The Problems with Contract Negotiations for Businesses (and How to Fix Them)

Why your contracts matter

Contracts matter. They’re the basis for trust.

The thought of going through the contracting process may result in business users giving a loud, collective groan, but despite this, contracts are essential. Contracting is an investment of time and money, but they are foundational to commercial relationships.

There’s very little that your company can do without commercial relationships, underpinned by contracts. World Commerce and Contracting (WCC) has estimated that as much as 60-80% of business operations are governed by contracts.

Given that commercial contracts are so vitally important to achieve business goals, it’s worth getting it right from the start, to avoid costly problems further down the line. The contract negotiation workflow may feel expensive and time-consuming, but the alternative – leaked value and even litigation  – is even more expensive.

Despite its importance, the contracting process is often document-centric and slow, with little automation. Companies haemorrhage value when they mismanage the process, with lengthy contract negotiations that simply aren’t necessary. Contracting can be far faster and cheaper and deliver better results.

The RADICAL approach to contracting and the 3Rs methodology

RADICAL contracting is our philosophy for delivering contracts and how we support our clients:

· Reasonable, rather than maximal positions: we encourage starting with reasonable positions (and short, clear, and relevant contracts) rather than trying to win every point. What matters most is that the deal is deliverable, meets the needs of both parties, and pragmatically covers the risks that really matter.

· Automated, rather than manual processes: you can’t automate everything, but why carry out simple and repetitive tasks if a computer can do it better? We want our team thinking and improving things, rather than clicking buttons, so we automate the parts we can.

· Data-driven, rather than relying on folklore: without data we are stuck in a world of anecdotes and opinions, and we can’t tell whether the “improvements” we are making are actually improving things. We’ve built our own technology platform to ensure that we can keep providing clients with insights into what actually works.

· Incremental improvements rather than large-scale transformations: We are wary of large IT projects and believe that Contract Lifecycle Management systems will not solve all the problems with contracting (yes, we have data on this too). Instead, we focus on continuous improvement with a quarterly reporting cycle, fast experiments, and the never ending pursuit of perfection.

· Collaborative rather than adversarial: we work with departments across your organisation and create great commercial relationships with the other parties. We are structured to share learning with Radiant to ensure that all of our clients benefit when one team finds a better way.

· Accelerated rather than ponderous: speed is key. And it’s achievable. We are running at 85% half-day turnarounds (i.e., you get your drafts back, or a revised version, in four hours), but we know that the most important metric is time to close. This means not just turning contracts quickly and safely, but most importantly getting rid of rounds of negotiations.

· Long-term relationships rather than short-term transactions: however easy we make contracting, commercial relationships create the most value when they are long-term and evolving. We get the relationships off on the right footing, with a focus on them being able to grow.

The 3Rs methodology is our structured approach to implementing RADICAL contracting. It has three stages: Repeatable, Robots and Refinement, although we’ve done this enough times to quickly get you to the Refinement stage:

The 3Rs methodology is our structured approach to implementing RADICAL contracting. It has three stages: Repeatable, Robots and Refinement, although we’ve done this enough times to quickly get you to the Refinement stage: 

1. Repeatable 

Put the core tools and processes in place, ready for automation:

  • Short, clear, reasonable, and relevant contract templates (although we can start with what you have, and come back to them later)
  • Playbooks to deal with the major points that come up (we have an automation that can extract outcomes from previous deals to build a playbook in days, not weeks)
  • A simple intake form so that the right questions, and only the right questions, are asked.
  • Defined processes - we have honed how we do the different stages in contracting over tens of thousands of deals, but our processes are completely customisable, including the checklists, to deal with the nuances of your business.

2. Robots

Apply cost-effective and straightforward technology that works as part of the service, including adopting systems that you already use to achieve quick wins:

  • We automate contract drafting (and can give your team access to our system to let them speed up the contracts they produce).
  • We bring dashboards with live data and customisable charts to track the metrics that are most important to you.
  • We bring the tools needed to perform the work fast and reliably, including proprietary extensions to Word, data analytics, and AI where it helps

3. Refinement

This is a continuous improvement process to build upon your contract terms and processes, focusing upon your stakeholders’ needs. It is data-driven to help effectiveness and demonstrate business value. We run a quarterly cycle of agreeing priorities with you, delivering improvements as part of the service, and then reporting back on what has been delivered.

The 3Rs methodology can help with many of the challenges associated with commercial contracts and the contracting process. Every problem with contracting that we’ve come across can be solved by using a RADICAL approach, and implementing it using the 3Rs.

So let’s look at the most common contracting problems and how we can help you prevent them by applying our methodology…

Problem 1: Contracts cost too much

Contracts are expensive. Legal and business time, protracted ‘back and forth’ discussions, and administration all add cost, and there’s value leakage at every stage. In one study, World CC found that even a simple, low-risk contract cost, on average, £5,000 to complete (for each party!) when it should be at least a tenth of that.

How to fix it

The 3Rs methodology helps us reduce your costs:

  • We are able to offer extremely competitive fixed pricing, as our methodology allows us to support your contracts more efficiently.
  • Getting rid of time spent negotiating contracts reduces your internal costs for the other departments involved, and allows your sales or procurement teams to sell or procure more, accelerating business performance.
  • Your legal team is freed up to deliver more strategic work, allowing you to reduce external legal spend on traditional law firms.

And applying the 3Rs methodology to how your legal team works, as explained in our book will give you additional efficiencies and savings. We explain here how to have the right internal teams and suppliers to support your contracts.

Problem 2: Contracts take too long

Slow contracting means cash arriving later in the bank, delayed access to external resources, and time kills deals. It also means that sales teams can land fewer deals and procurement teams can buy fewer things, because they are still working on the old deals. Contract delay has real business impact, and time to close is a key metric.

Part of the problem is turn-around times. The Association of Corporate Counsel’s global legal department benchmarking report showed that the average time to review a contract is over 30 days. But even if you speed up your own turnaround times, you still have to reckon with the other side’s review times. To fix this problem, you have to deal with both.

How to fix it

The 3Rs methodology helps us speed up your time to close contracts.

Fast turn-arounds: we are the fastest firm supporting contracts. We turn over 85% of contracts within half a day (4-5 hours). We do this by having deployed the steps in the methodology and over a decade of focussing on improving our processes, one tweak at a time.

Business teams can’t believe the experience. We have a 4.7 out of 5 customer satisfaction score, with most comments focussing on our speed, reliability, and how nice and helpful are team is.

But as we noted, turning your contracts quickly is only half the battle. We also have to deal with the other side.

Getting rid of rounds of negotiations: the easiest way to close contracts quickly is to start with short, clear, reasonable, and relevant contracts. The other side doesn’t want to negotiate your contract, they would rather just sign. If you can send a draft that deals with their key objectives as well as your own, chances are that they will raise few or even no negotiation points.

We help our clients improve their contract templates by:

  • Redrafting templates so that they cover both sides objectives, ensuring that our client is adequately protected and also the first draft is easy to accept and the final contract is easy to manage.
  • We keep improving the templates (and playbooks) by running heat-map analyses of what is coming up in negotiations and refining the terms so that there are fewer and fewer negotiation points.

The results are remarkable. If a typical contract negotiation used to take 6 rounds of negotiations and averaged 30 days a round (predominantly the other side) then bringing it down to two rounds reduces time to close from 6 months to 60 days. It is actually better, because if the contract is easy to digest then it doesn’t get stuck at the bottom of the other side’s lawyer’s pile and responses or just agreement itself can happen in days.

Problem 3: Contracting hinders rather than helps relationships

The purpose of contracting is not to sign contracts, it’s to enter into commercial relationships. Contracts are there to support the relationship, but too often successful relationships are created despite rather than because of the contracting process.

When we should be building trust, the drafts and process undermine trust. Unreasonable first drafts or responses, adversarial behaviour, and positional negotiation all damage the trust before it gets going. Part of this is the common pattern of too much focus in contracts and what will happen when things go wrong rather than ensuring they have the best chance of going right. The World CC surveys repeatedly show that the focus of negotiations is on indemnities, liability, and termination when what goes wrong in practice stems from uncertainty around scope and pricing. What matters most is ensuring that the customer is getting what they need, the supplier is able to deliver, and the price works for both parties.

There are also problems with managing the relationship after the contract has been signed. Contracts are too often incomprehensible and hard to action, and the parties don’t understand what they need to do. World CC also found that due to poor contracting practices, companies are, on average, less profitable by over nine per cent of their revenue.

How to fix it

The 3Rs methodology delivers better business outcomes from your commercial relationships.

  • By improving your contract templates so that they are short, clear, reasonable, and relevant, you won’t lose trust when they are read by the other side.
  • Negotiations on the legal points are kept to a minimum, with the focus on the key commercial issues.
  • The style of negotiations matters, and we are regularly commended on the pragmatism of our lawyers, including their willingness to explain issues, listen to the other side, and quickly  find solutions that let the discussions move on.
  • Your contracts will also be easier to manage when they are easier to understand, and we help clients by extracting key data points and tasks to ensure that the contract is easy to action.
  • We help clients keep their contracts up to date, not only with amendments but also contract projects for bulk updates.

Legal teams can be seen to be business enablers while protecting the business, if the focus is put on the points that matter and a constructive style is adopted in negotiations. The contracting process can build trust, give the commercial relationship the best chance of succeeding, and can even be fun.

Problem 4: Contracting teams are overstretched

Contracting teams are facing growing volumes and often flat or reducing budgets.  The tired refrain of “more for less” continues, and something has to give. But it doesn’t have to be team burn-out and a constant feeling that there is no time for the “important not urgent”. There is a better way.

How to fix it

The 3Rs methodology offers a pathway to faster, cheaper, and better contracting. If your legal team applies it to how they work, they will be able to handle more deals, deliver more value, and avoid burn-out. However, finding the time to implement it can be a challenge.

You don’t have to do it all on your own and ALSPs offer a new option for the support of your higher-volume contracting, freeing your team up to do more strategic work and find the time to also keep improving how they deliver.

If you’re outsourcing business as usual to law firms due to time constraints, or your team is struggling to meet business demands, it’s time to consider using an ALSP like Radiant Law.

Our RADICAL Approach to Fix Contract Negotiation Problems

Radiant Law’s RADICAL Contracting approach is reshaping the contracting landscape. By adopting the approach and the 3Rs methodology, your legal team will have the time and space they need to do more strategic work.

The 3Rs methodology saves time and money and adds business value through faster contracting and stronger commercial relationships. By outsourcing your higher-volume predictable contracting to Radiant Law, who invented the 3Rs methodology, you can dramatically improve your contracting negotiation workflow.

If you’d like to see what we can do to tackle your contracting difficulties by supporting your day-to-day contracts, please get in touch.

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