How to Reduce Your Legal Fees (Post #1 in a Series)

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Client: “John, could you take a look at a contract that a potential partner sent over?”

John: “Sure.”

Fifteen minutes into reading the contract, I called my client and said something like “This is bull___t!  You’ve got some leverage in this relationship, yet this contract is so one-sided that there’s no way anyone in your position would sign it.  I could spend two hours revising it, which would probably result in a long negotiation with the other side.  Or I could spend 30 minutes preparing a form that’s balanced and that the other side could sign with very little negotiation.”  My client opted for the latter and got the deal done (a) quickly, (b) with very little in the way of legal fees, and (c) with terms that were completely acceptable.

The moral of the story: try to avoid one-sided first drafts of contracts, since their costs often exceed their benefits.  Of course, to the extent a party has significant bargaining power, it can negotiate for terms favorable to itself.  Nevertheless, (a) those negotiations cost money, (b) often the terms are a lot more important to the attorneys than they are to their clients, and (c) onerous terms may start a relationship off on the wrong foot and create incentives for cheating (this is a variant of the maxim “Leave something on the table”).  We have a small client that signed a deal with a VERY big and sophisticated company, and I was pleasantly surprised at how balanced the first draft of their contract was.  In retrospect, I shouldn’t have been surprised; they’re smart and they know how to use lawyers.

So, if you’re going to be producing the first draft of a contract, how balanced should it be?  If you don’t have significantly more bargaining power than the other party, instruct your attorney to prepare a draft that’s balanced and that the other side can sign with minimal negotiation.  If you’ve got a lot more bargaining power than the other party, decide which parts of the contract are most important to you and instruct your attorney to draft those sections with language that’s favorable to you without being unreasonable.  And then let your attorney get back to billing his or her hours to other clients.

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