The Love-Hate Relationship With the LOI
Nice Article from W. Carter Santos, a lawyer at Equifax on the risks of relying too heavily on using LOIs in outsourcing transactions, on Law.com today. LOIs are always a big improvement over the e-mail string that gets forwarded to you that consitutes the "deal" (the new back of the cocktail napkin) and I always encourage client's to use them because it will save protracted negotiations later (and legal fees). Nevertheless, Mr. Santos correctly points out a number of things that a signed LOI often leads to, especially where the parties begin to perform as if they had a definitive agreement, including (a) lessening the leverage of the customer; (b) taking the air out of the urgency of the deal; and (c) investing client stakeholders with this particular vendor and placing pressure on the lawyer/legal department to compromise. Mr. Santos also points out something I hadn't thought of, but is true, namely that negotiating a LOI can burn a number of resources and actually protract negotiations. I'm still going to recommend using the LOI process where I have clients that need guidance to focus on the business issues, but there some interesting things to think about here.
