Practical Solutions: Part 6

This is the third in a series of posts on managing transaction legal cost. In the previous posts, I discussed the two primary components driving legal cost: Deal Complexity and Negotiation Intensity. The Deal Intelligence of the principals to the transaction is a vital counterbalance when the lawyers are likely to engage in protracted negotiations. I have worked on deals and negotiations of all sizes and of varying degrees of complexity, and I learned a few important lessons along the way that I would like to share with you…

Lesson #6:  Your Deal Intelligence Matters  

As discussed in our last installment, “Negotiation Intensity” is a function of three separate but interdependent factors: The Deal Intelligence of the lawyers, the Deal Intelligence of the principals to the transaction, and the relative level of “balance” in the initial set of draft documents. In my experience, Negotiation Intensity is the critical driver of legal cost, as it can produce a higher legal bill even in those instances where the deal itself is fairly straightforward.

When both lawyers have a relatively high degree of Deal Intelligence and are starting from a relatively balanced set of documents, the open issues are more easily framed and the negotiating positions of each party start to fit in a more narrow and well-understood range. Legal issues will more often take a back seat to resolving open business issues.  However, when an imbalance exists in each lawyer’s Deal Intelligence, the intensity of negotiation has the potential to greatly increase due a gaps in experience and emotional self-control as well as a potential lack of focus on the client’s goals. 

For these reasons, those principals with a relatively high level of “Deal Intelligence” can act as a buffer so as to not permit that imbalance between lawyers to spiral into a drawn out and expensive negotiation. Deal Intelligence in this context is less about having a strong real estate skill set and more about having a strong management skill set. Among the key attributes I see are:

• Providing sufficient context about the property and the business plan to enable the lawyer to better weigh the importance of certain concepts in the documents.
• Clearly articulating the company’s goals and timeframes
• Providing a rough legal budget up front, with some buy-in from your counsel
• Outlining the internal approval process and timing for approval
• Creating a process to review comments with the lawyer, whether by phone or emailed issues lists
• Having a willingness to get on the phone with all parties in order to eliminate prolonged discussions over issues that are of little concern.

The last point is particularly important, as I’ve found that moving from a detailed issues list to a well-managed all-hands phone call can greatly reduce the number of drafts that take time to produce and to review. Managing legal cost is all about choosing the right lawyer for the job, providing sufficient oversight, and being keenly aware of the capabilities of each party to the negotiation, including the lawyers on both sides. Understanding the components of legal cost will hopefully lead to fewer surprises when you get that bill at the end of the deal.

I’ve found that getting deals done is mostly about using common sense, creativity and people management skills and much less about actual lawyering skill. Finding that critical path toward a successful closing is the ultimate goal but that path is not always well marked.

Stay tuned for Part 7 of this “Practical Solutions” series!