It was my first job in a sales department and I made early inroads to get a new client on board in the first month itself who was ready to give me a fat business for the next 2 years. I got a lead and it appeared a home run until I stumbled upon the contracting of this transaction. I was represented by a senior lawyer from my legal team who I thought had known the business really well since he was with the company for many years. He rolled out a template contract on the 10th day after I completed all the formalities: a whole lot of approvals, client due diligence, ingesting client details, client details passing through myriad systems to the same bunch of people who were sitting next to each other, raising purchase order, somebody saying “yes” to business (why would anyone say no to business!), etc. This multi-layered approval process itself took about 10 days. The other party’s lawyer responded after 5-7 days with a draft which did not make my lawyer happy at all. He in turn sent a revised draft back with a note that the changes could not be accepted (summarily rejected all of them!). Reason cited by my lawyer – it was a standard contract of our company and no changes were accepted as a ‘company policy’. Really! We wanted millions of Dollars for our services and here we expected the recipient of our services not to change a word in the contract! The worst was that my lawyer took about a week to reject all the changes before sending back a revised draft to client. This initial iteration itself cost the company one month’s business. As I was focusing on getting more business, my first ever client’s contract got stuck in “GEL” or “Godforsaken Ego of Lawyers”. I coined this term after having worked with in-house lawyers for many years.
The contract negotiations were becoming rather unwieldy on both sides after having spent months trying to thrash out an agreement for a not so complicated transaction. It was surprising though that the number of lawyers at both ends was steadily increasing. And I did see few external lawyers also copied on emails after a couple of months. I recall how a neat draft, written in Times New Roman font, started to getting decimated by the lawyers at both sides. Soon the draft was illegible, expanded in the margins containing highly technical and somewhat aggressive comments which mostly concluded with the message “hence cannot be agreed”. The track changes, a feature of MS Word apparently exploited ruthlessly by lawyers, introduced so many tracks that it was not possible for a commercial person to track the central theme of the mooted changes. The draft was becoming a colourful delight – it contained multi-coloured text which was further highlighted in such colours that the lawyers preferred in their personal lives (at least I thought so!).
It was mostly the legal clauses that remained a challenge to conclude the documentation. More than anything, it was the wordsmithing that the lawyers did shamelessly that brought the potential commerce, which was to be immediately unfolded by the transaction, to a point where the commercial value started to look like a pathetic proposition equally for both parties. It was undoubtedly remarkable the way the lawyers at both sides argued. Many words, let alone sentences, were either deleted or replaced with another word in so many different ways that I simply pondered what was the end goal these lawyers had in their sight. The funny part was that on each such occasion the wordsmithing was made to look like as if it would placate the concerns of other side. This vicious cycle was relentless. Anybody closely following what the lawyers did in English language would feel miserable at his own knowledge of the language.
Emails written in grandiloquent style by the lawyers putting forth their arguments could not make progress either. Several calls had also taken place to decode, viz.
- how would we make up each other’s loss caused by acts and omissions of the guilty party – this part was still understandable but hypothesis involving certain unrelated persons to the transaction/contract, who were contemplated to be possibly suing either of us and hence might cause loss, was frankly beyond me;
- when one could possibly sue for other’s intentional mistake versus unintentional mistake, what were those mistakes could possibly be about, which mistakes could lead to suspension and which ones to termination, and by the way during suspension we must be paid;
- what ‘warranties’ both sides needed from other side (and I must admit that commercial teams at both sides were clueless that such warranties were supposed to be even asked for in the first place);
- distinguishing ‘warranties’ from ‘covenants’ and classifying some of these as ‘representations’;
- ‘I would like to limit my liability whether you or I fucked up but certain fuck ups only courts would decide. And hang on, while all this is fine we must agree that certain types of fuck ups of a party will have unlimited liability’;
- there were ‘losses’ and then there were ‘damages’ and each of these were of many types. At one point I wondered why did the companies do business with so much risk;
- losses could arise in many ways and there were multitude of damages one could suffer and while we knew this, certain losses and damages could not be claimed;
- one kind of damage could lead to another type of damage and by the way the resultant damage could not be claimed; and
- where we will fight if we had a dispute.
I tried to reason with my lawyers, something I did rather unintelligently on such ‘hard-core’ legal issues, and I was told that the things that I was trying to spin off for the sake of my arguments were litigious and it was best if the matters were left to lawyers’ ‘able hands’.
The negotiations waddled for months until the lead lawyer at my end fortunately fell sick. His replacement was a lawyer with a pleasing personality and a great style of presentation of everything. He had been in the system for a few years. He took download from me, not on the pending points that remained in the contract but on the transaction – what was it about, how was it going to be beneficial for the company, how did we plan to service the other party, what could be the practical risks associated in servicing the client, the period during which the servicing was to be done, the money that we were to make and likewise other questions that I could respond emphatically. After taking the download, he told me that it was unfortunate that we had lost 4 months in negotiating the contract which could have given the company revenues had we closed the contract sooner! I thought he was putting salt on my wounds!
The very next day he wrote an in extenso (learnt this latin term when the lawyers were writing to each other!) internal email capturing all the pending points and his proposed way forward. He expected everyone to respond in 2 days. It was a long mail, required patience to read and assimilate. The one response, the one that mattered, came from business head which pleaded him to close on terms that he deemed fit but with the right balance.
So this stylish lawyer got on a call with the other party, started with the list of points that he was willing to concede, and then asked the other party to reconsider their position on the remaining. I thought the other side was so overwhelmed that they did not put up a big fight and conceded on many points. They had few concerns to which my new lawyer said he would address those by introducing some language (more wordsmithing!). The call lasted 2 hours. After the call, the lawyer told me that there were only 3-4 points that mattered to him and those he had successfully negotiated. He traded the points that he thought could be given up with the ones that mattered in the overall balance of the contract from company’s perspective. He told me that more often than not the issues in a contract emanated from hypothetical scenarios which the lawyers were extremely adept at imagining and making them look real to others.
The contract was closed and signed after two exchanges of the draft agreement (one from each side) that took place within 48 working hours of the call. Yes, there was wordsmithing but the type that got the things done in the contract.
I was so impressed that I wrote an email (and I think I might have used few legal jargons in it) to his manager and my boss to profusely praise this lawyer’s approach towards contracting and his business friendly attitude. I did mention in it that I had no hope of this contract getting closed and a new account would have fallen to the way side had this lawyer not forayed to rescue business for the company.
After a few days, I got an email from legal head saying that he was sceptical of whether this lawyer had actually mitigated the company’s exposure after receiving my email which was written in sheer praise and awe of this new lawyer that, in essence, how ‘swiftly’ he closed the contract when it had been stuck for months. However, he was glad that the few areas that indeed mattered in the contract were adequately addressed. He did apologise for the delay and loss of business since the senior lawyer could not diagnose what was really to be treated in this contract.
That day I realized that lawyers were like doctors. Unless they properly diagnose the legal hurdles and challenges that the company can realistically face in a contract, undue long contract negotiations can cause loss to companies. Where the bargaining power in a negotiation is equal, the focus on petty things that thwarts the closure of the contract results in losses for the company in many ways.
Copyright 2018 – Ritesh Khosla