How to Red-Line a Contract

How to keep a level head and a steady hand when editing a business contract.
Imagine the following scenario: Your business lands a dream customer, one that will put your growth on the fast track. All that stands in the way is for you and your potential new customer to hammer out the details of your contract. While this last step might seem like an inconsequential one, it can actually be a tipping point where your dream turns into a nightmare. A disagreement over just a few words or phrases might be all it takes to create a nasty back and forth that can get emotional and expensive, especially when lawyers get involved. Worse yet, it might actually poison the deal altogether. That's why it's critically important to approach the editing, or red-lining (think red ink like that used by your teachers growing up), of contracts in an intelligent manner. Here are some tips about how to make your next contractual negotiation a winner.

How To Red-Line a Contract: Do Your Homework Before beginning the process of changing a contract, spend time making sure the things you are asking for are commonplace for your industry. "Start by researching all aspects of the changes you propose, so what you propose has a basis in fact and practice," says Sandra Lamb, a career and lifestyle expert, who writes about how to negotiate a contract in her book, How to Write It. One way to do this is to ask other business owners you know if they have any contracts you could look at and what is the "norm" for a contract in your industry, saysMichelle Dunn, author of Starting a Collection Agency. "Another thing you can do is go online and search for contracts similar to the one you are looking it, she says. Contract templates are readily available for free online and can be tweaked to suit your specific needs. Dig Deeper: How to Negotiate a Contract With a Big Client

How To Red-Line a Contract: Make it Conversational Once you commence the process of negotiating a contract, you'll want to engage the other party as much as possible in as open and positive a manner as a way to demonstrate how much you actually want to work together, says Diane Pardes ofLexington, Massachusetts-

she can then forward the prior e-mails to the drafting party with a note saying something along the lines of. "Then I use the track change function in Microsoft Word. who heads up New York City-basedGood Girl PR. these terms." Tonya Fitzpatrick. explain your point of view and truly listen to theirs. upon receiving a contract that doesn't reflect the correct terms. you can add comments and politely explain why you are making those changes. I've received the contract. maybe. "During the course of conversations I take copious notes and I save every single e-mail communication between myself and the party concerned. if. she will then send a follow-up e-mail recapping points of the conversation. So when the subject of "red-lining" comes up. and makes it easier to iron out any issues that may arise. "I firmly believe that if the work is a good fit that you can come to a positive resolution and make it a win-win for both sides. 'Hi Joe.doc format if I need to make changes. "Start on a positive note. This tool is great because you can make changes. Please clarify. "per our previous discussions. Moreover. including any personal stories or jokes that were shared at the time." says Nickie Robinson. "call the creator of the contract to talk about it first. But if there are points which are more significant. who is both an attorney and entrepreneur as the executive producer of World Footprints Radio in Silver Spring." she says." Nickolas Ekonomides. "During the discussion. most contracts are passed back and forth electronically these days." she says. it is important to point out all the areas where you do agree before turning to your differences. This creates a cooperative atmosphere. and it looks great. Pardes says that you should discuss the contract issues by phone. you might want to bone up onMicrosoft Word's "Track Changes" function as a way for both parties to make suggested changes. If she takes the meeting in person." she says.based Pardes Communications." Dig Deeper: How to Build Business Alliances How To Red-Line a Contract: Track Changes Unlike the days of old. says that taking a diplomatic approach to the conversation rather than relying on "legalese" to resolve conflicts in the contract is also essential. "I usually request contracts to be sent to me in a . Then. Maryland. To do that. and they are shown in the right margin of document. which we previously agreed upon were not included. who is both CEO of Clearwater-Florida-based TG Web Media and an ." Lamb says that it is fine to note the items that need changing only slightly. There's only one thing I need to change to clearly reflect our agreement.

which is the essence of every contract. which has offices inLos Angeles. says that even when you do track changes. business terms and legal terms. She then sets up a call to go over the changes and negotiate where necessary." says Robinson. length of contract. she sends a "Marked Up Version" that reflects her comments and changes as well as a "Clean Version" where the changes are all in place." says Ken Halkin. Roberts III of the Global Capital Law Group. a business consultant in Amesbury. Boulder and Milan. He says that he has found that when it comes to negotiating legal terms. open dialogue and makes all parties feel comfortable because you are illustrating your changes. Lawyers can also serve an additional role: the "bad cop. Business terms include pricing. Sullivan. notes that after she edits the in the state of Florida. giving explanations." Robinson. "That gets time consuming and expensive and really aggravates the business people. says Edward J. "Surgical changes are a must if you want to minimize the other side taking it personally." he says. never make wholesale deletions to the contract. but my attorney has raised just a couple of points that he/she would like to discuss. liability. president and founder of Aria Systems in Philadelphia." That said. who also holds a law degree. Massachusetts. "You can use them for advice to you but not in the negotiations until the very end. termination rights and product/service details while legal terms address venue (which laws will be used to interpret the agreement). He suggests not using the agreement itself as the basis for negotiations where a lawyer makes changes and circulates it. give them a roadmap for the changes. Once they are involved. he always has an attorney review those terms before you agree to any changes. Dig Deeper: Modification Agreement of Contract How To Red-Line a Contract: Call in Reinforcements When it comes to editing a contract. James C. especially with a big company. Sullivan says that there are basically two types of terms in an agreement. warranty and assignment. "This process creates a clear. He says the conversation then goes something like: "I've reviewed your standard agreement and it seems reasonable. says that you should keep the lawyers out of the negotiations as long a possible. then the other side's lawyer responds with his or her changes and circulates it and so on and so forth. add comments in the redline Word document. "Instead of changing entire contract sections." says Roberts. it's also essential to know when you might need the assistance of an attorney. . and negotiating.

" Dig Deeper: Contract Termination Worksheet . "If you will do anything to have them. "The big picture though dictates you remain calm even though it is the dream customer. The dream has a much higher probability of becoming a nightmare. you might be better off looking elsewhere. you gain the upper hand.Dig Deeper: How to Hire Legal Counsel How To Red-Line a Contract: Be Ready to Walk Away There may be times when the negotiations hit a standstill where you and the other party simply can't come to common ground." says Ekonomides of TG Web Media. on the other hand. you are comfortable walking away from the table. If. they have unequal bargaining power in their favor.

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