Contract Fundamentals – Part III

ACC New to In House Committee Legal Quick Hit

Presented by: Thomas Molchan Evan J. Foster, Esq. Senior Vice President Partner and General Counsel Saul Ewing LLP Mafco Worldwide Corp. 1 © Copyright 2016 Saul Ewing LLP

Agenda for this Presentation

•  Strategies for managing the contracting process •  Tips on contract negotiations

2 © Copyright 2016 Saul Ewing LLP

Managing the Contracting Process The contracting lifecycle

•  At what point should Legal be engaged? •  At what point should procurement be engaged? •  How do clients engage Legal and Procurement? •  Any “self-service” forms that clients can execute without involving

Legal or Procurement? •  Working with a protocol to determine roles and responsibilities •  Develop intake form and process that ensures you have all

documents and information needed to start review What is typically the jurisdiction of the procurement/ purchasing department?

•  Goods and services •  Other contracts?

Managing the Contracting Process Areas where you may be willing to accept the risk of

not having legal or procurement oversight? •  Below a certain dollar threshold (although low

dollars ≠ low risk) •  Agreements on organization’s template

without modification •  Standard procurement of goods and services

Managing the Contracting Process Establishing roles ●  Will Legal lead negotiations or will Procurement?

q  If Procurement leads, is Legal involved at all stages or just “legal” topics?

●  Client participation and involvement in negotiations

●  Involving other key stakeholders and subject matter experts (e.g., Risk Management, IT, HR, Finance)

Managing the Contracting Process Establishing areas/topics of responsibility

•  May depend on the sophistication of the Procurement function and availability of subject matter experts

•  In addition to traditional Procurement roles (vendor selection and due diligence, pricing, payment terms), does Procurement have the ability to address any of the following: •  Intellectual property

•  Company policies/compliance

•  Insurance requirements

•  Use of facilities •  Need for background checks

•  Others?

•  Legal approval of standard terms and conditions

Negotiation: Who should be involved in the

process? •  Depending on the subject matter,

size and complexity, you might assemble a team of one or a team of many.

•  Define roles and responsibilities to avoid “too many cooks in the kitchen” or worse, negotiating against yourself.

•  Involve experts within the customer organization if the contract contains unfamiliar subject matter or sensitive issues (e.g., IS/IT, Risk Management, HR).

•  Don’t assume that other constituencies within your organization know that you are entering into this contract.

Negotiation Mechanics •  Process differs for different deals depending on

team and negotiating dynamic. •  Establish who will have “document control” and

be responsible for making changes. •  Use caution to avoid sharing internal comments

with the other side (e.g. track changes/ metadata).

•  Consider whether negotiations are best handled via phone calls, email and/or face to face meetings.

Some Thoughts on the Art of Negotiation

•  Need to figure out roles of business & legal team

•  Think ahead •  Aim high •  Understand your leverage •  Don’t be afraid to ask •  Don’t be afraid to say no

Some Thoughts on the Art of Negotiation Cont’d.

•  Vendor tricks §  End of month/quarter/fiscal

year deals §  Revenue recognition §  RFP just “marketing” §  PDF’d documents §  “Nobody ever asked for

that” §  “Our policy is…”

“When I said, ‘Here are my prices’, what I really meant was ‘My price is totally flexible and within reason I’ll probably say yes to lowering them because we need your upfront money and recurring revenue more than I need my pride.’” - From Confessions of an Ex-Enterprise Salesperson

Negotiating Strategies •  Sole Source Strategy •  Competitive Strategy •  Collaborative Strategy

Sole Source •  Negotiate with only one vendor •  Advantages

§  Builds on existing relationships §  Reduced costs §  Reduced processing time

Sole Source •  Disadvantages

§  Less market information §  Less competition §  Less likely to find highest value vendor §  Less of a fiduciary process

●  Hire advisor to benchmark

§  Increased potential for self-dealing

Competitive Strategy •  Negotiate with a broad range of vendors in

an auction-like process •  Advantages

§  More market information and competition §  More likely to find highest value vendor §  More showing of fiduciary process

●  Less need to hire independent advisor to benchmark

§  Reduced potential for self-dealing

Competitive Strategy •  Disadvantages

§  More time and costs ●  RFI and RFP

§  Adversarial process tends to reduce trust §  May inhibit vendor’s response and interaction

during process

Collaborative Strategy •  Negotiate with two (or a few) select vendors •  Engage in parallel negotiations with each

vendor similar to sole source negotiations •  Advantages

§  Less Adversarial §  More Trust §  More Responsive Vendors

•  Disadvantages §  Less competition and market information

Questions?

© Copyright 2016 Saul Ewing LLP

DISCLAIMER The content of this presentation and the associated materials have been prepared by Saul Ewing for information purposes only. The provision and receipt of the information in this presentation and the presentation materials should not be considered legal advice, does not create a lawyer-client relationship, and should not be acted on without seeking professional counsel who have been informed of the specific facts. Should you wish to contact a presenter to obtain more information regarding your company's particular circumstances, it may be necessary to enter into an attorney/client relationship.

© Copyright 2016 Saul Ewing LLP 18

Contact: Evan J. Foster, Esq. Saul Ewing LLP Chesterbrook Office 1200 Liberty Ridge Drive, Suite 200 Wayne PA 19087 Phone: (610) 251-5762 Email: efoster@saul.com

© Copyright 2016 Saul Ewing LLP 19

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