Your Customer Sent a 60-Page Contract Draft. Now What?
As a startup or small business, it can be exhilarating to win a sale with a huge multinational. However, once the reality of contract negotiations sets in, you may wonder what you’re signing up for, literally.
Large companies, especially in highly regulated industries like finance or healthcare, may want to work from their own templates. Often, these are 10 times longer and exponentially more complicated than the simple purchase orders many smaller entities normally use.
To further complicate the process, your large customer may be imposing a tight turnaround time and hinting that you might lose the sale if you don’t sign their paper. As they lob over their 60-page document, they may comment that “this is our standard,” or “all our providers sign this without changes.”
However, unless both you and your lawyer agree with the terms, there’s no need to accept a customer template as-is. With a focused approach to contract revisions, you can protect your interests and create a fairer agreement, all with out delaying the deal.
Here are 2 ways you can protect your startup or small business from a one-sided contract.
1. Create an attachment to the master contract that covers the specific terms you want to address.
This attachment can come in the form of a statement of work, an exhibit, or a purchase order. For purposes of this discussion, let’s refer to it as a Statement of Work.
It’s important to use this document to include important details such as service descriptions and pricing. Keep in mind that your services and pricing proposal may be based on terms that contradict the customer’s template. If this is the case, you might need to edit their agreement as part of presenting your proposal, so that the terms reflect your business model.
By making this attachment an exhibit to the customer’s master agreement, you agree that their terms govern. If you want different terms to apply, you’ll still need to add those to their document. The master agreement should refer to your Statement of Work when appropriate, so that your commitments around services, pricing, and even some legal terms can be “as described in the Statement of Work.”
If you’re agreeing to provide different services or perform different projects over a period of time, this can be a good opportunity to agree on governing terms in the master agreement. With this more substantial negotiation out of the way, you’ll only have to agree on Statement of Work terms before getting started on a project. These terms are typically more commercial in nature, including what services you’re performing, pricing, estimated timing, and what the customer needs to do if anything (like giving you access to data or other resources).
2. For a minimalist approach, create standard wording for a few key terms.
What happens when a big customer insists on using their own contract format, including their template for the Statement of Work? Here, it can be helpful to create standard wording for only the clauses that are most significant to your company.
This approach requires having a deep understanding of where the risk lies in your deals. It may work best for companies who have a good sense of where customer issues typically come up, and where unfavorable terms can cut into their margins or reduce their ability to deliver.
For example, if your company sells software or content, you may have intellectual property rights wording that you want to keep consistent between all of your customers. If you prepare this language ahead of time and mark up all your customer contracts to reflect it, your company will be better protected – and your company’s value will be reinforced in the eyes of investors.
By focusing only on key terms, you can signal to your customers that you can move quickly and decisively. This approach allows you to focus on what’s important rather than scrutinizing every contract clause.
Of course, this approach applies to a relatively balanced contract, and you may be faced with an agreement that demands more detailed review and revision.
Small businesses and startups can negotiate with large multinationals in a way that protects their interests without derailing the deal. By being strategic with contract redlines, smaller companies can establish themselves as capable and savvy partners, setting the stage for a mutually beneficial relationship.