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Contracts and leverage

Contracts and leverage

Mar 30 · 2 min read

Charles Drayson

Mar 30 · 2 min read

Leverage allows a small force to move a big obstacle.

Organisations need leverage to grow, and so do people. Like it or not, some organisations use contracts to exert leverage. If you’re a smaller organisation trading with a Fortune 100 company, you probably don’t like it.

The child’s seesaw is a graphic often used to portray power between two organisations because it’s a visual representation of leverage.

The SME has to work pretty hard to balance the seesaw when faced with the typical contract demands of a big corporate. But, notice something else: this image shows the seesaw evenly balanced, but did you ever try to keep a seesaw in perfect balance? It’s hard. Each side is up or down – it’s unlikely that it stayed evenly balanced or stationery at some odd angle.

If you’re not careful, that’s how it is with contracts too.

Ideally, the legal teams in big corporates would stop sending out heavy contracts.
That’s not happening any time soon
.

Until that day comes, how do you get leverage in contract negotiations?

Exploit the generality of Big Corp’s standard contracts. Those contracts they issued were drafted by lawyers who knew nothing about your deal, your product, or the business need. They are necessarily generic and high-level. You have two opportunities:

  • Create your own contracts that are tightly aligned to what you do, and take the time to tailor them for each deal. Make them sensible (not just a list of disclaimers). Make it obvious that your contract is much better for both parties. If it’s not obvious, ask questions that expose the gaps.
  • Create modular contracts with modules that follow the rule above, and then you’ve got a good chance of adding the modules as schedules to the Big Corp standard document. In other words, let Bog Corp have their fun, but use your contracts to add the detail and colour to create some balance.

Make an effort to observe market norms. Feel free to ignore outdated and badly regarded market norms – like archaic language, or lengthy redundant text added by lawyers lacking confidence to know what’s important. Recognise the market norms that speak to your industry’s custom and practice, and the application of regulations and compliance that prevail in many sectors. If your contracts don’t look like they belong in your market, don’t be surprised if Big Corp insists on using a contract that does. Get some leverage by using contracts that meet expectations.

Stay up to date with changes. Legislation changes. Use your agility to stay up to date, and look credible. Big Corp might be slower. Expose the gaps to get some leverage.

Of course, Big Corp legal teams are free to use the same techniques, and then maybe contracts will be less hard work for everyone.

Leverage allows a small force to move a big obstacle.

Organisations need leverage to grow, and so do people. Like it or not, some organisations use contracts to exert leverage. If you’re a smaller organisation trading with a Fortune 100 company, you probably don’t like it.

The child’s seesaw is a graphic often used to portray power between two organisations because it’s a visual representation of leverage.

The SME has to work pretty hard to balance the seesaw when faced with the typical contract demands of a big corporate. But, notice something else: this image shows the seesaw evenly balanced, but did you ever try to keep a seesaw in perfect balance? It’s hard. Each side is up or down – it’s unlikely that it stayed evenly balanced or stationery at some odd angle.

If you’re not careful, that’s how it is with contracts too.

Ideally, the legal teams in big corporates would stop sending out heavy contracts.
That’s not happening any time soon
.

Until that day comes, how do you get leverage in contract negotiations?

Exploit the generality of Big Corp’s standard contracts. Those contracts they issued were drafted by lawyers who knew nothing about your deal, your product, or the business need. They are necessarily generic and high-level. You have two opportunities:

  • Create your own contracts that are tightly aligned to what you do, and take the time to tailor them for each deal. Make them sensible (not just a list of disclaimers). Make it obvious that your contract is much better for both parties. If it’s not obvious, ask questions that expose the gaps.
  • Create modular contracts with modules that follow the rule above, and then you’ve got a good chance of adding the modules as schedules to the Big Corp standard document. In other words, let Bog Corp have their fun, but use your contracts to add the detail and colour to create some balance.

Make an effort to observe market norms. Feel free to ignore outdated and badly regarded market norms – like archaic language, or lengthy redundant text added by lawyers lacking confidence to know what’s important. Recognise the market norms that speak to your industry’s custom and practice, and the application of regulations and compliance that prevail in many sectors. If your contracts don’t look like they belong in your market, don’t be surprised if Big Corp insists on using a contract that does. Get some leverage by using contracts that meet expectations.

Stay up to date with changes. Legislation changes. Use your agility to stay up to date, and look credible. Big Corp might be slower. Expose the gaps to get some leverage.

Of course, Big Corp legal teams are free to use the same techniques, and then maybe contracts will be less hard work for everyone.

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