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Risky business proposals

In business negotiations poorly negotiated deal points are like ill-fitting cogs in a machine. They don't work together well, or at all. As ill-fitting parts are stressed, parts warp and system-wide issues proliferate.

I've had decades of experience in business negotiations and documenting results in contracts. It seems more and more new clients come to us only after taking the risk of agreeing to business deals that can't be documented later in a contract, either easily or at all.

Many trends and business management gaps are causing this risk to grow. We'll focus here on proposal writing as a practical way to minimise or avoid the risk.

Some business deal ideas simply can't be made to work, either commercially or legally.

For example, it is not sensible to agree to pay in advance for products or consultancy services with no prior definition or testing of the deliverables. It's also not sensible to proceed without a clear idea of the workflow which is to operate from the beginning to the end of the project.

When parties work with the barest sketch definitions and workflow here's a typical disaster scenario, involving a drift into greater risk:

  1. Key technical or commercial risks are not recognised by the parties in early work.
  2. A lawyer is engaged by one side to translate the perspective of the parties into a draft contract.
  3. The draft contract is prepared or an existing one is used because the template seems to fit the intention of the parties identified in steps 1 and 2. The other side's lawyer receives it for review.
  4. That second lawyer receiving the draft contract recognises the gaps, not so much in what is written, but what is unstated or not thought through.
  5. This second lawyer recommends going back to the drawing board, ie step 1.

risky-business-proposals-2If the project is to survive, the previously "agreed" deal points must be reworked. If the project is to survive, the lawyer who takes charge and his or her client must apply high technical and people skills and experience. Because it involves dealing with and avoiding a disaster it is a much bigger job than it otherwise could have been.

So what is the economical and practical solution to overcome the risk of poorly negotiated deals? 

Get a lawyer in before you do a deal. Work together with a range of subject matter specialists to craft a succinct, clear, unambiguous and comprehensive proposal. Test thinking together. Ask advisers for available checklists, questionnaires, template proposal letters and other tools to check and shape a proposal suitable for the intended transaction. Prepare and circulate an illustration showing relationships between business structures, money flows and the rights and obligtions of each party. Use these collected project materials to get stakeholders onto the same page.

Unless you have lots of direct prior experience in the specific type of proposed transaction, for at least significant transactions engage an appropriate lawyer. Do this before you pitch to a real estate agent to take a lease as a tenant of real estate property, buy a business, take up an intellectual property licence or distribution agreement, or ponder any other important transaction.

Going to a lawyer after you do a deal is not necessarily a good way to save legal costs. It's common sense that it is often bad for business to not talk to advisers at the outset. Send an email request, follow up with a phone call.

A truism we often repeat for deal makers is this: You can usually negotiate a lot more in your favour at the proposal stage, than you can at the contract writing and interpretation stage. This approach can both save legal costs and make money.

During pre-signature negotiations each party is often prepared to give more to get the deal done. Later on, as time pressures and stress mounts, positions tend to become less plastic and more complex. Why?

  • Moving around big 5, 10, 20 or more pages of contract text is necessarily more costly than negotiating difficult deal points in emails in pre-signature negotiations. 
  • People involved in putting together a poorly thought through deal proposal are not likely to easily understand the longer contract version; so it can take more versions and explanations to get to a conclusion.
  • Lawyers can narrowly restrict their role or scope of work to providing strictly legal advice. Some lawyers lack the knowledge, skill, experience or desire to fix non-legal issues (eg commercial, technological, or business management issues).

It is best to address as many issues as possible at the pitch or proposal stage. Indeed, don't allow anyone to begin preparing a contract until as much as is possible is settled in written proposal communications.

However, if a lawyer can prepare a suitable contract for the key deal points in a proposed transaction, then the draft contract can become the proposal. That may seem a contradiction to the theme of this article, it's not. The reason is that a good contract is like a good proposal, both are crafted or customised to meet the needs of the parties for a specific situation.

Further hints for proposal writing are available in my following three three articles:


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