If you’re responsible for driving better contract outcomes for your business, the ability to negotiate well will help you find success. Negotiation is a skill that requires confidence - especially if you need to push back on particular terms as you cultivate a deal with a third party.
For Contract Managers with little negotiating experience, this confidence can be learned and nurtured when there is an established contract negotiation process in place.
In this article we take a look at the collaborative nature of negotiations, why it’s important and how you can build a successful contract negotiation process to help put you in the strongest possible position. To help illustrate the process, this article presents scenarios based around negotiating vendor contracts.
The fundamental rules of successful contract negotiation
Negotiation will often come down to personal style and preference - there is no prescribed way of going about it. Some negotiators may feel they achieve the best terms by being assertive, while others take a far more empathetic approach. Whatever style of negotiation you opt for, there are a few fundamental aspects you should consider:
- Contract negotiation is collaborative: The process, according to Contract Negotiations Specialist Laura Frederick, is about ‘working with your counterparty to find terms to which you can both agree.’ A collaborative approach will open lines of communication, lay the foundation for a strong ongoing relationship and may also encourage innovation from your vendors further down the line.
- Negotiation isn’t a one time occurrence: Expectations are always changing and business objectives on your side, or your vendor’s, may shift. Every time you interact with another party, you have the opportunity to negotiate, discuss terms and reflect on any potential changes.
- Start from a position of strength: Negotiations can be time-consuming, complex and quickly frustrated if you don’t understand exactly what you and the other party are trying to achieve. Be thorough with your questioning so you can ensure you’re always working towards realising the best possible outcomes.
Once these fundamentals are established, you will be able to implement the steps below to build a successful contract negotiation process. Let’s dive in.
How to build a successful contract negotiation process
1. Prioritise your key objectives
Clear communication with a vendor about your key objectives - such as timeframes and deliverables - will help to mitigate immediate and longer term issues including:
- Complex negotiations that go through multiple rounds, leading to business delays
- Initiation of an ambiguous contract which can increase contract risk
- Damaged relationships with vendors as a result of unfulfilled obligations
You should go into all negotiation processes with your key objectives in mind and ensure that you have all the knowledge relating to them. You will need to be able to communicate why they are your objectives, what the budget is relating to them, what the deadline is for achieving them and what the escalation process is if the conditions aren’t met.
Prioritising your key objectives during the contract negotiation process will ultimately help you to achieve the goal of realising the benefits outlined in the agreement."
Basing your negotiation process around key objectives will allow you to keep your initial terms simple and concise so conversations can start efficiently.
It will also allow you to have candid discussions with potential vendors about the agreeability of the terms before moving further into any complex negotiations.
2. Aim to control the negotiation process from the outset
Outlining your key objectives is a fundamental part of negotiation preparation, but you should also consider the boundaries set around those objectives.
Starting negotiations from a strong position means knowing from the outset what you will, what you could and what you won’t tolerate from other parties.
Although the key part of negotiations is often compromise, there may be certain areas of your business that you feel leave little room for negotiation such as support times, delivery dates or supplier performance levels.
Before entering negotiations, you should assess the key objectives you outlined within the previous step and determine:
- What is the best possible deal you could get?
- What is an acceptable midway point?
- What is an unacceptable deal that would prevent your operations?
…never negotiate without options. If you depend too much on the positive outcome of a negotiation, you lose your ability to say no." - Ed Brodow, Negotiation Expert, Speaker & Author
Knowing what sort of deal is or isn’t acceptable for your business and its ability to operate effectively or compliantly will allow you to negotiate from a position of strength from the outset.
3. Understand your counterparty and what they're trying to achieve
Working together with your potential vendors will help negotiations to run smoothly and amicably. There is no need for confrontations to take place when agreeing the terms of a contract.
It’s important that you work on this understanding during each interaction you have with your potential vendor from the outset of your communications.
You should seek to understand what the counterparty’s motives are, what they’re trying to achieve and how they will be able to work with you ahead of negotiations.
This knowledge will help you to align your discussions, ensuring that your negotiations are directed to support your business’s requirements and your vendor’s objectives.
Where vendors are unwilling or unable to explain their objectives, it is best to look at the most common priorities based on the nature of the transaction."
Laura Frederick, Managing Attorney and Negotiations Specialist, highlights that the most common priorities from third parties are:
- Limit contract requirements to what it can do
- Limit exposure if things go wrong
- Get paid in full and on time.
By ensuring that your contracts cover each of these areas, negotiations can start from a stronger position and vendors will know that you are willing to work collaboratively.
This approach can smooth the negotiation process and even reduce the time taken to reach an agreement.
4. Be empathetic but don't be ruled by emotion
Strong interpersonal skills are needed for effective contract negotiations to take place, but it’s also important not to take anything personally during the process.
Both parties need to share their needs and concerns with each other before entering into an agreement - that way elements such as benefits, risks and consequences can be discussed openly and honestly.
... empathy is the most underutilised negotiation skill of them all. Many people want to solve the problem. But not many of us want to build a relationship with the person on the other side of the table.” - Milton Smith, Negotiation Instructor and Coach, The Black Swan Group Ltd."
Empathy is especially important during complex negotiations. You may be inclined to reject a suggestion or question what the other party is saying - but these are the scenarios where you should prioritise effective listening.
If you’re reacting emotionally, you are closing off the opportunity to rationally evaluate what is being said and could damage future relationships.
Specialists recommend ‘focusing on disagreements in the context of wanting a successful relationship’. Contingencies and revisions are designed to make the contract go smoothly.
Contract negotiations that are led with empathy and rationality create a process that best serves all parties involved, helping everyone to efficiently reach the most agreeable terms.
Some simple ways to keep your emotions in check include:
- Remembering that business negotiations are simply about business, nothing more.
- Adopting a positive approach to adverse conversations so you can find a resolution.
- Taking your time to consider the options put before you.
5. Stay patient through the long haul
Contract negotiations can often be the longest part of getting a contract set up, but it is also the most important.
Set your expectations accordingly so you don’t burn yourself out, put too much pressure on counterparties or make rash decisions for the sake of speeding up the process. This can increase the risk of accepting less than ideal terms.
Negotiations are rarely completed within a single calendar slot. Prepare to go back and forth with your vendors, be flexible where it’s required and take your time responding to changes.
It’s also important not to lose sight of your key objectives, especially when negotiations become time consuming.
Despite our best efforts in every respect, not every negotiation will come to a successful conclusion. Therefore, when you find the discussions faltering, even on a deal in which you were keenly interested, you must remind yourself: It is always better to end up with no deal than with a bad deal!” - Staying Calm During Contract Negotiations, Younas Chaudhary.
Once an agreement has been reached, you may be tempted to breathe a sigh of relief when the negotiations are finalised and the contract has been signed off, but remember to dedicate time to any follow-up questions and to continually review the performance of any third-parties and whether the terms of your agreements are being met.
Following the steps and frameworks outlined above will help you to achieve far more positive outcomes from your contract negotiation processes. Being patient, prepared and proactive are all things that will help you to drive the best outcomes for your business. Better yet, they are all skills that you can build on time and time again.
Whether you’re new to contract negotiation, looking to finesse your experience or what to try a new approach, we hope our tips will provide some value to you. To find out more about successful contract negotiation and how technology could improve your processes further, get in touch today.