August 17, 2022
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Robust legal foundations are key for any startup business, but it’s crucial to revisit those foundations as a company begins to scale. As your business evolves, so too will your relationship with your clients, the services you deliver, and the ambitions you hold for the future.
With that in mind, initial agreements will slowly begin to lose potency as the years go by, which is why when a business evolves, so too should its contracts.
We often see early-stage companies accepting more onerous or risky obligations in contracts in order to get the deal done and keep cashflow moving. This is totally understandable, however, as companies increase the flexibility and robustness of their offering, alongside developing more sophisticated pricing and service offerings, it’s vital that long-term framework or master service agreements are updated. It’s crucial this is reviewed and updated to ensure that the risks and benefits of the relationships are adjusted to take account of this evolution.
We’ve put together some ‘top tips’ for approaching these renegotiations with major clients. So, where should you start?
Convincing a long-term client that they need to give up some of their advantageous terms can take a little while, so ensure the conversation begins way before the renewal date – 6 months or more, if we’re talking large, slow-moving organisations with multi-layered procurement teams.
Unless things have changed massively, starting with the current form of agreement (which for most big customers would be on their paperwork) will make things as smooth as possible – incremental change may be easier to get through than, say, switching wholesale onto your new standard MSA. And, as long as things have worked well so far, this ensures general continuity of administration and process, which will be gratefully received by your own team, as well as the other party’s lawyers. If signing a whole new MSA or framework is too much to accept for the client, try and use the renewal or new SOW to incorporate amendments to the agreement. Squeezing a couple of concessions on each renewal could make a real difference over two or three years.
Discuss within your teams what the major risk elements are under the current agreement. Pricing may be important but look at things like overly-generous service levels, or broad indemnities and one-sided liability clauses. Does the intellectual property clause still reflect how you’ve developed your product offering? Do the data protection clauses stand up to scrutiny? Some changes will be uncontroversial, but some are likely to get significant pushback – so work out which changes really matter and which are ‘nice to haves’, and make sure you’ve got a good argument lined up to get your ‘must-haves’ over the line. Be aware of your increased leverage – if a customer has been using your services for three or four years, switching provider is likely to be a big upheaval, so the trick is to make it easier to accommodate your changes than to find a new supplier.
Sugar the pill. If you’re able to give something in return for obtaining some concessions from the client, this will make life much easier in negotiations. As you’ve grown, it’s often the case that you’ll have improved things like your support services, or your security standards and disaster recovery/backup procedures. Offering higher-level commitments in these areas than you were able to provide to customers as a startup business can be an easy give, and can demonstrate that you are a lower-risk proposition – meaning that, for example, accepting amended indemnity or liability provisions is an easier ask.
Hopefully, these are some useful starting points for approaching renegotiations with long-term clients. We’d love to hear any strategies that have worked for you!
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