With less than four weeks until the end of the calendar year, many buyers and sellers of software, SaaS, cloud, cybersecurity, and other IT products and services have too many deals – and not enough time – to get everything done. Having been on both sides of year-end technology transactions, I’ve not yet seen a magic wand that provides the sales and procurement teams a stress-free year-end contracting experience.
That said, there are several different tactics to try to help technology buyers and sellers conclude year-end transactions that meet their needs and goals – despite the timing stress. The key is creativity. For example, requiring each party to set aside eight hours every day for team-to-team negotiations until the agreement is finalized – when each team has ten other deals they’re also trying to close by year-end – is impractical.
As you sprint toward the year-end finish line, consider whether one or more of the following contract approaches may help you to close a transaction that still reflects a good deal for your client or company:
- Shorten the Term. If your year-end deal is troubling because your client’s or company’s obligations and responsibilities extend for three, five, or more years, shorten the duration of the contract and include optional renewals or extensions to get to the originally proposed longer term.
- Extend Payments. If you are unsure whether the other party will perform its contractual obligations over the short-term, spread out the buyer’s payment obligations over a period of time. (The seller’s obligations to continue to provide technology products or services could be tied to the buyer’s extended payment obligations, as well.)
- Termination Rights. To address uncertainty as to the other side’s near-term performance, build in to the agreement certain for-convenience termination rights that deal with unmet milestones or benchmarks that wouldn’t otherwise be material breaches of the agreement.
- Aggressive Limitations of Liability. If you are not confident that your client or company will easily perform all of its obligations under the proposed year-end contract, aggressively limit your client’s or company’s liability under the agreement in the event of non-performance.
- Current Scope Only. Some year-end deals try to accomplish too much – that is, they seek to include products or services that won’t be provided for many months or even years after signing. Limit the subject of the year-end deal to only those products and services that are immediately in scope, and temporarily postpone contracting for items that are to be provided separately, later.
- Agree on Details Later. Some year-end transactions contemplate comprehensive professional services that are provided in stages, where the requirements of each later stage depend on the outputs from the earlier stages. Rather than trying to exhaustively detail each stage’s requirements and outputs all at once, expressly defer the details until later in the contract term – and build in to the contract appropriate mechanisms and outcomes if the details are not agreed.
- Top Five Issues. Although rarely a favorite option of technology buyers or sellers, limiting one party or both parties to raising and negotiating only its top five contract issues will likely expedite the process of concluding the year-end deal.
- Post-Signing Diligence. Allow one or both parties a short period of time after contract signing to perform deal diligence that they weren’t able to conclude before signing. If the diligence reveals material concerns with the signed agreement, permit the parties to renegotiate any impacted contract terms or to otherwise address the gaps.
Note: Several of the above tactics may be seen by technology sellers as untenable due to potential negative effects on their ability to recognize revenue for a particular deal. In some cases, however, whether in return for a larger or longer deal or otherwise, sellers may be willing to negotiate unique terms in order to close the year-end deal.
Good luck in your negotiations!