The 3 Best Practices for Redlining Contracts With Nada Alnajafi

I want to let you know that my new book, titled how to have Difficult Conversations About Race is coming out September 13th. And after years of working with professionals just like you all around the world, I found that conversations about race are particularly challenging because of too much fear and too little confidence. More specifically, people struggle with the fear of discomfort, the fear of damaging relationships, the fear of being misunderstood, canceled, or ostracized for what they have to say. So who did I write this book for? The the person who is passionate about changing the world and their organizations for the better, the leader who leads a diverse team, and the professional who wants to learn how to overcome the hidden barriers that make it tough to connect with people with a different background. Whether you consider yourself an ally or you just want to avoid making mistakes when discussing race, this book is for you. And as a listener, you know this already, but I'm going to say it again. I believe the best things in life are on the other side of difficult conversations. That's my motto. And that's why my goal is to help as many, many people as possible by making these difficult conversations easier. And after six years and 600 episodes of negotiate Anything, I am asking for your support in this endeavor to make this world a better place. At the American Negotiation Institute, our goal is to change the world, and I am not afraid to say that. And this book plays a major role in that mission. And we would love to have your support as we try to make this book a best seller. Because if it hits that number, if it hits the best seller list, that means more people will know about the message within that book. And if we hit the bestseller list, that means that we can get this message out to people all around the world. And we can't do it without you. So if any of this resonates with you and you want to join the mission, check out the link in the description of this episode to find out where you can buy your copy of how to have Difficult Conversations About Race. Hello, my friends, and welcome to another exciting episode of Negotiate Anything. This show is produced by the American Negotiation Institute and with over 5 million downloads and listeners in over 180 countries, listeners just like you have made this the number one negotiation podcast in the world. Hi, my name is Kwame Christian and I am the founder and CEO of the American Negotiation Institute. Here at AI, we believe that the best things in life are on the other side of difficult conversations. We are passionate about providing you with the best content that will help you to make your difficult conversations easier, both at work and at home. Lastly, I want to remind you that we offer consulting and conduct trainings both virtually and in person all around the world. Our focus is in three main areas. First, negotiation and conflict resolution. Second, leadership. And lastly, diversity, equity, and inclusion. Check the link in the description below to learn more about how we could work with you and your team. And now, without further ado, let's jump into the interview. Neda, thanks for joining us today.

Hey, Kwame, how are you?

I'm doing great things. How about you get us started by telling us a little bit about yourself and what you do?

Sure. So I have been an in house attorney for most of my career, going on 12 years now. I started out in litigation and I just didn't like it. I prefer to solve problems than kind of keep perpetuating them. So I took to the transactional side and I absolutely love working in house and drafting, reviewing and negotiating contracts is my jam. I love contracts. I think that my love for words started at an early age because my parents are immigrants. They moved here from Iraq in the 1980s and they didn't speak English. So as I grew up, I was sort of teaching them English and they would ask me to reply to this letter from the bank or write our greeting card from the family. And I realized what kind of power words really have and having a grasp on words and being able to use them to communicate what you want or what you need. And to me, that's what contracts are. They're a story. There's a beginning, a middle, and an end. And I love being part of that writing and creation process.

That's fantastic. And that's a really interesting story. And it helps me to understand too why understanding words and how they, they, they play a huge role in what you do. It makes a lot of sense why you're so passionate about that. And so you are. I, the first person that I know is really passionate about specifically contract redlining, which is fascinating. And one of the things you like to focus on is contract redlining etiquette. So for those in the audience, first, let's give them a background on what we're talking about when we say contract redlining and then why etiquette is important here when it comes to this process.

Sure, absolutely. So I do love contracts and I spend a lot of my time negotiating contracts. Contract redlining etiquette is the behavior of marking up documents and exchanging them from one party to another. It's the offer and the counter offer, the exchange of comments and ideas. It essentially is the negotiation in a contract Review, drafting, negotiation, setting. And the reason I love talking about it is because, like you, Kwame, I have a background in psychology. I got my bachelor's degree in psychology. And I really love figuring people out and understanding, you know, what are they trying to get at, what are they looking for here? And that's a big part of negotiation in any context, is to figure out what the other party wants and how you can reach a mutual agreement. The same goes for contracts. But the reason I love talking about etiquette is because every attorney kind of has their own style with how they redline. Some like to redline pretty heavily. Some like to provide comments via email. Some don't make any comments when they redline. They just kind of strike things out and say, nope, can't do. And it doesn't really give much feedback to the other party. So what I talk about with contract redlining etiquette is how to streamline the contract negotiation process to really negotiate as efficiently as possible. Because we're under so much pressure to review faster, get that done more quickly. The business needs this. We're short on time. And through this guide, that's how you can do it.

That's great. And so it sounds like it's the etiquette. The major point is one, efficiency, but also improve communication and understanding between the parties. Is that right?

Absolutely, absolutely. And by improving the understanding between the parties, it will help you gain efficiencies because you can reach that point of mutual agreement a lot faster.

I love it. And I wish I listened to this podcast when I was a younger attorney. This is great. This is fantastic. Well, let's jump into the substance of this. So you've provided us with three simple rules that we can follow. The first one is on comments. Every red line should be accompanied by an explanatory comment. Rule number two is on silence. Silent red lines can be powerful. And rule number three on exchanges, Exchange redline one time and then move to live discussion. So let's start with rule number one. What should we know about it?

Yes, Rule number one. Always accompany your red lines with explanatory comments. This is really important because we've talked about this. You've talked about this before in your podcast, Kwame, that the more you can understand people, the more likely people are going to agree with you. If someone doesn't understand you, how are you ever going to reach agreement on that topic or that concept? So when we provide a red line and we strike a word or sentence or clause out, but we don't say why, then it doesn't give much to the other party when they receive it and review it. They just think, okay, all I know is they don't agree to this, but I don't know why. So what do I do with that? How do I further perpetuate this negotiation if I don't really have any explanation or justification? It's a lot better when you strike out a clause and you say, I'm very sorry. You know, we just aren't ready to take on this level of risk at this time because we're a startup company. But what we can do instead is work with you on indemnification instead, for example. So now when the other party receives the red line, they have a comment that goes with it that explains why they can't agree to this. And you use that why to provide a counter offer and begin the negotiation process.

This is great. And so two quick things that I want to pull out from that that are gems here. First one is very simple. You use the word because and because is an incredibly powerful and persuasive word. I know there are studies on how just the introduction of the word because can lead to higher levels of persuasion. I won't bore you, but if listeners, if you want to look at it, Google copying machine study and you'll find a really interesting study on how the use of because makes what you say more persuas. And the other thing is the brevity of the comment because it wasn't like a page worth of information, it was very short. Can you tell us a little bit more about how you determine what an appropriate length of a comment is?

Yeah, absolutely. Trial attorneys write very long motions that get submitted to court or reviewed by the other party to help persuade and run that kind of negotiation. But in the contract negotiation setting, you don't really need that much meat because to be honest, you know, most contracts kind of start around the same place. And we know as contract experts which clauses are more likely to be negotiated and which ones are not. So it shouldn't really catch someone by surprise what changes are being made. The more abnormal I guess the red line is, the more explanation you should provide. The less industry standard your red line is, the more explanation you should provide. But generally I would say probably each comment should be no longer than two sentences. If it is, then you probably need to have a follow up conversation on the phone or in a virtual call because you probably can't fit all of it into the document itself. But really your explanatory comments should be a guideline to Indicate what your decision is, do you accept, reject or want to modify it? And then your why?

Fantastic. And let's talk about bit about the mechanics of it. So when you're making these comments, what is your preferred tool to actually write it in?

So I love Microsoft Word and I love using track changes. Not everyone does. I started red lines on actual pieces of paper with red pens. That's why I still call it red lines instead of black lines or, you know, whatever. So I remember those days and. But Microsoft Word changed my life when it came to contract negotiations. There are also other collaboration tools for legal departments that use contract lifecycle management tools. It's called clm, which is basically the system that contract reviewers use to help manage the contract negotiation process. They come with collaboration tools so outside of Microsoft Word. And some of them have really cool features where you can tag internal personnel so you can say, hey business team, I need you to review this finance, can you confirm the budget? Which is super awesome. But as a baseline, I think Microsoft Word can provide a lot of really cool tools for the contract negotiation.

Fantastic. And now what about PDF versus Microsoft Word? I know for some people they like to make a PDF for strategic reasons. What is your take on that?

You know, I personally don't like using PDF unless you've reached a final agreement. So unless it's the final draft, what happens is some parties strategically will send a document over in PDFs which will signal you can't make any changes to this document. You know, this is it, take it or leave it. But then now, these days a lot of people have tools that can convert a PDF to Word, so you can just easily convert it, but then you lose some of the formatting, so it turns into a sloppy document and it kind of wastes the other party's time to have to go through that second step. Really the conversation should be, hey, you know, we want to send our contract over to you. We don't usually take changes. If you have something you really want to talk about, let us know. Otherwise we'd like it if you can just consider this the final version and then the other party can say, yeah, that's not going to cut it. I need to redline the indemnification clause. So can you send me the Word document? You know, or as a strategic decision, you just say, look, most of our clients or most of our vendors do want to redline, so this is kind of a wasted effort. Let's just send them the Word document straight away.

Makes sense. Does your company invest in professional development Training. If you believe that your team would benefit from an negotiation workshop, all you need to do is go to our website, fill out the workshop request form, and then we'll set up a time to chat. These workshops are completely customizable, and we've done them all around the country. Negotiation and conflict resolution skills are beneficial across all professions, but they're especially useful in procurement, purchasing, sales, sourcing, and contract management. Our calendar is filling up quickly and we even have some workshops scheduled for next year if you think you might want one. I'd suggest reaching out soon so you don't miss out. Check out the link in the description to learn more and we will be right back after this. And now for you, if you're on the other side, let's say you're dealing with somebody who's a little bit more aggressive. And then they just say, all right, here's the contract. They do it in PDF form. They don't approach it in that really professional way that you described. Did they just say, here's the document, Let us know when you're signing it? How do you respond to that move?

So it depends who my client is and what kind of bargaining power my client has. For example, I've worked for startup companies who don't have much leverage in the negotiation. If that's the case, then I will say, for the most part, you know, we agree. However, there are these two clauses that just aren't going to fly for us because of this reason. We're a startup company, we can't take on as much risk or we don't have this level of insurance or whatever the case may be, and I'll send it in an email so it'll say two points insurance indemnification. This is the requested change. Would you mind, please, incorporating these into it? If I'm representing a client who has more leverage, then I'll just convert the document into word and I'll mark it up as normal.

Makes sense. I love that and I like that you have the. It's a smooth transition either way, because a lot of times people aren't exactly sure how to deal with that, especially with the concerns about leverage. But what I liked about your approach is that you take that into consideration. And then it's not that you're letting things slide. You're saying, all right, I'm going to fight back, but I am going to do so in accordance with the leverage I have.

Yes, exactly. And explain your position of why you're doing what you're doing. That goes back to our Rule number one, I find that the more you explain why you're doing what you're doing, the more successful you are in getting the other party to kind of, you know, meet you in the middle.

Fantastic. And that provides us with a unique opportunity to transition to silence. So we're saying that we want to explain, but when can silence be a powerful tool in the redlining game?

Yes, great question. So what I describe in rule number two is that silent red lines can be a powerful tool in the contract negotiation process. And I like to draw the distinction between silence and silent red lines. You've talked before, Kwame, on your Negotiate Anything podcast about how useful silence can be sometimes in negotiations and just not saying anything. But when we're talking about an actual document, you don't want to not say anything because you're working within a document. What I mean by a silent red line is marking up the document and not providing an explanatory comment. So it's the absence of an explanatory comment. So rule number two on silence is actually one of the exceptions to rule number one. Every rule has an exception. And, you know, we're attorneys, so we know this. And this is the one for redlining etiquette. So an example would be if I have already provided comments. Let's say we're working on a commercial agreement and governing law proposes Nevada. And I say I strike it. And I write a comment that says, unfortunately, we can't accept Nevada. We don't have any presence in Nevada. What we can do is we can offer you these three jurisdictions to select from that we consider to be neutral jurisdictions. California, New York, or Delaware. Which one would you prefer? And I sent it to the other party. And what did they do? They revert back to Nevada. Did they respond to my comment? No, they didn't give me any indication. So we exchanged red lines again. And I put it back, thinking maybe they just didn't see it. So I highlight it. Wanted to offer you the choice of one of these three jurisdictions. Which one would you rather have? And again, they revert back to Nevada. So at this point, they are ignoring my comment, which is if it was a live discussion, it would be like they are ignoring my ask and holding very strong on their position without even giving me the respect of a response. So in that case, what I do is I pick the governing jurisdiction that I prefer, and I'm going to pick California, because that's where the company is headquartered. So I will just revert it to, you know, strike out Nevada, write California, create A final version of the document, no comments, and send it over to the other party saying, here's the final version. I went ahead and selected California as the governing jurisdiction because that's neutral and the one that we think is best done.

This is so juicy. I love that. Because even though there's no conversation really happening, it's so full of tension. All right, so let's break down the strategy on either side. So the person who is just ignoring you and then your side, how do these two parties interact and what's going on beneath the surface?

You know, there could be a few things happening. It could be that the other side is doing a quick cursory review, doesn't notice, it, doesn't have the time for it, doesn't think it is worth their time to respond to or doesn't know how to answer the question. Sometimes when you press parties for questions and they don't know the answer, they just simply ignore it instead of maybe trying to figure it out or kind of show that they don't understand. From the perspective of my side, I'm thinking I'm trying to very hard to work with this party. I'm giving them options. I'm explaining my reasoning. I'm being flexible. I'm being patient. You know, I didn't just jump to conclusions after one time, but they're not really working with me. So it's time to put boundaries up, and I need to drive the negotiation forward instead of repeatedly going back and forth over the same thing. And in order to do that, I'm going to make a call, I'm going to make a decision, and then I'm going to put a little bow on it and say, we're done, and see how that goes. Then if the other party says, wait a minute, why California? No, we need Nevada because of this. Now finally I've gotten their attention and they're telling me why Now I can actually work with them to figure it out, or because they didn't care before, they may not care that I. That I changed it this time, and they'll just say, all right, ready to sign.

That's fascinating. And I think one of the things that's really interesting about it is the fact that you're trying to be proactive, have the conversation, and you're dealing with somebody who is intentionally or unintentionally dodging the conversation. And so essentially you're umping the. Andy, you're saying, all right, well, I've tried to have a collaborative discussion. You don't want to, so we're going to play this game, and so you take it to the next level, and you actually are either saying, all right, either going to let it go, or you're essentially inviting conflict. All right, well, now we're going to actually have a meaningful discussion about the issue, like I wanted to.

Exactly, exactly. And I think that as, you know, a strong contract negotiator, you don't have to give in to everything. You don't have to allow other parties to kind of, you know, either walk all over you or ignore you. The point is, in a commercial negotiation, that the parties will be partners in some respects. And the legal negotiations tell a lot about the business relationship between the parties. So when I'm representing my client, I always want to be professional. I always want to show that I'm willing to work with the other side, and I want to avoid conflict situations because a truly good vendor to customer relationship should have very similar goals in mind.

Yes. And, you know, this gave me the idea for our second interview. Yes. You're coming back on the show. Really interesting to hear your perspective on the relationship between the legal team and the internal customer, because oftentimes there's some tension there. And so for you and me as attorneys, we recognize how powerful these provisions can be and how important they are. And oftentimes, the folks who are on the business side, they're saying, I negotiated the most important parts of this deal. The money, it looks good. Get it done. And so we have to deal with that tension, too. So that'll be our subsequent conversation, because I know I have a lot of procurement folks listening to this, and with that, I know we have a little bit of time left, so let's go to number three on exchanges. So exchange red lines once and then move to live discussion. So tell us more about that transition.

Okay, so what I mean by an exchange of red lines is let's say you, Kwame, you send me your paper, and you're the vendor, I'm the customer. So you send over the contract via email. I review it. I mark up my red lines, I put in my commas, I use some of the strategies we've discussed in contract redlining, etiquette, and then I send over my redlines back to you. You review it, you provide your red lines, you respond to some of my questions, you email me back. That is what I consider one exchange of red lines. Because each of us have had a chance to mark up the document once, and then we exchange our thoughts between one another. At that point, the guideline is move to Live discussions. If you have not been able to close out all the open items and reach agreement after each party has provided their red lines ones, then you probably need to move to a phone or virtual call to take advantage of some of the nonverbal communication cues. And that really will help you streamline the negotiation process because you get caught up in emails and in red lines and back and forth and your versions get cluttered with so many red lines and did that come first or who wrote that? I forgot where we are. But jumping on a call and just having a live conversation, a live negotiation about some of the important points will really drive the contract home to finalization.

This is great. And I like how clear this rule is, because if you don't have this rule in place, then you're really not quite sure. Okay, do I want to waste my time with the discussion at this point? Do I want to waste their time? Should I wait a little bit more and get some more information? But when we say, all right, one exchange each side and then we're going to transition to a call, it makes it very clear. And that clarity takes a lot of anxiety off of you because you're saying, all right, I already know what's coming and I can anticipate that. So it provides a lot of clarity.

Yeah, definitely. And like any rule, there are exceptions to this rule as well. So let's say you're doing a simple NDA. Maybe you don't need that many email exchanges because for the most part, mutual NDAs are pretty similar to one another. So maybe you can just jump on the call right away. Or if it's an urgent or high priority contract that the sales team is pushing and saying, we need this, we need it to get done. It's end of quarter. Then you hop on a call to start out with and say, let's get all the parties together. We have lots of stakeholders, we have the business, we have, you know, sales, we have their legal, our legal. Let's just all get on a call and talk about some of the major points before we even get to legal red lines. Longer contracts may take more email exchanges, like software service agreements that can be 20 pages or so may take multiple rounds of email exchanges before you're ready for a phone call. So this is a great guideline to use, but also apply the situation, you know, take into consideration priority complexity of contract and things like that.

Yeah, that makes sense. And it sounds like taking the time to go through these. This initial round of red lines also provides you with an organic agenda for the upcoming call as well, right?

Yeah, definitely. Definitely. You know, it's funny because I asked my network on LinkedIn, how many rounds of red lines do you normally do before you hop on a call? And most of them said two rounds of red lines. So two actual exchanges. Each party writes their red lines twice before they get on a call. And when I thought about it, that's what I was doing too. So this guideline really pushes you to be more efficient because if you're doing rule number one on comments and rule number two on silent red lines, you're already running the red lines more efficiently. So you're already getting from point A to point B faster is the goal. And you can hopefully reduce the number of exchanges, which means you'll be able to get from contract initiation to contract execution faster.

That makes a lot of sense. And of course, the internal business partners probably like that too.

Yes, yes, they will love that. If you say, look, we're going to, if you follow these rules, we're going to get you the contract done faster. They will absolutely love that.

That's fantastic. And before you go, what would you say, hypothetically, is the biggest mistake that people make when they are going through these contract red lines?

Probably the biggest mistake that I see is that contract negotiators don't use red lines to their full capacity. They don't really take advantage of this tool right in front of them. They use it as a label or quick signal and they kind of rush through it. But in reality, this is where the attorney, the transactional attorney's art and skill shines through. This is where you make your persuasive argument. This is where you direct the conversation. And if you really pay attention to red lines, you can see a lot more there than just the words. There's a lot of context hidden behind the red line that you can use to your advantage in the negotiation. If you're paying attention and doing it.

Right, it makes so much sense. And the thing that I like about this is that you're being really proactive about the process. You're leading the dance, right? You are explaining things, you're communicating at a high level. You're transitioning when it makes the most sense to an in person or virtual conversation about the red lines. And when you're the one leading that, then you can set the agenda in a way that makes it a little bit more favorable to you. It makes the conversation a little smoother. So I love the fact that this proactive approach puts you in the driver's seat throughout the negotiation.

Absolutely.

This is great. And so before you go, let the listeners know about your new show and how they can get in touch with you.

Sounds good. Thank you so much. So I recently launched a blog called contract nerds.com where I write about contracts, contract negotiations and contracts, legal technology. And to follow that up, I'm working on a podcast called the Contract Nerds Podcast, where I'll be chatting with contract experts about some negotiation tips, contract types, different tactics or best practices used in different industries. And I'm really excited about it. It will hopefully launch in January of 2021. If you want more information, you can go to the website at www.contractner.

Fantastic. And check all the links in the description and you can get there as well. So nada. Thank you so much for joining us. We really appreciate it.

Thank you. This is so much fun. Thanks for having me on.

My pleasure. Congratulations. You've just joined an elite club by listening to a full episode. You're now officially on the Negotiate Anything team. So welcome aboard. What most team members do is they subscribe. Subscribe to the podcast because that allows them to automatically get the latest episodes of the show. The best things in life lie on the other side of difficult conversations. Keep learning, keep practicing, and keep getting better. Your relationships will improve, your career will soar, and you'll have the confidence you need to get the most out of these crucial conversations. Again, thank you for joining the team. We're excited to have you, and I will see you in the next episode. I'll catch you later.