Unit 5 Listening A, Exercise 6.1

Unit 5
Listening A, Exercise 6.1

Good morning. I'm very happy to have been invited here today to hold this talk on
effective contract negotiations. Before we get started, I'd like to tell you something about
the topics I intend to cover. My talk will be divided into two parts: the first, more
informative part will be held as a kind of lecture, and the second, practical part will involve
role-plays, to give you a chance to try out some of the techniques you'll be hearing about.
In the informative part, I'll cover preparing for a negotiation, tips for using agreement
templates and term sheets, as well as some general negotiating techniques. This'll be
followed by ways to overcome objections from the other side and how to recognise a good
deal. Then we'll break for coffee. The second half of our session will then be dedicated to
role-plays.
Listening A, Exercise 6.2
Now I'd like to move on to the topic of using agreement templates and term sheets. It's
common to start out with an existing contract template, which gives you a kind of
blueprint of the things that are usually included in such an agreement. It’s important to
realise that negotiating with a contract template means that it’s necessary to review the
terms and conditions it contains carefully. Please note that you have to consider what is
not in the agreement but should be, that is, what’s missing and should be added. This is
really just as important as carefully reviewing the language in the agreement. Here, I want
to stress that it'd be wise to consult with a senior lawyer, preferably someone who has
experience negotiating agreements of the kind that you're negotiating. When using a term
sheet as the basis of negotiations, it's imperative to keep good notes of all discussions or
emails regarding the items on the sheet. Term sheets are usually used by lawyers to
transfer the terms that have been agreed into an official agreement, so it’s crucial that the
information on these sheets is precisely what has been agreed on by all parties. Sometimes
a lawyer will incorporate items from a term sheet onto an agreement template. In such a
case, he should be careful not to include language originally in the template that isn’t
appropriate.
OK, now I'd like to turn to some general negotiating techniques. It's good practice to
separate the issues at stake into different categories in your mind: things you can’t possibly
accept, major points, minor points and things you can easily live without. Then you can
make trades with the other side, one item for another. This is also known as ‘horse-
trading’. It can go like this: ‘I'll change this provision like you want if you agree to add a
provision that I want’. When it comes to discussing numbers, if possible let the other side
suggest the first number. In the case of a sales contract, for example, the first number the
other side states is usually the least he expects to pay, whereas the seller's first number is
the highest amount he thinks he might be able to get.
My advice is to know the number you really want to end up with and try to suggest a
starting number that'll force the other side to respond with a number that, when
combined with your starting number, will average out to a number you'd be happy to
accept. So what you do is propose meeting the other party in the middle by averaging the
two numbers out.
My next point has to do with overcoming some of the objections you commonly hear in a
negotiation. Sometimes the other party’ll object to removing a clause that you don't want
by saying something like: ‘Don't worry, we won't hold you to that item, so we'll just leave it
in’. In such a case, you should insist that the item's taken out. The best argument in this
situation is to say that if they're not going to hold you to it, then why not Just take out of
the agreement. It's important to be aware that the people involved in making the
agreement can all one day lose their jobs or take employment with another company, and
so their promise not to hold you to something is worthless, because they might not be
around any more. Almost all agreements contain a merger clause, which states that
anything that was said or written before the agreement was signed does not matter unless
it's explicitly written in the agreement.
All right, there are some other objections that can be raised in the course of a negotiation.
These include ...
Listening B
Arthur Johansson: If I may, I'd like to address another one of the clauses in the franchise
agreement: the non-competition clause here, at the bottom of page three.
Ms Orvatz: Yes, the non-compete. Well, I'll just say upfront that that's standard, that’s in all
our agreements.
Arthur Johansson: Right. That may be so, but i’m afraid we can't go along with it in its
present form.
Ms Orvatz: What do you object to? All our franchisees accept that. It's standard practice,
like I said.
Arthur Johansson: Well, the clause in question states, and I quote: ‘Franchisee shall not, for
a continuous uninterrupted period and continuing for two years thereafter, own, operate,
maintain, or engage in any business that: (a) offers products or services which are the
same as or similar to the products and services offered by the Franchised Business under
the System and (b) is, or is intended to be, located at or within a 25-mile radius of the
Approved Location.’ What this means is that in the event that the agreement between my
client and your corporation should at one time no longer be in effect, my client wouldn't
be able to operate a sandwich restaurant for two full years in his own neighbourhood. I'm
afraid that’s out of the question
Orvatz: Well, you must understand that my client has to protect itself - I mean, a former
franchisee could just come along and set up a nearly identical sandwich restaurant right
near one of our restaurants, and with all the know-how he got from us ...
Arthur Johansson: Yes, I fully understand the reasoning behind that provision, no need to
explain. But my client also has skills and abilities of his own, proven skills relevant to the
sandwich-making business. That’s why your client is interested in concluding a franchise
agreement with him in the first place. Let's face it: your client owns a young and upcoming
franchise enterprise that may be promising, but it certainly isn’t well known or well
established yet - you need the skills and know-how of experienced franchisees as much as
they need you. So I'll say it again: we simply could not accept any clause that would forbid
my client from making a living through these skills independently for two whole years, if
that should one day become necessary.
Ms Orvatz: What do you suggest? We’re not in a position to remove the non-compete
clause from the contract, let me be perfectly clear about that.
Arthur Johansson: Of course. Our proposal is to reduce the scope of the clause. If you
could consider reducing the time period the non-compete covers, we'd be willing to be
more flexible about the arbitration clause, for example.
Ms Orvatz: Well, all right. In that case, I think we could talk about a reduction.
Arthur Johansson: That's certainly a step in the right direction. How about this: we suggest
reducing the time frame to six months.
Ms Orvatz: That would be difficult for us. We could only reduce it to eighteen months, and
that's already very generous on our part.
Arthur Johansson: Let's agree on a year, shall we? After all, you and I both know that your
client really wants to enter into this agreement with my client, as he’s perfectly suited to
run a franchise in that part of town, which, let’s be honest, isn’t exactly the safest
neighbourhood. He knows the area, he has the necessary skills and experience …
Ms Orvatz: OK, OK. I think we could live with that. A year it is.
Arthur Johansson: Very well.
Ms Orvatz: Now, what about the arbitration clause? You said you'd be willing to be a bit
more flexible …

Unit 5 Listening A, Exercise 6.1

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Unit 5

Listening A, Exercise 6.1

Listening A, Exercise 6.2

Arthur Johansson: Very well.

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