Startups and small businesses are often hesitant to retain the services of legal counsel, generally due to concerns over the hefty price of such advice. This is certainly understandable, although it may end up proving costly in the long run. With contract drafting, in particular, it is very important to confer with legal counsel to ensure that the bargain struck is equitable and allocates risk appropriately. There may be issues down the road that lead to expensive litigation if a company fails to receive the input of an attorney with respect to a legally binding document such as a contract. Rather than be reactive and shell out a bunch of money for a lawyer to clean up such a mess, it is wise to be proactive and engage counsel as early as practicable. Here are four ways to leverage legal counsel when it comes to contract negotiation and drafting:
Negotiate Transactional Fee
As mentioned, the primary reservation over retaining counsel relates to the cost. For a long time, law firms have charged for their services on an hourly basis, a structure which can cause the bill for legal services to rack up quite quickly. Although this is still a predominant fee structure, it certainly is not the only one available. There has been a gradual shift away from the mega firms that accommodate virtually any legal issue with outrageous hourly rates to smaller firms providing more specialized services. Depending on the nature of the smaller firm’s expertise, prospective clients likely have more room to negotiate for a fee based on the overall transaction and not just the hours put into it. This sort of flat fee is perfectly reasonable when it comes to the drafting of documents like contracts, and thus companies should at least ask to determine if it is a possibility.
Involve Counsel Early
Assuming that the financial aspect is not a problem or a suitable fee has been negotiated, it is crucial to involve counsel in the contracting process as early as possible. Introductions to potential partners and initial discussions may not seem that important, but having counsel involved from the get go will ensure that everyone is on the same page throughout the entire process. In some cases, it probably even makes sense for counsel to direct and oversee the communication to prevent the wrong course of action from being pursued. In addition, a lawyer’s job will be much easier if s/he has a strong grasp as to the economic purpose of the transaction, rather than solely focusing on risk mitigation during drafting.
Request a Template
Unless a company is engaged in a highly unusual business or a wholly innovative industry, there is a good chance that legal counsel has a template from which it can start. When it comes to contracts and a lot of other legal agreements, there is no reason to start from scratch or try to reinvent the wheel. Companies have been entering into contracts for centuries, and there are certain sectors in which traditions, customs, and legislation have already dictated the manner in which a contract must be written. Thus, rather than waste time and money on beginning a contract anew, companies should ask whether they can review an existing template and then suggest the needed changes to it, as appropriate.
Establish an Endpoint
One of the reasons that legal bills can grow to astronomical proportions is that clients fail to inform counsel where they would draw the line and abandon a deal. As a result, the attorneys for both sides may continue trying to find a compromise even if one that is mutually satisfactory is unlikely to be found. Communication with counsel is crucial to ensuring that a contract is outlined exactly as desired and that the company finds it worthwhile to invest the time and money needed to hammer out the details.