Risk Management in Contract Negotiations

Why you never get what you want... - You don’t ask. - You don’t make it a win-win. - You don’t know when to walk away. Here's how to avoid these negotiation mistakes (& get the deal you deserve): If you want to fail in negotiating and alway overpay... don’t read this. Buyers with experience only negotiate on three variables that determine the value of a business. Most sellers don't even understand these concepts, which gives you a massive advantage if you can educate them on how deals really work: 1. EBITDA/SDE Contrary to popular belief, this isn't about the number on their P&L. It's about the cash flow you’ll actually get when you take over. Here’s an example: If a seller says "we made $500k last year" but half of that came from a one-time contract that won't renew… You can't pay for income that won't exist for you. That's like buying a house and paying for the furniture they're taking with them. Most buyers get destroyed here because they don't adjust for: - Salary to replace owner - Revenue concentration risks - One-time events that won't repeat - Expenses that will increase under new ownership 2. Multiple Think of this as a direct reflection of risk. Everything that increases risk lowers the multiple. Everything that decreases risk raises it. That’s why some businesses trade at 15x while others struggle to get 2x. Lower multiples come from: - Revenue trending downward - Business depends entirely on the seller - Messy financials - High employee turnover These are red flags screaming "this could fall apart tomorrow." Conversely, higher multiples come from the opposite: - Documented systems and processes - Diversified revenue streams - Strong management team - Clean books - Consistent YOY growth You can’t negotiate the multiple arbitrarily. It’s calculated with hard numbers. But you can influence it by identifying and addressing the risks contractually rather than just pushing for a lower price. You're buying the future but paying for the past. The multiple reflects how confident you are in that future. 3. Terms Price is what you pay, terms are how you pay. You can give a seller their price IF you get your terms. Or you can give them their terms if you get your price. But you CAN’T give them both. It’s the law of price and terms: Terms are how you hedge against every risk you identified in the deal. For example: - If there’s key employee risk → Add retention bonuses to the deal - Seller wants higher valuation? → Use seller financing - Documentation not in place? → Long transition and training period The idea is to use the contract to protect against your biggest fears. At the end of the day, negotiation isn’t about winning. It’s about getting what you want while keeping the other side happy enough that they don’t sabotage the deal. It’s an art and next week I’ll be teaching everything I’ve learned about deal making LIVE, more info in the comments...

𝟓 𝐏𝐫𝐨𝐜𝐮𝐫𝐞𝐦𝐞𝐧𝐭 𝐋𝐞𝐬𝐬𝐨𝐧𝐬 𝐟𝐫𝐨𝐦 𝐚 ₹𝟏𝟗,𝟕𝟎𝟎 𝐂𝐫 𝐌𝐢𝐬𝐭𝐚𝐤𝐞 What every procurement leader must learn from the JSW–Bhushan Steel chaos 𝗕𝗮𝗰𝗸𝗴𝗿𝗼𝘂𝗻𝗱 : In 2019 JSW Steel won the bid to acquire Bhushan Power & Steel under India’s Insolvency & Bankruptcy Code (IBC). Deal value : ₹19,700 Cr. Funds were infused. Operations taken over. 𝘊𝘰𝘯𝘵𝘳𝘰𝘭 𝘢𝘴𝘴𝘶𝘮𝘦𝘥 𝗕𝘂𝘁 𝗜𝗻 𝗠𝗮𝘆 𝟮𝟬𝟮𝟱: The Supreme Court has canceled the entire deal ❌ Declares the process illegal Orders liquidation instead That’s true a company that JSW ran for years is now off its books Overnight 𝗕𝘂𝘁 𝗪𝗵𝘆 𝗧𝗵𝗶𝘀 𝗛𝗮𝗽𝗽𝗲𝗻𝗲𝗱 ? ⛔ 𝐓𝐢𝐦𝐞𝐥𝐢𝐧𝐞 𝐛𝐫𝐞𝐚𝐜𝐡: IBC allows 270 days. This deal dragged on for over 500 ⛔ 𝐏𝐫𝐞𝐦𝐚𝐭𝐮𝐫𝐞 𝐜𝐨𝐧𝐭𝐫𝐨𝐥: JSW took over without full legal closure ⛔ 𝐏𝐫𝐨𝐜𝐞𝐬𝐬 𝐠𝐚𝐩𝐬: The resolution process lacked statutory rigor 𝘛𝘩𝘦 𝘊𝘰𝘶𝘳𝘵 𝘳𝘶𝘭𝘦𝘥 𝘵𝘩𝘢𝘵 𝘵𝘪𝘮𝘦 𝘦𝘹𝘵𝘦𝘯𝘴𝘪𝘰𝘯𝘴 𝘤𝘢𝘯𝘯𝘰𝘵 𝘫𝘶𝘴𝘵𝘪𝘧𝘺 𝘱𝘳𝘰𝘤𝘦𝘥𝘶𝘳𝘢𝘭 𝘷𝘪𝘰𝘭𝘢𝘵𝘪𝘰𝘯𝘴 𝐖𝐡𝐚𝐭 𝐓𝐡𝐢𝐬 𝐌𝐞𝐚𝐧𝐬 𝐟𝐨𝐫 𝐘𝐨𝐮 𝐀𝐬 𝐀 𝐏𝐫𝐨𝐜𝐮𝐫𝐞𝐦𝐞𝐧𝐭 𝐋𝐞𝐚𝐝𝐞𝐫 : This is a brutal real-world case study in contractual discipline and risk management. 1️⃣ 𝗗𝗲𝗮𝗱𝗹𝗶𝗻𝗲𝘀 𝗮𝗿𝗲 𝗟𝗔𝗪 — 𝗡𝗼𝘁 𝗦𝘂𝗴𝗴𝗲𝘀𝘁𝗶𝗼𝗻𝘀 Contracts with statutory or regulatory timelines must be treated as non-negotiable. 2️⃣ 𝗟𝗲𝗴𝗮𝗹 𝗖𝗹𝗼𝘀𝘂𝗿𝗲 > 𝗢𝗽𝗲𝗿𝗮𝘁𝗶𝗼𝗻𝗮𝗹 𝗖𝗼𝗻𝘁𝗿𝗼𝗹 Never take charge of suppliers, assets, or projects until contracts are 100% sealed and validated. 3️⃣ 𝗣𝗮𝗽𝗲𝗿 𝗧𝗿𝗮𝗶𝗹𝘀 𝗣𝗿𝗼𝘁𝗲𝗰𝘁 𝗬𝗼𝘂 Assumptions don’t win in court. Documentation does. 4️⃣ 𝗜𝗻𝗰𝗹𝘂𝗱𝗲 ‘𝗪𝗵𝗮𝘁-𝗜𝗳’ 𝗖𝗹𝗮𝘂𝘀𝗲𝘀 𝗶𝗻 𝗛𝗶𝗴𝗵-𝗦𝘁𝗮𝗸𝗲 𝗖𝗼𝗻𝘁𝗿𝗮𝗰𝘁𝘀 Always draft contingency, rollback, and reversal clauses — especially in M&A, Capex, or long-term supply contracts. 5️⃣ 𝗚𝗼𝘃𝗲𝗿𝗻𝗮𝗻𝗰𝗲 𝗶𝘀 𝗡𝗼𝘁 𝗕𝘂𝗿𝗲𝗮𝘂𝗰𝗿𝗮𝗰𝘆 — 𝗜𝘁’𝘀 𝗜𝗻𝘀𝘂𝗿𝗮𝗻𝗰𝗲 Be the leader who slows down when it matters. Because speed without structure kills deals. Have you seen contract risks like this in your industry? #JSW #bhushansteel #India #Contract #Contractdrafting #Purchsing #Procurement #Industry #Mergerandaquisition #Riskmanagement #Leadership #CXOinsights #SMARTProcurement #ContractRisk #SCM

Stuck in an endless loop of client changes? Lost track of what revision this constitutes? Yeah. Been there. Done that. The secret? It's not about saying no. It's about saying yes to the right things upfront. Every project that goes sideways starts the same way: Vague agreements. Fuzzy boundaries. Good intentions. Six weeks later you're bleeding money and everyone's frustrated. Here's my framework after 30 years of running two 8-figure businesses: The SOW is your salvation. Not some boilerplate template. A real document that covers: • Exact deliverables (not "design work" but "3 homepage concepts, 2 rounds of revisions") • Hours of operation ("We respond M-F, 9-5 PST. Weekend requests get Monday responses") • Revision rounds spelled out ("Round 1 includes up to 5 changes. Round 2 includes 3.") • Feedback cycles defined ("48-hour turnaround for client feedback or the project may be delayed or additional fees may be incurred") But here's what most people miss— Don't work on client notes immediately. Client sends 37 pieces of feedback at 11pm Friday? Producer sends conflicting notes from the CEO? Marketing wants one thing, sales wants another? Stop. Collect everything first. Resolve the conflicts. Get on the phone and discuss it with your client to get alignment. Separate the "have to haves" from the "nice to haves". Then present unified changes. "Based on all feedback received, here are the 8 changes we'll implement. This constitutes revision round 2 of 3." Watch how fast the random requests stop. No extra work that goes unappreciated. No more feelings of being taken advantage of. Communicate before the crisis, prevents the crisis from happening. "Just so you know, we're entering round 2. You have one more included. After that, it's $X per additional round." No surprises. No awkward money conversations. No resentment. Scope creep isn't a them problem. It's a you problem. And that's good news, because that means you are in control. They're not trying to take advantage. They just don't know where the boundaries are because you never drew them. Draw the lines early. Communicate them clearly. Everyone wins. What's your most painful scope creep story? What boundary would've prevented it? Small Business Builders #projectmanagement #clientmanagement #businessgrowth

AI is disrupting a lot of industries. Music licensing is one of them. I was on the phone with a large enterprise customer who was planning to churn. They love our music and our service. But their team wanted to switch to an AI music generation tool. So I asked a simple question: “Have you reviewed the licensing implications for commercial use?” Silence. I followed up: Do you know how the model was trained? Do you have indemnification if there is a copyright claim? Are you protected if the output resembles someone else’s work? To their credit, they paused and brought in legal. A few days later, they called back and decided to stay. Not because AI is bad. But because they realized they had not fully evaluated the risk. AI is powerful. But in enterprise environments, power without protection becomes liability. If you are experimenting with AI-generated music or content, make sure you understand: -Training data exposure -Commercial usage rights -Indemnification coverage Innovation matters. So does due diligence. The companies that win will take both seriously. Our commercial-use music library is built for enterprise protection with clear rights, real artists, and real indemnification. Check it out: https://lnkd.in/efWhpP7U #AI #EnterpriseLeadership #MarketingStrategy #Copyright #RiskManagement #MusicIndustry #Innovation

Fixed-Price contracts aren't protecting you... They're setting you up for failure! Most procurement teams think Fixed-Price = safety. Budget certainty. Risk transferred to the supplier. But here's what actually happens: → Your scope isn't as clear as you think → Requirements shift → The supplier protects themselves with change orders → You end up paying more, damaging the relationship AND... You have to spend time reopening/renegotiating contracts... I've watched this play out dozens of times. The real question isn't "which contract type is safest?" It's "which contract type matches my situation?" Here's how to actually decide: → 𝗪𝗵𝗲𝗻 𝘀𝗰𝗼𝗽𝗲 𝗶𝘀 𝗰𝗿𝘆𝘀𝘁𝗮𝗹 𝗰𝗹𝗲𝗮𝗿: Fixed-Price works. You get budget certainty and transfer delivery risk to the supplier. → 𝗪𝗵𝗲𝗻 𝘀𝗰𝗼𝗽𝗲 𝗶𝘀 𝗳𝘂𝘇𝘇𝘆 𝗼𝗿 𝗲𝘃𝗼𝗹𝘃𝗶𝗻𝗴: Time & Materials keeps you flexible. Add "Not-to-Exceed" caps to control costs. → 𝗪𝗵𝗲𝗻 𝘆𝗼𝘂 𝗰𝗮𝗻'𝘁 𝗲𝘃𝗲𝗻 𝗲𝘀𝘁𝗶𝗺𝗮𝘁𝗲 𝘁𝗵𝗲 𝗲𝗳𝗳𝗼𝗿𝘁: Cost-Plus gives transparency for R&D and innovation work. But it requires active oversight. → 𝗙𝗼𝗿 𝗼𝗻𝗴𝗼𝗶𝗻𝗴 𝗿𝗲𝗹𝗮𝘁𝗶𝗼𝗻𝘀𝗵𝗶𝗽𝘀: Master Service Agreements let you negotiate once, reuse forever while using Statements of Work (SoW) for specific work. Essential for strategic suppliers. → 𝗙𝗼𝗿 𝗿𝗲𝗰𝘂𝗿𝗿𝗶𝗻𝗴 𝗴𝗼𝗼𝗱𝘀: Supply Agreements lock in pricing and guarantee supply. → 𝗙𝗼𝗿 𝘃𝗮𝗿𝗶𝗮𝗯𝗹𝗲 𝗱𝗲𝗺𝗮𝗻𝗱 𝘄𝗶𝘁𝗵 𝗺𝘂𝗹𝘁𝗶𝗽𝗹𝗲 𝘀𝘂𝗽𝗽𝗹𝗶𝗲𝗿𝘀: Framework Agreements let you compete each project while maintaining pre-qualified vendors. Picking the right contract type is about correctly defining the rules of the game before you play it... But the rules also need to be adapted to the game! Otherwise, you're going to be bickering about the rules instead of creating value for both your organizations... Most contract failures happen because teams pick contract type based on comfort, not project fit. The visual below shows you exactly how to choose based on your situation. Would you add/change anything? Let me know in the comments 👇 _________________________ 𝗣.𝗦. I help companies choose and implement ProcureTech solutions for a living. If you're going to implement a CLM and/or an "AI Agent" to negotiate contracts, you're going to need to define your business rules for when to use which contract type in your business... Is that something you already have...? Every Sunday, I send out a free newsletter which shows you what you need to get results with technology. It's read by 10,000+ Procurement professionals (and counting...) Subscribe here for free: https://lnkd.in/eCeAcP3h

A Whatsapp message just cost £248,000. The High Court's ruling in Jaevee Homes v Fincham [2025] serves as a wake-up call for every founder and business leader using WhatsApp for work discussions. What happened? Jaevee Homes approached contractor Steve Fincham for demolition work at a Norwich nightclub. After initial emails discussing scope and pricing, negotiations moved to WhatsApp in May 2023. The "contract-forming" messages? 💬 "Hi Ben How did you get on mate is the job mine mate" 💬 "Can you start on Monday?" 💬 Later: "Ben Are we saying it's my job mate so I can start getting organised mate" 💬 "Yes" After this WhatsApp exchange, Jaevee sent formal subcontract terms via email, assuming they could still negotiate the "real" contract. The Court ruled it was too late - the WhatsApp agreement had already been formed and was binding. Fincham completed the work, invoiced monthly, but Jaevee refused to pay, arguing no formal contract existed. An adjudicator sided with Fincham, and now the High Court has confirmed: those casual messages created a £248,000+ legal obligation. The Court's finding: These informal messages contained all essential elements of a binding contract - offer, acceptance, consideration, and intention to create legal relations. What this means for your business: ✅ Audit your team's messaging practices - Review how sales teams, project managers, and executives use WhatsApp, Slack, Teams for client communications ✅ Implement clear messaging policies - Require disclaimers like "subject to formal written agreement" or "this is just a preliminary discussion" for any commercial conversations ✅ Train your teams on the risks - Help everyone understand that tone and informality don't determine legal consequences - intent and content do ✅ Create safe communication channels - Establish clear protocols for when discussions should move from informal messaging to formal documentation ✅ Be especially careful with confirmations - Phrases like "it's a deal," "you've got the job," or "let's do it" can be legally binding, even in casual contexts The broader implication: This isn't just about WhatsApp. English courts focus on substance over form. Whether it's Slack, email, or even verbal agreements, if you demonstrate intent to be bound, you likely are. Bottom line, in English law, informality won't protect you. A casual "yes" can create the same legal obligations as a 50-page contract. Time to review those chat policies? 📱⚖️

The most dangerous clauses in vendor contracts aren’t the ones you fight over. They’re the ones you skim past—(em dash mine 😑) the “standard” terms that seem harmless until they explode. Just ask Morgan Stanley. Overlooked contractual gaps turned a vendor’s mishandling of client-data-bearing equipment into hundreds of millions in fines, settlements, and penalties for Morgan Stanley. I have identified some top of mind examples: #1: The Subcontracting Black Hole Most vendor contracts include innocent-looking language like: "Vendor may engage subcontractors as necessary to perform services." The problem: You have zero visibility into who's actually handling your sensitive data or critical operations. What Morgan Stanley missed: Their vendor subcontracted the actual data destruction to an unqualified third party. The fix: • Require prior written approval for all subcontractors • Mandate the same security/compliance standards flow down • Include right to audit subcontractors directly • Cap subcontracting to specific, pre-approved functions #2: The Liability Cap Loophole Standard cap: "Vendor's liability limited to fees paid in preceding 12 months." The hidden trap: This covers the vendor's mistakes but not the regulatory fines, customer lawsuits, and reputational damage you'll face. What to negotiate: • Separate caps for different types of damages • Higher caps for data breaches and regulatory violations • Unlimited liability for gross negligence and willful misconduct • Minimum insurance requirements that match your actual risk exposure #3: The Termination Cost Surprise Innocent clause: "Upon termination, vendor will assist with transition for 30 days." The trap: No mention of data extraction, migration costs, or knowledge transfer requirements. Real example: A SaaS company switching CRM vendors discovered "transition assistance" meant read-only access to export screens. Manual data extraction cost $47K in consulting fees. Protection strategies: • Define data export formats and timelines • Cap termination assistance fees • Require knowledge transfer documentation • Include escrow provisions for critical operational data #4: The Change Order Cash Grab Standard language: "Any modifications require mutual written agreement." The hidden cost: No controls on pricing for change orders or scope creep. Pattern I see: Vendors lowball initial proposals then recover margins through change orders priced at 200-400% markup. The armor: • Cap change order pricing as percentage of original contract value • Require detailed justification for scope changes above set thresholds • Include right to third-party validation for major change orders • Build in quarterly spend reviews with automatic triggers The point is, most "standard" vendor contracts are written to protect vendors, not you. Don't let your "standard" vendor agreement become someone else's cautionary tale. Dig deep. #VendorManagement #ContractReview #RiskManagement

How I Review Contracts (Without Wasting Hours) Most people read contracts line by line from the start. I don’t. That’s the slowest way to catch red flags. Instead, I reverse-engineer them to spot risks first. Step 1: Get the Big Picture – What’s this contract actually about? Who has more power in the deal? This tells me what to watch out for. Step 2: Find the Risks – I jump straight to liability and termination clauses. Can my client walk away if things go south? Are they taking on unfair risks? Step 3: Follow the Money – I check payment terms, penalties, and refunds to make sure there are no vague or sneaky conditions. Step 4: Watch for Dispute Traps – Jurisdiction and arbitration clauses can quietly make legal battles expensive or one-sided. I flag them early. Step 5: Dig Into the Fine Print – Standard clauses like indemnification, non-compete, and amendments often hold surprises. I don’t skim them. Step 6: Read Line by Line – Only after flagging key issues do I read everything carefully, making sure nothing slips through. This method saves time, catches hidden risks faster, and makes contract review way more efficient. Want me to break down a contract using this? Let’s talk.

[FIDIC CONTRACT] - OVERVIEW OF FIDIC CONTRACTS 1. What is FIDIC? FIDIC (Fédération Internationale Des Ingénieurs-Conseils) is the International Federation of Consulting Engineers, responsible for publishing standard contract templates for the construction industry. FIDIC contracts are designed to ensure fairness, transparency, and compliance with international best practices in project management. 2. Common types of FIDIC Contracts FIDIC publishes various types of contracts, classified by the color of their covers: 2.1 - FIDIC Red Book ☑️ Versions: 1999, 2017 ☑️ Suitable Projects: Traditional construction projects where the Employer provides the design ☑️ Risk Allocation: The Employer bears design risks, while the Contractor assumes construction risks ☑️ Payment Method: Based on the actual work executed 2.2 - FIDIC Yellow Book ☑️ Versions: 1999, 2017 ☑️ Suitable Projects: Design & Build projects where the Contractor is responsible for both design and construction ☑️ Risk Allocation: The Contractor assumes risks related to both design and execution ☑️ Payment Method: Lump sum or stage payments 2.3 - FIDIC Silver Book ☑️ Versions: 1999, 2017 ☑️ Suitable Projects: EPC/Turnkey projects requiring fixed price and fixed time contracts ☑️ Risk Allocation: The Contractor bears all risks, including design, construction, and cost overruns ☑️ Payment Method: Lump sum contract 2.4 - FIDIC Green Book ☑️ Versions: 1999, 2021 ☑️ Suitable Projects: Small-scale or simple projects ☑️ Risk Allocation: Lower risk due to simplified contract terms ☑️ Payment Method: Unit price or lump sum 2.5 - FIDIC Gold Book ☑️ Versions: 2008 ☑️ Suitable Projects: Projects where the Contractor is responsible for design, construction, and long-term operation ☑️ Risk Allocation: The Contractor assumes responsibility from design through operation ☑️ Payment Method: Payments cover both construction and operation phases 2.6 - FIDIC Blue Book ☑️ Versions: 2006, 2016 ☑️ Suitable Projects: Dredging, reclamation, and waterway maintenance projects ☑️ Risk Allocation: The Contractor bears risks related to hydrological and environmental conditions ☑️ Payment Method: Based on dredged volume or unit price 2.7 - FIDIC Pink Book ☑️ Versions: 2010 ☑️ Suitable Projects: Projects financed by the ADB ☑️ Risk Allocation: Similar to the Red Book but adjusted for donor-funded projects ☑️ Payment Method: Based on actual quantities of work performed 2.8 - FIDIC White Book ☑️ Versions: 2006, 2017 ☑️ Suitable Projects: Consultancy and project management services ☑️ Risk Allocation: Different from construction contracts, as the Employer assumes most project risks ☑️ Payment Method: Based on time-based fees or lump sum fees ⏭️ FIDIC contracts provide a flexible legal framework for construction projects, ensuring fair risk allocation between parties. Selecting the appropriate contract type optimizes project execution efficiency and minimizes disputes.