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Negotiating tips for contracts

Nixon Law Group

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“It is impossible to unsign a contract, so do all your thinking before you sign.”

Wise words from Warren Buffett!

(Something Mr. Buffett also knows: sometimes it is better to get the contract signed asap, knowing you will have to amend it later. You just have to think about the strategy first.)

We’ve done thousands of contracts from both sides of the table. From software licensing agreements to vendor contracts to investment agreements to pilot programs and more—we’ve seen what works in negotiations, how certain terms play out over time, and what may seem trivial but turns out to be quite important (and vice versa). 

Today’s issue is all about legal agreements, and we’ve polled a few members of our team for their best thinking on creating, reviewing, and signing contracts. 

Before we get to it, though, we want to wish everyone Happy Pride and direct your attention to our post on How Healthcare Access and Treatment Are Evolving to Better Serve 2SLGBTQIA+ Patients. Making quality healthcare accessible to traditionally underserved communities is a big part of the reason we do this work, and we’re excited to see these companies making headway. Being realists, we’re also aware that we as an industry have a long way to go. We’ll keep helping innovators innovate in ways that change the world—like reminding you of our Invest in Black Founders List as we celebrate Juneteenth this month. 

Now let’s get to the contract tips!

Vendor Tips

Partner Rebecca Gwilt has 3 tips for vendors negotiating contracts to close deals:
(1) Make sure the decision-makers are in the room. You don't want to spend months talking to contract counsel and then realize that only the in-house legal department is empowered to negotiate.

(2) Make sure you are starting with the right agreement! You wouldn't believe how many times we've seen vendors accept the buyer's standard contract, review all umpteen pages, send it to us, and we alert them that this is not the proper contract for the contemplated business deal. What a waste of time! Often, this is a result of the business and legal folks on the buyer side not communicating. So, don't assume the contract they provide is the right one. Ask your counsel.  

(3) If you can find one, get a champion within the buyer organization that can lean on legal to push your contract to the top of the list or to relent on problematic provisions. An active and engaged VP is one of the best keys to shortening sales cycles!

Navigating Bureaucracies

Our attorneys agree that deals with large entities like health systems, pharma companies, and insurance companies will take some time and require give and take on risks. 

Knowing your limits from a legal perspective—such as how much liability you are willing to take on for the fees you are getting, what IP is bottom-line necessary to protect, what risks the customer should HAVE to indemnify you for that are not in your control, and what makes the most sense for the duration of the agreement—is just as important as the commercial terms you are discussing business to business. 

Don't be afraid to protect your company in these negotiations, no matter how small you are. Just because you don't have all the leverage, giving away the farm to get a signature may not help much in the long run.

Creating Complex Partnerships

For complex partnerships, Senior Counsel Laura Podolsky recommends including language establishing a small governance committee and regular check-ins to help ensure ongoing communication. It doesn't have to be super involved, but the parties’ representatives should meet regularly, with an agenda and notes that circulate after the meeting.  

This can be a useful tool as well when certain parts of the relationship are to be determined—it increases the likelihood that those items will actually be sorted out.

Liability Caps

She goes on to address liability caps. A liability cap, often labeled “limitation on liability” in the contract, sets a limit on how much money one party can get from the other in the event of a problem. For example, liability may be capped at “total fees paid in the preceding 12 months.” That means that if Party A violates the contract in a way that harms Party B, the most Party A will be on the line for is the amount Party B paid Party A in the 12 months leading up to the violation.

The issue is that very often, many types of violations are carved out of the liability cap. For example, the contract will state that the liability cap doesn’t apply to a data breach. Further, the contract may also say that neither party will be on the hook for certain types of damages, such as damage to the other party’s reputation. Taken together, these provisions can mean that the liability cap really doesn’t apply to much.  So, before you put a lot of effort into a liability cap, take note of what it does and does not cover. The cap may not be a hill you want to die on.

Closing Services Agreements

Senior Counsel Kaitlyn O’Connor wants you to be smart about the business implications of legal language and the legal implications of business language. 

For example, "The parties intend to partner on customer pitches." What does "partner" mean? What is a "customer pitch?" Which customers—existing or new? 

Make sure the contract doesn't incorporate language from a business proposal without clearly defining those terms. Also, language that works in a business proposal, such as "best-in-class software platform," is not always appropriate for a contract.

Last, it's not always necessary to push back on low-risk items, but some things that make sense for your business, such as certain fee arrangements, may open you and the customer up to legal risks that aren't worth taking.

Negotiating a Pilot Agreements

When it comes to pilot agreements, Kaitlyn also has a pro tip to earn revenue faster. She says you can avoid duplicative negotiation efforts by having the customer agree at the outset to roll into a long-term arrangement immediately following the pilot. You can still give the customer an easy out, reduced pricing, and/or limited access to your product during the pilot, but this way, you get all of the key terms of the relationship out of the way at the beginning and only spend one trip through the customer’s legal review process. This is particularly effective when negotiating with large entities like hospitals where the sales cycle (and thus, revenue) can often be held up in Legal for several months.

Try to include an end date (the date which you will transition to a full agreement or at least end the pilot) so you are not in a perpetual pilot.

Startups Seeking Investment

Whoa, we have a lot for you! More than we can put in an email, actually. So we’ll direct you to this webinar replay on how to prepare for funding, including the types of agreements you’ll want to have in place before you seek investment—and why. 

Evaluating Current Revenue vs. Long-term Risk

When you’ve found a partner you want to do business with, the pressure to close a deal and earn revenue—plus demonstrate you’ve closed big customers for fundraising purposes—can make it hard to properly appreciate contract terms.

You can’t unsign a contract, even when the terms end up creating risk for you. (Though you can sometimes amend it.)

Your best bet is always to have a seasoned healthcare innovation attorney at your side to review the impact of the terms to your business. In addition to creating an agreement that will serve your business for the long term, the right attorney will understand how these agreements feed or starve your business goals and give you wise counsel over and above the specifics of the contract.

So get your thinking caps on, align yourself with a seasoned healthcare innovation attorney, and approach your contracts with care and consideration.

The Don’t Miss List

And that brings this issue to a close

As always, thank you for making room for us in your crowded inbox every month. You're busy, and we aim to deliver the most immediately useful information in each issue. You can always reply to any of our emails with kudos, comments, questions, or constructive criticism—we read every response.

Next month you’ll learn about the forthcoming Proposal Rule on the Medicare Physician Fee Schedule (MPFS) for 2023. If you want to know what CMS is considering for reimbursement next year (as well as how you can advocate for your business to make changes before the Final Rule is released at the end of the year), then don’t miss it!

Until next time,

Carrie Nixon, Esq., and Rebecca Gwilt, Esq. and the entire team at Nixon Gwilt Law