Is the Devil in the Details?

By on / Business Negotiations

You’re close to a deal, but concerns linger. Some of the contract seems less than precise. What in the world does “reasonable best efforts” mean, for example, or “good faith”? Negotiators in this commonplace situation face a choice: push for more precision now or sign the deal and hope the ambiguities won’t cause trouble down the road.

In a recent article, Robert E. Scott of the University of Virginia Law School and George G. Triantis of Harvard Law School propose a helpful framework for thinking through this basic negotiation tradeoff between precision and vagueness. Achieving more contractual specificity, they note, has a front-end cost; it takes more time, effort, and expense to negotiate. Leaving vagueness in the contract reduces front-end costs but increases back-end costs; vagueness increases the likelihood of contract interpretation issues and, therefore, the likelihood of litigation and subsequent legal costs.

Negotiators should balance these front-end and back-end costs to determine whether to push for more precision in the deal at hand. Scott and Triantis point out that this analysis may lead to opposite conclusions for different clauses within the same contract – precise on some, vague on others. The authors offer ways to alter the cost-benefit analysis favorably. Arbitration clauses are one useful way of reducing back-end litigation costs; such procedural contract provisions allow negotiators to be less precise up front and close the deal more easily. Negotiators need not worry (as much) about vague terms if they have a cost-efficient mechanism for resolving disputes that may arise.


Discover step-by-step techniques for avoiding common business negotiation pitfalls when you download a copy of the FREE special report, Business Negotiation Strategies: How to Negotiate Better Business Deals, from the Program on Negotiation at Harvard Law School.


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  • Andrew M.

    My experience is that an attempt at precision pays diminishing returns. Each change requires more changes until the contract is a mess. Often additions in agreements inadvertently create ambiguities. It takes humility to realize that you can’t cover every possible contingency. We humans are horrible at predicting the future.

    Reply
  • Michael T.

    With human nature as it is, complex and usually self serving, taking the time to create precision now is almost always worth the time and effort and equally desirable.

    Lengthy contract documents or negotiations overwhelm people with the tidal wave of controlling minutiae but those points are in there for a reason, to eliminate as much of the back-end costs as possible, even if they are one-sided agreements.

    As we know, people are o.k. with loopholes if it benefits them and not everyone is ethical or moral either.

    Assuming differently, wishing for what can’t be is setting yourself up for what Ernest Hemingway called “earned disappointment.”

    Leave things to chance and the back-end costs are going to leave you with cause for regret. Both parties in a negotiation need to keep that in mind.

    Reply

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