Keeping business goals, not risk mitigation, the driving force in contract negotiations

Lawyers must reprioritize the functions of a contract to ensure the behavior-driving function is on equal footing with risk mitigation.

Sebastian Forgues is associate general counsel and chief counsel, innovation and emerging technologies, at MITRE, a not-for-profit research company with dual headquarters in McLean, Va., and Bedford, Mass. Views are the author’s own.

Innovation of critical technologies such as semiconductors and cybersecurity has become a complex challenge that requires coordination across the development lifecycle.

Meaningful collaboration ensures that no one perspective becomes so hardened as to forgo the lessons of historical research efforts or to ignore trends informing future innovation road maps.

This collaboration almost always involves a contract given the exchange of information that generates valuable intellectual property, triggers regulatory compliance and allocates responsibilities of the parties. Lawyers are at a critical inflection point to change the approach to contracting so as to accelerate the pace of innovation.

For multiple reasons, the contract has become the primary driver of deals as a tool of protecting against risk. It certainly is important to get the best deal and protect against things going wrong, especially given the number of unknowns and the complexity of the technology landscape.

However, it is critical to remember that the most impactful and disruptive innovation will break the proverbial glass. We lawyers must embrace our job to empower our clients to unleash their creative energy knowing full well our job is to pick up the glass after, rather than take the glass away before it can be broken.

While the contract serves the important function of risk mitigation, lawyers often lose sight of the function of contract language as a driver of behavior to generate specific, objective outcomes in furtherance of the company mission. That is, almost every day, companies use the contract language to guide their obligations in a partnership day-to-day, working towards important milestones that add up to technology-changing outputs.

Lawyers must reprioritize the functions of a contract to ensure the behavior-driving function is on equal footing with risk mitigation.

There are three steps lawyers can put into practice to shift the philosophy of the contract: Talk less, start with yes and address the rest.

It is tempting to involve legal early in negotiations to head off risk concerns at the pass.

Resist this temptation, as it is the easiest way for risk mitigation language to flood the discussion. This yields a watered down, risk-averse version of what collaboration could look like.

It certainly makes sense for lawyers to attend the business meetings for situational awareness. However, let the creative energy of the business drive the conversation. Listen while the business talks without thinking of risk, pitfalls and problems.

This goes beyond “getting to yes” or “yes, but think about . . .” Take it one step further and assume the contract terms will include the deal exactly as the business requires.

Starting with anything short of “yes” inherently embeds some restriction that impedes the business team’s vision. Once the business teams strike a deal, draft the entire contract assuming agreement and without putting conditions or restrictions on the business team’s vision.

Now comes the role of identifying and mitigating execution risks in the agreement.

A trained lawyer will see pitfalls everywhere, ranging from small ambiguities in scheduling to large risks of delivery on unknown capabilities.

Identify the risks one at a time. Draft recommended language to address each risk, ranked in priority order of actual likelihood and potential consequences.

As an example, if your client negotiated a deal that relies on third-party data essential for product delivery, consider building automatic schedule delays rather than the right to cancel the contract. If schedule delays are not an option, build in the right to procure data from other sources. In other words, build in contingencies that enable progress through multiple avenues rather than an exit ramp, while still protecting against risk.

More importantly, talking less and starting with yes primes the lawyer to draft recommendations knowing the purest vision of the deal, which in turn ensures the business’s perspective drives the outcome of the opportunity.

I would not be a lawyer if I did not include caveats and conditions. These concepts should not be construed as legal advice.

Additionally, when following this approach, a lawyer should comply with all ethical obligations of professional responsibility and compliance with applicable laws and regulations.

Finally, these concepts also focus on collaboration contracts where technology innovation is the goal. They may not apply to contracts like employment or settlement agreements.

Admittedly, this is not a dense treatise on negotiations. The problem is that hyper-nuance and ever increasingly complex contract landscape has caused many lawyers to lose sight of our role. Simplicity will help refocus: Step back and let the business drive the deal. Add value by trusting and empowering the business while articulating risk strategically afterwards.

Additionally, while these principles may appear simple, the challenge is their methodical and intentional application at every phase of the negotiation process. It has enabled me to negotiate contracts from one-on-one agreements to consortia comprised of 65+ organizations, all agreeing to the same terms, including ownership and licensing of intellectual property.

Further, there are understandable time constraints, schedule demands and resource considerations that will make the shift in perspective feel impossible. It may feel daunting to revise an entire perspective to contracting overnight. Make the change one contract at a time, and everything else will fall into place. Your business teams will thank you, and you will unlock your client’s greatest innovation potential.