This contract tip is about risk-based pricing arguments.
Lawyers love to use this line in negotiations - "Our pricing assumes that you accept our totally unreasonable risk allocation in this provision. We will have to increase the price if you do not agree."
Ok, well, maybe they leave out the totally unreasonable part.
Sometimes, there is some truth to that. The vendor has a commoditized or low-margin service and cannot accept disproportionate risk.
But more often, I see this approach used by lawyers who have no idea how the pricing was created. They use it because it can shut down the conversation. It's the contract negotiation version of talk to the hand.
When I hear this, it feels like a bait and switch. "So now you tell me this, when we are already this far into negotiations?"
I find that a more effective approach for the negotiation is to tell the counterparty about this early on. Or better yet, offer your customer some alternative pricing for different risk models. For example, some offer a longer warranty for the extended services fee or higher service levels for more volume. You can offer tiered pricing that offers discounts to those customers willing to concede on riskier provisions.
Is it just me who gets annoyed by these arguments? How do you reply when facing this kind of pricing justifications for an unreasonable position?
