Business

Negotiation strategies are often quite similar to interrogation strategies.  “Clock Negotiation” is a process often used by large companies with deep pockets and bureaucracy when dealing with smaller companies with lesser pockets.

The goal of the large company is to send contract negotiations through multiple stages of review – with each stage going to a different division or office of the company.  In each stage following the first, the officer will chip away more and more at the terms or require additional services be added.  To the small company, this looks half hazard, but it definitely carries a purpose. 

Take a small software licensing business, for example.

Stage 1:  The contract starts at an informal meeting between the small software licensing company sales rep and large company business officer.  This is the exciting stage.  Everyone seems to be in agreement on everything!

Stage 2:  The contract is passed to some type of “commercial terms” review person – at which point sales rep is informed that large company has certain business terms (that are always "policies") that it must have in the contract.  These are not ideal terms, but they are definitely not deal killers and can fairly easily be agreed to.  There is little negotiation.  Software licensing company wants the deal and accepts the terms.

Stage 3: The contract goes to the “contract review” office at large company.  This is not legal counsel – just some mid-level worker with a checklist of what terms the company can and cannot agree to.  If there is pushback by the small company at this stage, there will be several conferences and e-mail exchanges, and the stage will stretch on for some period of time.  Finally, the contract officer will give some leniency on what originally were “non-negotiable” terms, but only if the software licensing business gives a lower price, a termination on convenience, or additional services at no cost. 

Then the contract officer tells small company that they now have to get the contract approved by legal – at which point the small company cries out something to the effect of, “I THOUGHT YOU WERE LEGAL!” 

Stage 3 ½:  Somewhere during Stage 3, the original business contact asks software licensing sales rep for some level of demo or pilot… or some level of free service as a proof of concept.  This, of course, is at the cost to software licensing company.

Stage 4:  The contract gets sent to legal.  Software licensing company is praying that this is only for their blessing and not for further negotiation.  But, in-house counsel are not paid to bless documents, they are paid to negotiate the best deal possible for large company.  At this stage large company understands that small company has sunk a lot of costs into this deal and to some degree has to take what is fed to them.  Legal asks for additional indemnities, warranties… they ask for termination terms… they ask to strike anything that leaves large company on the hook for any long term obligations.  Small company takes on more contract risk, large company takes on less. 

But it is never that clean.  There will be an impasse on certain terms… on to Stage 5.

Stage 5: When there is an impasse, legal discusses the contract term with some business officer off-line.  They then come back and tell small company that they can waive certain terms which were previously “non-negotiable” in return for lower pricing, additional services…

Stage 6:  Deal is made with legal.  But legal tells you that the contract must get blessed by some other sub-office (e.g., risk management, IT, ethics committee, green committee).  Taking risk management for example, they ask for changes to the insurance provisions of the contract.  This adds additional administration obligations and cost requirements on software licensing company.  Software licensing company is so deep into negotiation costs at this point that they almost have to say yes to anything given, and they know that if there is an impasse, you go back to Stage 5 and give up more business terms.

Stage 7:  Deal is made with sub-offices.  But legal tells you that this must be blessed by a final head officer – usually some Vice President.  Same cycle as Stage 6, and more unfavorable terms are pushed down on small company.