This contract tip is about dealing with a standoff when negotiating limits of liability.
Someone asked me for advice on how to handle a situation when the customer's business team needs at least $1M for the liability cap, but the vendor refuses to offer more than $500,000. Neither side will budge off its number.
My advice? Don't try to plow through it with force.
Here’s how I approach these situations.
1. Find out why you need your limit - I usually start with my client. I ask about their attachment to the number. We discuss the risks and if there are ways to address those other than a higher cap. If we are worried about data processing risk, maybe we reduce the scope of data sent to this vendor. If the vendor is the sole source, maybe we focus on setting up another.
2. Talk to the counterparty about alternatives - Sometimes we can offer other concessions in exchange for a higher cap. Our offer could be paying for higher insurance levels, offering a longer term, or agreeing to higher minimums. We want to incentivize the other side to agree.
3. Fish or cut bait - This is a phrase I grew up with that means do it or don’t, but don’t linger. If there is no workaround, decide whether it is time to walk away and move to Plan B. Maybe this is just not a deal on which you can reach terms.
What other techniques do you use for dealing with standoffs on liability limits or other contract terms?
