters that require subject matter experts (finance, risk, data protection, industry compliance, service/product specification etc.) - the SMEs are pulled into the negotiations as required to review specialist sections, by the person leading the negotiations.
  3. Establishing who should lead the negotiations and who should be involved in the negotiations, is often difficult.   Clients may not have clear guidelines or playbooks (commercial or legal) for all their contract types - often bringing in SME on an ad-hoc basis.  
  4. On the other hand, where clear guidelines are in place contracting becomes more efficient as negotiation within legal or commercial playbooks requires no review cycles and approval triggers are clearly defined.
  5. It is recommended that CLMA facilitates the negotiation (and review and update) process rather than mechanistically enforce it.

Things to avoid

Avoid trying to update the contract via the interview for each round of negotiations. A new document will be generated in line with the rules of the template, however this may overwrite any redlines made by the Counterparty.

Unless there is a need to formally track (and report on) each round of the negotiation, avoid uploading and updating the metadata for each iteration. This adds a fair amount of effort to the process and often for no additional benefit.

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