The Biggest Mistake You Can Make When Negotiating Contracts
Image: Graur Razvur Ionut/FreeDigitalPhotos.net
Challenge No. 1
One of the biggest challenges when entering into a new relationship - or the new phase of a business relationship - with someone else is straddling that fine line between making sure that your interests are protected, while not jeopardizing the relationship building you've worked on to get to this point.
It's an awkward dance, to say the least.
Who wants to bring those ugly words and things, like CONTRACTS into the conversation, especially when a handshake should do just fine?
(Seriously, is there any greater mood killer than hearing the word "lawyer?")
Challenge No. 2
Okay. So you've managed to cross that threshold, and decided "If we're going to get a deal done, we should memorialize it the right way, not on the back of a napkin."
But am I willing to spend real $ on a lawyer who lives and breathes this kind of deal, day in, day out?
And worse, even if I want to answer "yes" to this question, how do I justify it to everyone else - especially when you consider that they would be happy with something written on the back of a stained diner napkin?
Recognizing Value vs. Cost
To be sure, cost is a major factor when you are considering whether to lawyer up, particularly if you're a small to mid-sized business. After all, just like anything else, you can't buy what you can't afford.
But just looking at a lawyer's hourly rate - as opposed to the value she provides for that dollar - would be a grave mistake.
You are vetting three (3) lawyers, A, B and C, to draft the employment agreement for E, the new sales employee you intend to bring on board. You are particularly concerned about making sure that E, who will be working on maintaining the client relationships you've built and fostered over the last 20 years, can't just walk out the door with those clients and taking them to your competitor across town - certainly not without paying a hefty price.
Lawyer A, who works for a large firm in New York City, charges $900/hour. His subordinate associates, who will presumably do most, if not all, of the work, are recent law school graduates that charge $450/hour.
Lawyer B just opened his own firm, and is hungry for work. He is willing to draft your employment agreement, including the non-compete and non-solicit provisions, at a heavily discounted hourly rate of $200/hour. But he doesn't really specialize in this kind of work, and has never had to litigate one of these cases.
Lawyer C works for a small, boutique firm that specializes in non-compete and non-solicitation agreements, and litigating them before the courts and arbitration tribunals. She's a published author and recognized expert in this area of the law. She charges $550/hour, which is not cheap. She does the work herself; she doesn't charge her client for any time spent by associates learning this area of the law, and, since she lives and breathes non-competes, day in, day out, she's become quite efficient doing this work for her clients, so her clients benefit from her economies of scale, particularly in the time it takes her to research this area of the law.
At the end of the day, each of your choices carries with it a cost - (A) will almost certainly cost you the most money (by a long shot); (B) will cost you the least - in the short run; and (C) will cost somewhere between (A) and (B), and most likely far closer to (B) than (A) simply because of the economies of scale, i.e., it will take (C) less time to perform the task than (B).
In truth, however, that only accounts for short-term cost, and fails to account for long-term cost, or value. If you end up with an ambiguous, lousy agreement and things go south, your litigation costs will likely be at least ten (10) to twenty (20) times what it cost you to draft the agreement in the first instance - and that's just for starters.
On the other hand, having a clear, solid agreement in place that actually reflects the parties' understandings of their respective obligations will go a long way towards avoiding litigation in the first instance - and that, rather obviously, presents tremendous value.
Post a comment
Post a Comment to "The Biggest Mistake You Can Make When Negotiating Contracts"To reply to this message, enter your reply in the box labeled "Message", hit "Post Message."