Nada Alnajafi has experience as an in-house counsel for both startups and large companies. She’s currently corporate counsel for Franklin Templeton. Nada recently launched a blog called “Contract Nerds,” where she seeks to be a resource and community for everyone who works with contracts (lawyers, procurement professionals, contract managers, etc.).
Her goal is to bridge the gap between the type of education people receive and the work they have to do. Nada recently wrote “Contract Redlining Etiquette,” which focuses on using smarter redlining practices to drive contract negotiation forward.
In episode #347 of the Negotiations Ninja podcast, Nada covered some common issues we see arise in the contract redlining process. One of which is how to navigate a negotiation when you find hidden redlines.
How Nada handles hidden redlines in contracts
Nada occasionally comes across hidden redlines, i.e. changes to a contract that aren’t specifically called. This, unfortunately, contributes to a lack of trust and transparency between parties. It makes contract reviewers paranoid.
Nada recently received a contract review request from an internal business client for a renewal order form. It was one page, so she expected it to be easy. But at the bottom of the order form, it said, “This order form is made pursuant to the master services agreement…this order form is non-cancelable and non-refundable.”
So she pulled up the master service agreement and found that it gave her client the right to terminate the contract for convenience. Because this was such a material change that they tried sneaking onto an order form, Nada called up her internal client and asked them how they wanted to address it.
The contract was being renewed for three years, and they needed the ability to cancel in year two if necessary. They jumped on the phone with the other party, and Nada was surprised. The other side usually says they made a mistake. When this happens, they usually make a concession. When other parties make a mistake, it usually gives you the upper hand.
But they didn’t make any concessions. They didn’t apologize. They said, “This is how it has to be.” The tone of a negotiation says a lot. The parties are signing up to work together. When contract negotiations don’t reflect that partnership, it leaves a bad taste in the mouth.
A lack of transparency with redlining can and will backfire
So Nada said they can take the three-year deal and leave the condition that they can cancel for convenience. Or, if they chose to insist on their conditions, she’d have to take the contract back to discuss internally. She asked if the salesperson wanted to lose his commission on a three-year deal because of something so small. Things shifted after that.
After they got off the phone, the salesperson shifted gears and said they wouldn’t require the clause anymore. But it was too late. Nada’s client didn’t want to work with them anymore. He changed it from a three-year contract to a one-year contract and planned on looking for a replacement vendor.
By not being forthright about their change, they damaged the relationship so much that the client moved on. It wasn’t what they wanted in a partner. That’s why it’s so important to redline contracts.
Nada shares more about contract redlining etiquette in episode #347 of the Negotiations Ninja podcast. If handling contract negotiations is part of your daily life, don’t miss this one.