How to Negotiate a Contract During Coronavirus…and After
There is simply no substitute for a well-drafted contract with concise language.
This is doubly true now in the coronavirus era.
Jill Pilgrim of New York City (Pilgrim & Associates) discussed what lawyers can expect and what tried-and-true negotiation lessons remain paramount in the CLE webinar, “Negotiating Contracts in the Era of COVID-19: Contract Provisions, Major Unexpected Events.”
“We know what the personal impact can be,” said Pilgrim. “There is absolutely nobody who has not experienced the impact of COVID-19 on their business whether for ill or for good,”
She explained that what has changed is the level of uncertainty created by the virus. “It creates such a level of anxiety,” said Pilgrim. “It really is very unsettling to everyone, not least of which is the business world.”
According to Pilgrim, there are three things an attorney must do: know your client’s business and the deal negotiated; compose a well-drafted agreement that reflects the deal; and ensure that the negotiated agreement effectively manages your client’s business risk, including the impact of COVID-19 pandemic.
One question that has arisen is whether or not deals can exist now. The short answer? It depends.
Pilgrim said that when negotiating with a client, attorneys will likely need to educate their client about impact of COVID-19 on deal points. Likewise, attorney may need to convince their client to adjust his or her mindset or deal points due to the virus.
When negotiating on behalf of a client, Pilgrim advised that attorneys may want to educate counsel for the other party or parties in the deal about the impact of COVID-19. Attorney also may need to convince counsel for the other party or parties to adjust their respective mindsets or deal points due to COVID-19.
Pilgrim said that the ultimate goal is a contract that the client can clearly understand.
“You need to understand what your obligations are in this contract. It’s also protection for you as an attorney,” said Pilgrim. “You want to sit with them and ensure your client has a really clear understanding of what is in the contract and how it is going to impact their business going forward or what might happen if things do not go exactly as planned.”
Style of negotiation
“Many of us have experienced the crazy angry lawyer who screams,” said Pilgrim. “Others have experienced the calm, friendly lawyer.” She cautioned to watch out for both negotiation styles.
The “chill, relaxed lawyer” may have tricks up her sleeve, explained Pilgrim. When dealing with a hot-tempered lawyer, Pilgrim said that during moments of tension, she tells opposing counsel that “when you gain your composure, then we can resume this negotiation.”
Ultimately, Pilgrim says to be relaxed and think of the negotiation as a conversation between people. “In the business world, you want a good relationship at the end of it.” Particularly in the era of a global health pandemic, Pilgrim ensures that she asks all parties how they (and their families) are doing at the beginning of the conversation. “It would be perceived as insensitive not to,” cautioned Pilgrim.
Risks and Rewards
Pilgrim explained that in weighing the risks and rewards of doing business during the coronavirus pandemic, a client has determined that doing business might be better than not doing business at all. In that context, the role of the attorney is to manage the risks cost effectively, so that there is room for the beneficial opportunities of the deal to survive. A contract can help manage those risks by clearly defining deal terms, setting expectations and establishing delivery timelines. Notice and cure provisions can provide early warning signs of possible deal failure. Dispute resolution and remedies clauses create the framework and possibility of making the non-breaching party whole.
Pilgrim also examined how COVID-19 might change the costs of the deal. For sellers, it could mean increased labor and transportation costs. Buyers might have to contend with late or non-delivery.
Pilgrim recommends a well thought out and negotiated force majeure clause in contracts. Attorneys should avoid using a “cookie cutter” provision not tailored to the specific deal. She also recommends contracting to obtain a read receipt if a contract permits e-mail as notice. “I think that’s very key. When I negotiate a contract, if I’m going to allow e-mail, I stipulate that you must agree to a read receipt,” said Pilgrim. “You have to be careful about that in the COVID era when normal mail and delivery service is disrupted.”
Real world deals
Coronavirus has affected deals ranging from weddings to large sports championships.
Engaged couples have cancelled or postponed their wedding plans due to the virus. Pilgrim said that there are some wedding items that a contract cannot solve, in a COVID-19 environment. These include finding a substitute venue or caterer, but that contracts can help anticipate the things that can go wrong.
A website design contract could be considered low-risk, in a COVID-19 environment. Issues of concern would be whether or not domestic or off-shore design talent is employed and the extent to which COVID-19 changes the nature of how intended users will interact with the website.
Entertainment agreements are severely impacted by COVID-19 due to high-risk factors, noted Pilgrim. Examples include performers becoming ill, travel limitations, tickets not selling due to spectator fear of large crowds or government-enforced shutdowns.
Being a host city for a sports or entertainment event is the highest risk during a pandemic. “No entertainment or sports business wants to have their event associated with a broadcast display of compacted individuals in a huge audience spreading disease to each other,” said Pilgrim.
Host cities depend on foot traffic and tourist travel, as well as merchandise sales, hotel stays and multiple visits to restaurants and bars. All activities that are susceptible to the spread of a contagious disease, Pilgrim noted.