Efficiently Negotiating Vendor Contracts

by Robin Moore from Playbird

tl;dr

1. Tailor your approach based on your leverage:

— No leverage: Focus on the order form

— Some leverage: Edit key terms sparingly

— High leverage: Use a vendor addendum

2. Prioritize what matters: Avoid wasting time on low-impact terms.

3. Use AI tools for efficiency in contract review and team alignment.

4. Be thoughtful when integrating vendor products into your own.

This post will be interesting to approx. five people. If you’re one of them, hello! If we haven’t met, I have a feeling we’d get along.

Let’s get to it. Here are some thoughts about efficiently handling vendor SaaS contracts.

1. Leverage Rules: The best approach depends on how much leverage you have. Some indicia of leverage (or lack thereof):

• If the vendor’s C-Suite executive is involved in negotiating the deal, you have leverage.

• If the vendor’s AE is acting thirsty, you have leverage.

• If you can’t get the AE’s attention, you have no leverage.

• If the vendor is a multi-billion dollar multinational, you have, at most, medium leverage.

(a) If you don’t have leverage, you can try to get a few changes in the order form.

(b) If you have some leverage, edit sparingly. You can add a few of your preferred terms to the order form (logo rights, IP indemnity, liability cap, no auto-renewal, etc.) or try marking up the vendor’s form.

(c) If you have lots of leverage, use a vendor addendum If you have all the leverage, you can add your vendor addendum to the order form and call it a day.

Note: Some lawyers prefer using a full form vendor agreement. That works too, but I don’t like it as much. Because it is longer than an addendum, the counterparty typically takes more time to review it.

Pro tip: Have two different vendor addenda. One for mission critical third-party SaaS vendors (with terms like restrictions on termination and suspension, as well as SLAs) and one for non-critical services.

2. Care Less: The more issues you have, the slower you’ll go. One way to go faster is to fight about fewer issues. E.g., you could:

• Stop asking for governing law and venue;

• Stop asking for uncapped liability; and

• Stop asking for the vendor to hold $10M of insurance coverage.

Take governing law/venue. The odds you’re going to get in a legal dispute with a SaaS vendor is low. And, even if you do get in a dispute, it’s not crucial to litigate in your preferred venue. So why push so much on that? The cost is larger than the benefit.

3. AI Tools Are Helpful. There are tons of AI-based playbook tools (I wrote a blog post about that here) and they’re awesome:

• They can read contracts and flag issues for you (this is especially useful for those 20-page vendor agreements that bury important terms)

• They serve as a knowledge-management repository

• They align your team on the positions you want to take.

Plug: Playbird is a good, inexpensive AI playbook tool.

4. If you’re integrating a vendor’s product into your product, the above may still be true, but tread carefully. You want to be extra thoughtful and careful about the contract, so heuristics you read from some random blog post are not gonna help you.

Special thanks to Juan D. Olano from Opportunity Law and Ashley Pantuliano for providing ideas and feedback for this post.

For more contract-related blog posts, go to www.playbird.app/blog