Contracts form the foundation of most business relationships, and delays in execution can significantly impact project timelines, relationships between the parties, and profitability. In today's fast-paced business environment, it is not just important to conclude good contracts, it is equally imperative that good contracts should be concluded quickly in order to obtain strategic advantage. Streamlining the contracting process to conclude better contracts faster can enable businesses to seize opportunities, reduce risks, and foster stronger collaborations.
- Essential steps to execute commercial contracts efficiently
Concluding a business contract efficiently requires a thoughtful approach that ensures both parties' needs are met while avoiding unnecessary delays. Below are the key steps to accelerate the process:
- Start with alignment of objectives
Before starting negotiations on the contract draft, both parties should align on their key goals for signing the contract, as clear communication about mutual objectives helps identify key deal drivers, minimizing misalignments and preventing unnecessary renegotiations. Early alignment also builds trust and sets a cooperative tone for the negotiation process, which in turn helps ensure that both parties are on the same page. This step not only reduces potential conflicts but also enhances the efficiency of subsequent negotiations.
- Draft a well-structured and balanced contract
Balanced terms: Regardless of which party prepares the initial draft of the contract, it is essential to ensure that it is not overly one-sided. A balanced draft demonstrates fairness and sets the stage for smoother discussions.
Avoid excessive legal jargon: Overly complex language can hinder understanding, prolong discussions, and create unnecessary confusion. Instead, one should focus on brevity using clear, concise, and straightforward terms to ensure the contract is accessible to all stakeholders, not just legal professionals. Additionally, the contract should be well-structured to reflect the business understanding between the parties.
This approach minimizes ambiguities and streamlines the review process, enabling both sides to quickly identify key terms and address areas of concern.
- Streamline the negotiation process
Set priorities: As a first step, spot high risk items that may directly impact your business interests (such as terms leading to scope creep or value leakages if you are a service provider) and avoid getting bogged down in low risk items. Referring to a basic checklist to identify non-negotiable and negotiable terms can help in such prioritization. In one of the deals we supported our client with, negotiations dragged on over a late delivery penalty clause, while key project milestones were slipping, jeopardizing its overall viability. To break the impasse, we suggested a balanced cap on penalties that addressed both parties' concerns, highlighting the importance of practical resolutions over prolonged debates.
Compromise strategically - Leverage a ready playbook: Strategic compromise is essential for efficient contract negotiations, and having a ready playbook containing anticipated pushbacks and pre-approved fallback positions can streamline the process, allowing parties to reach a middle ground quickly and avoid prolonged standoffs. The playbook serves as a reference guide that facilitates smoother negotiations by enabling faster decision-making, minimizing delays, ensuring consistency across multiple contracts, and ultimately accelerating contract execution.
Efficient redlining of other party's draft: When reviewing other party's draft, use clear, concise, and purposeful redlines to minimize confusion and foster agreement. Over-marking the document with trivial edits often distracts from substantive issues, slowing progress. Instead, focused redlines paired with well-articulated, precise comments help convey the rationale behind your preferred positions, paving the way for quicker agreements.
- Common pitfalls and how to avoid them
- Slow internal approvals:
Delays in securing internal approvals can create bottlenecks, particularly when multiple stakeholders are involved in the decision-making process. To avoid such delays, businesses should proactively obtain necessary approvals in advance and establish clear workflows for collaboration with stakeholders to prevent indecision.
- Back-and-forth negotiations:
Leaving key commercial or operational terms undefined until later stages often leads to prolonged, unnecessary back-and-forth negotiations that stall progress. To mitigate this, parties should align on such terms early in the process.
- Propose solutions, not problems:
A solution-oriented mindset can drive progress. When a party has identified an issue in the contract, it should present alternatives or compromises to move discussions forward.
- Lack of deadlines:
Without clear timelines or a sense of urgency, negotiations can drag on indefinitely. To avoid this, parties should establish and communicate deadlines for completing specific milestones, such as drafts, reviews, and approvals to foster accountability and ensure that all parties remain focused on concluding the contract efficiently.
- Technology gaps:
Embracing technology, such as contract lifecycle management tools, can streamline the contract process by automating critical tasks, including stakeholder collaboration, managing deviation approvals, version control, and tracking progress. These tools enhance efficiency by reducing manual efforts, ensuring transparency, and minimizing delays caused by miscommunication or oversight.
Lastly, focus on contract closing and not winning points. Accept manageable risks to close the deal while ensuring your core interests are protected. This can be achieved by assessing risks pragmatically – i.e. by aligning your review with business goals and striking a balance between risk and opportunity and putting in place practical safeguards to manage the risk.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.