The first step in contract negotiation is knowing that you can and should negotiate, so congrats on being a step ahead of others already. The rest should be a piece of cake if you follow these tips, stay calm, and come to the meeting prepared and ready to negotiate.
What Is Contract Negotiation Anyways?
Negotiation is the process of coming to an agreement on a matter between two or more parties. Contract negotiation takes that further by involving set terms that both sides agree upon, usually involving both risks and revenues. Contracts are usually written and signed, but can also be verbal as well.
Risks And Revenues
While there are plenty of individual items inside a contract, they all come down to two things: risks and revenues.
For example, a landlord wants to get income (revenue) by renting their property, but they also want the right to remove the renter if something goes wrong (risk). A qualified and trusted renter who offers a lower price, while lowering revenue slightly, also lowers risk to the landlord.
The Business Side Vs. The Legal Side Of Negotiations
In contract negotiation, first comes the business part, then the legal part. First, both parties must come to an agreement on business terms such as payment amounts, dates, and what both parties receive.
Then comes the legal side of the negotiation — and this is where the contract comes in. The written contract usually includes many legal provisions that both parties must read thoroughly, negotiate if necessary, and ultimately agree upon.
When Is There An Enforceable Contract?
Most people assume that a contract is enforceable with a signature, however that is not always the case. In contract law, a verbal agreement and a handshake can also be considered a contract. Whether or not a contract is enforceable boils down to whether or not all materials involved have been negotiated and agreed upon.
Lawyers And Negotiation
Bringing a lawyer into a negotiation can sometimes be a smart decision, but it can also be more complicated than it’s worth. That’s because lawyers have to make sure everything is perfect before continuing. They need to protect their clients to maximize revenue and minimize risk, and they must ensure that they will not be liable for malpractice claims.
What’s Your Negotiating Style?
There are two main negotiating styles: one is adversarial and one is collaborative. To determine your negotiation style, imagine your typical reactions within a negotiation. If you raise your voice or threaten to leave, you may be adversarial, for example.
The most effective negotiation style is usually collaborative, with strong emotions kept at bay. To be a more collaborative negotiator, try working on both your interpersonal communication and intrapersonal skills.
Bargaining Position: The “Take It Or Leave It” Situation
Sometimes in a negotiation, one side has all the bargaining power — they have the upper hand and don’t need to negotiate at all. When this is the case, this party may hand a contract over and take a “take it or leave it” approach. This can work, but it can also backfire because the other party can later claim a provision is unfair.
How To Negotiate A Contract And Win
1. Take Your Time
Don’t rush to an agreement just because you want to finish quickly, have other things to do, or want to lock something down. Take your time with the negotiation and don’t feel like you have to rush to appease the other party.
2. Don’t Overshare
When you share too much information, you leave yourself vulnerable. Try to find out more about the other party than they know about you.
3. Seek Professional Help If Needed
If you are not a legal professional yourself, it may be worthwhile to get a lawyer to review your contract, especially if it involves a large commitment of time, money, or if it is in an area you are unfamiliar with.
4. Research Contract Laws
Knowing what your rights are is an important step in contract negotiation. It will help you be aware of what you are or are not entitled to by law.
5. Go Piece By Piece
Contracts can be a big undertaking, so you should take them step by step. Start with the easier parts first, and hammer out the more difficult aspects later or with a professional.
6. Practice Skepticism
Do your due diligence with what the other party tells you. Read the written contract thoroughly, and fully understand what they can offer you.
7. Don’t Make The First Concession
If you can avoid it, try not to make the first compromise. Quickly making concessions early in the contract negotiation can send the wrong message.
8. Do The Math
How much do you stand to gain? How much could you lose? Try to put a number value on your revenues and risks, even if it is in time or energy.
9. If You Have Questions, Call
Sometimes to be really clear on something, you just need to have a phone conversation. If provisions aren’t clear to you, or you don’t understand a written email message, make a call to clarify.
10. The First Contract Is The First
Remember that the first contract is not the one you need to agree to. You are allowed to make changes and come back to them.
11. Be Reasonable
In order to be reasonable, you need to know what is reasonable. Check with experts in your industry, others who have gone through a similar negotiation, or see if you can find sample contracts online.
Stages Of Negotiation: The Best Approaches at Every Stage
- Do Your Research: Whoever has the most information, or information that the other party lacks, automatically starts with the upper hand. Research field standards, the other party, and contract laws so you come prepared.
- Prioritize: Make a list of your priorities, and rank them in order of importance. You should also make alternative options for each priority.
- What You Need Vs. What You Want: Go through your list, and make note of which are “must haves” and which are “nice to haves.”
- Know Your Bottom Line: What, if anything, will make you walk away? Come up with your bottom line, or your “absolute no,” before you even start negotiations.
- Define Time Constraints: This is an important part of contract negotiations, no matter what type. Whatever time constraints or benchmarks you have must be laid out before starting.
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- Take Control: Taking control of seemingly unimportant aspects such as time, location, agenda, and pace of the negotiation goes a long way to giving you the upper hand. Get yourself in the driver’s seat by taking control of these factors.
- Be Positive: Find any part of the negotiation or conversation that you feel good about, and make sure to emphasize those with positive remarks such as, “I feel good about that,” or “I definitely agree.”
- Be Friendly But Firm: Having a cordial and professional attitude is the way to go for how to negotiate a contract. Make sure you stay firm in your demands, but in a friendly manner.
- Keep The Emotions In Check: Emotions can get in the way of clear thinking. They can also make you appear unprofessional. Take a few breaths if you feel you are losing control of your emotions.
- The “Offer-Concession” Strategy: The other negotiating party should leave the meeting feeling like you both met each other part of the way. By offering small concessions, you put yourself in line to possibly get more concessions offered as well.
- Question, Don’t Demand: Ask why. Don’t get defensive. If the other party is becoming hard on some issues, find out the reason, then find a solution that works for you.
- Burnouts And Ultimatums: Sometimes, one side may resort to threats or ultimatums. They may also drag out the negotiation for a long time. If this is the case, decide what this deal is worth to you, and if you should put up with these tactics.
- “I’m Only Asking For What’s Fair”: This is one of the most effective negotiation techniques, where a party emphasizes that their requests are simply in line with what is standard. It is no longer on you, but it is the expectation of the industry for you to get what you are asking for.
3. Clarify Goals
- Use Facts, Not Feelings: Try to ignore personal feelings about the negotiators themselves, and look at the deal at hand. Great contract negotiation also includes avoiding “feelings” statements such as “I feel that…” or “I think that….”
- Summarize Key Points: At the end of the meeting, summarize points that you agreed on, and points that you need to get back to each other on.
- Getting To “Yes”: This negotiation technique is about removing the negotiators from the equation and looking at the why and who are the real actors that influence the process. Using that information to problem solve and generate solutions will help you “get to yes.”
The Importance Of Negotiation In Business Communication
Negotiation is a vital part of business communication, and one must have excellent communication skills for successful negotiations in business. For example, if you don’t follow up or follow through on a negotiation, the contract is not valid and you no longer have an enforceable agreement.
The Importance Of Synchronizing Negotiator Preferences In An Agreement
It is important to make sure both parties are on the same page, every step of the way in a negotiation. If one party prefers over-the-phone communication, and the other prefers written, it still needs to be agreed upon that one or the other is the final agreement.
Finding a win-win should always be the goal of every contract negotiation, where both parties feel they came away with a great deal that works for them. Make sure that the agreement is fully understood by all parties. Finally, there needs to be a course of action and next steps for implementing the contract.
Contract negotiation gets easier the more you do it, as with any skill. Go back over a few of our guidelines while preparing, and remember your end game. What are you negotiating for? Use that as your guiding principle throughout and you’ll do great!