Another problem is “Self Confirmation,” where we ignore data that does not support our fear, and only embrace data that does back our contentions. A good example would be the failure to think about the greater number of people who die from normal flu outbreaks instead of the swine flu.

Finally, we often engage in “Confirmity,” meaning that we go along with what everyone else is concerned about, following along with the mass hysteria as part of the chain reaction.  Listening to nonstop reports about swine flu is certainly causing this confirmity error.

All 3 of these cognitive errors happen all the time when we contract.  Let’s consider a few examples:

Contrast: We might not care about focusing on the riskiest contract terms, like the goods/services description, and instead focus on less risky terms, like limitation of liability, because in all of your past deals you focused on less risky terms each time.

Self Confirmation: In this vein, we might only think about what kinds of damages the other side might sue us for, so we again only hone in on limiting our liability, even though a dispute is much more likely to occur over whether or not the goods and services met expectations (which can be prevented through an excellent goods/services description in the contract).

Confirmity: Moreover, we might be focusing on the contract’s limitation of liability clause because we were trained to do so.  We are simply following along with how more senior negotiators handle agreements, and, matching their approach, we fail to focus on other issues of greater importance.

Try looking for Contrast, Self Confirmation and Confirmity in your daily life.

Do you see it happening?

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(1) Insufficient Understanding of Customer.  Do not fail to take the time to understand the customer and the specific business needs the customer has, in particular, focusing only on explaining your products and services without trying to guide the customer as to how a particular product/service can solve her problem.  As TechCrunch recently pointed out, make your sales explanations simple.

(2) Focus on Customer’s Budget, Not Customer’s Needs.  Do not focus on how much the customer has in the budget or wants to spend.  Instead, focus on the customer’s pain, and explain how your good/service will alleviate her business suffering.  This will do a much better job of motivating the customer to meet your price.

(3) No Hard Deadlines.  Do not show an unwillingness to agree to hard deadlines for delivering products and completing services, making it likely that the customer’s project will not come in on schedule.

(4) No Clear Fees.  Do not show hesitance when asked to agree to a definite price that can’t be increased at a later date, making it likely the customer’s project will come in over budget.

(5) Unclear Customer Responsibilities.  Do not do a poor job of explaining what the customer needs to do to be able to incorporate and fully use the goods/services (such as necessary platforms or site preparation).

(6) No Access to Key Stakeholders.  Provide access to everyone on the seller’s side who needs to sign off on the deal.  If you are missing your key people, this results in unnecessary emails, numerous contract versions, and fruitless meetings.  The best situation is where all necessary stakeholders on both sides get on the phone, review the contract language, agree on revisions, and close the deal.

(7) Long Contracts.  Do not send unnecessarily long contracts which mean more work for everyone in reading, revising and negotiating the language.  Even the most complex deals can usually be covered in a relatively short number of pages.

(8) Unclear Contract Language.   Do not send contracts full of ambiguous language which are not clear as to exactly what is being purchased, at what price, following what deadlines, and specifying the customer’s duties, if any.

(9) One Sided Contracts.  Do not send contracts heavily weighted in favor of the seller, so that time has to be wasted and legal fees spent negotiating a compromise version.

(10) Not Moving the Ball Forward.  If you send a customer an email, it should only be to elicit specific, necessary information, or to fully respond to a customer’s request for information.  That’s it.  Any other email wastes the customer’s time.  If you have a conference call, you should have a prepared agenda acceptable to both parties and you should have everyone on the call ready to accomplish all agenda items.  Too often, a key person is not available, or an essential stakeholder is unprepared to discuss and execute a key topic.  Avoid this.

These mistakes make negotiations interminably long, or cause them to fail, mainly because the seller spends so much time creating complexity that the seller is unable to clearly describe the deal.  By not answering key questions at the outset, the transaction costs for deals end up being too high.  In particular, legal fees are greatly increased because the lawyers have to spend so much time tunneling through the complexity.  Also, the more complex you are in describing your deal, the more you give the lawyers to argue over, which means more time and more money.

Instead, focus on keeping everything simple.

If you enjoy this content, add me at twitter.com/JasonAnderman, thank you.

Web 2.0 for Contracts: Where to Go, What’s Free, What Costs Money

Get up to date on cutting edge web sites in the Law 2.0 world.  Jason Mark Anderman, President of WhichDraft.com, will provide an overview of some of the latest and best document, contract, and matter management sites for your use, as well as a demonstration of how they can be used in the course of your day to make you more productive.

Now people in Silicon Valley may be amused by me saying “Web 2.0,” given that the term seems to be gasping for its last breath, but in the legal world we’re a bit behind the times when it comes to technology.  After all, for us lawyer types, Web 2.0 is still trying to take off!

So here are the sites I recommended during my presentation (somehow WhichDraft.com magically landed first on the list).  Read ‘em and weep:

Free Sample Contracts and Contract Creation Tools

WhichDraft.com

First Draft 

Free Sample Contracts

JDSupra

ScribD – Contracts

DocStoc – Contracts

Social Media

Legal OnRamp (Want to hang out with the most cutting edge lawyers around?  Legal OnRamp is the social media web site for lawyers and legal professionals)

Premium Contracts

MyLawyer (this is an impressive site, contracts and legal service integrated in one package with a flat fee; sadly, only offered in the UK; the owner is a company named Epoq that does offer a virtual law firm platform in the US called Direct Law)

Practical Law Company (tremendous resource for contract knowledge management)

Premium Matter Management

Mumboe (great Software as a Service (SasS) matter management premium site)

Premium Confidentiality Agreement Tools

BaselineNDA (Pretty amazing application, with some limitations, it can read and mark up a confidentiality agreement for you)

Not Web 2.0, But Free and Useful Sample Contracts

OneCLE

The Electric Law Library

YourFreeLegalForms.com

David directs the Ascendant Consortium, a group of elite, independent consultants with an unmatched record of success helping individuals and companies achieve their goals.  Prior to being tapped by the Ascendant Consortium, Mr. Fields was the lead partner at a national management consulting firm where his work included optimizing growth strategies and moving companies into new markets.

During the call, we covered the following topics:

I. KEYS AND PRINCIPLES: BUY, PAY, GET, DO, TRUST.   The key business issues that need to be clearly spelled out in a contract are “Buy, Pay, Get, Do, Trust.”  David speaks about the sales concepts of “Getting to No” and “Net Preference”.  You can learn more about these concepts in the “Insight” newsletter.

1. BUY – What Is Being Bought/Sold?

The Discovery Phase: Vendors often use unclear terms such as “Solution” or  “Server”.  Customers should either know exactly what they want, or set up a low price initial phase where the vendor works with the customer to design a specification.  Vendors should, based on their own internal sales constraints, use a discovery phase to be able to focus in on what the customer cares most about.  Remember, at the end of the day, the only possible things to sell are a good/product/deliverable, or a service.

2. PAY – What Is the Price?

Clear Budgeting and Forecasting Is Essential. Vendors often demur on providing an exact price, often because there is lack of clarity as to what is actually being sold.  The price often ends up being a “moving target” during negotiations and even after the contract is signed, which causes internal budgeting problems for the customer.

3. GET – When Will the Deliverable/Service Be Provided for the Customer’s Use?

There Must Be a Clear Due Date for Performance. Vendors often don’t provide a clear completion date, or will provide a date at which point some of the work will be done, but not all, so the customer is still not ready to go, dashing customer expectations.

4. DO – What Must the Customer Do So the Vendor Can Hit the Deadline and Not Add More Charges?

Clear Customer Responsibilities Must Be Spelled Out.  Avoid vague language such as “Customer will provide all reasonable and necessary resources” and focus on clear language such as “Customer will provide a 10 foot by 10 foot room with a temperature maintained between 50 and 80 degrees at all times, and provide electric service and a T1 Internet connection.”

5. TRUST - Is the Contract Clear as to the Above Issues?
A Clear Contract Prevents Disputes. If not, the negotiation can take a great deal of time, involving the exchange of many versions and many meetings, ultimately resulting in a contract with language that involves a series of compromises.  A contract that is clear prevents disputes and creates trust because if, at a later date, one party makes an unreasonable demand of the other, the parties can then review the contract and find that the unreasonable demand is not allowed.

II. MANAGING YOUR LAWYER: NEGOTIATING BUSINESS TERMS &  CONTRACT VERSIONS.

1. There Is Nothing New Under the Sun – The Salesperson and Customer Need to Know Ahead of Negotiations:

1.1 Buy, Pay, Get, Do and Legal Positions: What Are Your Positions on What Is Being Purchased, at What Price, for What Delivery Date, What Do You Need to Do, as well as What Are the Legal Positions?
1.2 The Lawyer: Discussions Should Involve The Lawyer or a Way to Manage the Lawyer if Legal Approval Is Necessary.
1.3 Backup Clauses: Backup Positions Should Also Be Decided, Leaving the You Prepared for Almost all Negotiating Possibilities.

2. Take the Lead: The Client Should Take the Lead on Negotiating Business Terms Issues, Not the Lawyer.

3. Decide Level of Risk: The Client Should Ultimately Decide Legal Terms Involving Risk Such as Limitation of Liability and Indemnification.

4. Too Many Versions, Too Much Time: Once the Client Sees Many Contract Versions Exchanged, or Too Much Time Has Elapsed, the Client Should Ask for a Negotiation Conference Call With All Stakeholders to Try and Agree on Final Language and Close the Deal.

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