Contract Provisions to Focus on When Negotiating with a Larger Company

We recently outlined some tips for negotiating with a larger company. Building on our insights in that article, we are discussing some key contract provisions to focus on when negotiating with a larger company.  

Before we delve into the specifics, we really want to emphasize that your contracts are not (or should not be) just a legal formality. Your contracts are a business document that form the basis of your relationship with your customer (whether they are bigger or smaller than you). And they should touch upon all key elements of the business relationship – including deliverables, payment terms, what to do if things are not going well, and how to terminate the relationship.  

With that in mind, here are some key provisions to take note of when negotiating with a larger company:  

Contract Provisions to Focus on When Negotiating with a Larger Company

Is Their Template Contract Even Applicable?  

Many large organizations will have a template contract for their suppliers to sign. However, we have seen countless examples of these template contracts where the terms do not match the supplier’s service offering.   

For instance, we have seen scenarios where the larger organization provides a template contract that is essentially a software licensing agreement – but you are offering a Software-as-a-Service product. The terms of the template contract in this situation clearly will not match the actual deliverables.  

In this case, you need to push back to get a contract in the right form. They may complain (or at least grumble), but it is important that you do push for it. And if they do not have a template covering your product/service, it is a perfect opportunity to provide your template and terms.  

Service Level Agreements / Support Terms. 

Once you are sure you have a document that applies to your product or services, it is important to look at the service level agreements and support terms. Some terms that may be problematic include:  

• Custom Support Terms: Small companies, with fewer resources or smaller teams, do not have the resources to manage several different support or service level requirements. This also can create issues as you scale your business operations. 
• Financial Penalties: Larger companies may impose stiff penalties for any service disruptions, delays, or inconsistencies. These penalties can be financially crippling for smaller companies. 
• Customization: Larger entities might ask for bespoke solutions or customizations to standard products or services, which can derail continued development on the core product or service and make it difficult for a small team to support such customization. 

We have seen some companies approach these terms optimistically, assuming they will be able to stretch themselves to meet the service or support terms with the surplus funds from the large contract. This does not always (or often) end favorably for the startup, so we would like to stress the importance of considering service and support terms with pragmatism and embedding flexibility into the contract if you are not positive about your ability to meet them.   

Operational Terms. 

Similar to the service-level agreements above, it’s important to consider how your infrastructure, personnel, and other operational limitations may impact your ability to deliver on a contract. Some common terms we see that companies should carefully consider include:  

• Technical Specifications.  
• Security Requirements.  
• Backup Infrastructure and/or Other Business Continuity Requirements.  
• Quality Checks. 
• Training and Integration.  
• Reporting and Documentation: Reporting, documentation, and compliance checks can be time-consuming and resource-intensive for smaller firms.  

Some startups agree to these terms, assuming they will be able to meet them over time. However, big-name companies conduct audits and if you are not living up to the terms of your contract, penalties (including termination of the contract) may be enforced.   

Limitation of Liability and/or Indemnity Obligations. 

Watch out for limitation of liability and indemnity obligations. These should be tailored to the risk your product, service or software presents and should always include an appropriate monetary cap. 

The point of limitation of liability clauses or indemnity terms is not to completely absolve either party of responsibility. Instead, it should realistically reflect the risk accepted by each party and the financial resources available to them. You should negotiate these terms carefully, particularly with a larger company (since the cost if anything goes wrong could cripple your company).  

Data Privacy Terms / Data Privacy Addendums. 

Data privacy is a rapidly evolving area that is near the top of the agenda for many boards and regulators around the globe. We are seeing more and increasingly stringent data privacy terms entering commercial contracts.  

In this sphere, it is essential that you understand your data flows, obligations, and agreements. These should be reflected in your template contract and should only be adjusted after careful consideration of the practical impact the changes would have on your product or service.  

If you use the customer’s terms or template contract, you should pay attention to their data privacy terms and make sure you are or can comply with their requirements before signing.  

 If you would like assistance negotiating your business contracts, reach out. Our commercial attorneys would love to help.  

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