Contracting with People We Don’t Trust

by David Tollen

Mistrust has reached levels rarely seen in American politics. Yet leaders on each side will have to work together after the election, in both state and federal governments. That has me thinking about my own experience with low trust deals and hostile negotiations.

When do we negotiate with people we don’t trust?

In many cases, the answer is “just don’t.” You’re probably in for a bad business relationship, and you have an elevated chance of litigation.

That said, sometimes we have no choice (just like the opposing parties in a government that must get things done). Two businesses need each other for Project A while suing each other over Project B. Or they have to cooperate despite suspicions of dishonesty, citizenship in hostile countries, or cultural gaps. Or one party’s reps are dumb enough to talk about their political views – particularly in today’s U.S. – leading to a meltdown, yet the two still have to get a deal done.

Focus on self-enforcing or easily enforced terms

Prioritize terms that give you immediate access to necessary money or resources over those that require performance from the other side. For instance, if you’re the customer, a reduced price rises in value relative to maintenance terms or the defense portion of an indemnity. That’s because the former is a bird-in-the hand – money you never spend – while the latter two rely on the other party to perform. If you’re the vendor, the right to terminate for breach on short notice rises in value compared to terms like software audit provisions, which require customer cooperation.

At the most obvious level, if you’re the customer, require performance before payment. And if you’re the vendor, you want payment before performance.

Injunctions, not specific performance

Where you’re worried about the other party taking action that hurts you – like sharing confidential information or using software beyond license rights – add injunction terms. “Acme Co. agrees that: (a) no adequate remedy exists at law if it breaches Section __; (b) it would be difficult to determine the damages resulting from such breach, and such breach would cause irreparable harm; and (c) a grant of injunctive relieve provides the best remedy for any such breach.” See our sample clause for the rest of the language.

Remember that injunction terms keep the other party from acting. They don’t work well for the reverse: forcing the other party to act. Courts don't like ordering anyone to take action (“specific performance”) – e.g., to write software or to make SaaS accessible. Court orders work best to stop some action that’s happening or about to happen, like disclosing confidential information.

No penalties, including heavy liquidated damages

Don’t waste time with penalties or anything that looks remotely like penalties. They’re not enforceable. “If Slippery Co. breaches Section __, it shall pay Acme Co. $150M in damages.” A court won’t enforce that.

That means you can’t use liquidated damages to threaten the other side with bad consequences for breach. LDs won’t be enforceable unless you base the amount on reasonable estimates of the loss a particular type of breach would cause – so the high numbers you’d seek as “penalties” won’t work.

Managing the hostile negotiation itself

A quick disclaimer for this last part: I don’t train on negotiation as a standalone topic. Tech Contracts Academy courses address the substance of contract clauses and offer ideas on negotiating the issues behind those clauses. For pure negotiation training, I recommend a negotiation-focused trainer (like my gifted friend, Dr. Keld Jensen (DBA) ). However, I’ve been negotiating for 25 years, and I’ve seen a lot. In particular, I’ve learned from some atrocious performances of my own. So I hope I have something to offer.

I’ve found the following useful:

• Don’t discuss right and wrong – including under the guise of “fairness.” Even at the best of times, arguments about morality play poorly in contract negotiations. And don’t kid yourself: terms like “unfair,” “unreasonable,” and “imbalanced” mean “immoral,” or at least a light version thereof. Obviously, you’re right and the other side is morally suspect, but they’re not going to see it that way. And no one can bear to be lectured on what’s right from someone they think wants to screw them. So don’t let words like “fair” escape your lips. Focus on the clauses and the business issues behind them. “We can’t agree to that because it ties down resources we need for …” “Here are the numbers we’ve run, suggesting the cost of the clause you want outweighs the value of the deal.” Or even, “We’ve got an offer from your competitor, and they don’t require that.” That focus on business issues gives less room to take offense.
• Don’t cite your own experience or target the other negotiator’s. If the other side doesn’t trust you, your vast experience means bupkis. Cite facts, not opinions based on your past, and avoid facts arising purely out of your own career. At the same time, don’t question the other side’s experience or knowledge … in any way. (In other words, no ad hominem arguments.)
• Meet in person if possible, and turn on the webcam if not. It’s harder to bark at a person in the room than on a Zoom. And it’s harder to bark at a face on the screen than a voice on the phone. Meet and interact as much as possible.
• Separate people from companies/institutions: In most IT deals, you’re working with a company, or other institution, not a person. If you don’t like the other side’s reps, imagine a bus hits them and you end up working with someone else. What kind of deal would you do then? Or maybe you need to go beyond imagining a change of cast (without actually chartering that bus). Maybe your side needs to swap staff, to reduce personal animus. But don’t ask the other side to do that unless you’re sure they will. Otherwise, you’ve made their reps even angrier.
• Identify your triggers: What irritates you – in business or in an argument with your sister, husband, friend, or child? What particularly irritates you about the other side in your tense negotiation? If you can describe an argument style you particularly hate, you know what to watch for. Expect it. Plan for it. Write it down and keep it in front of you. Don’t let yourself react without thinking.

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