Contract negotiation: How to get the best outcome.

Contract negotiation often involves hours in a darkened room with, let's face it, both parties championing a selfish and mutually exclusive agenda of giving away very little, whilst creating a successful collaboration. Having spent hundreds of hours in the negotiation pit ourselves, here’s our take on how to get the best outcome for your business whilst also creating those mutually beneficial partnerships you need for growth and success. 

1. Face to face.

Post Covid we are still in an online world but, when it comes to contract negotiations, it’s best to conduct them face to face. Personal contact helps you to build a rapport with your counterparts which, in turn, encourages cooperation and collaboration. It also allows you to study the other side’s body language which can help to guide your approach and tactics.

2. Pre-negotiation mark-ups.

Conduct the negotiation after one or two drafts of the contract have been circulated and the parties have made changes and provided comments. That way, both parties are given the opportunity to see and understand the key concerns and commercial drivers of the other, paving the way for a more open, focused and productive dialogue.

3. Business knowledge.

Before you enter the negotiation, make sure that you have a comprehensive understanding of both your business and that of the other party. This means:

• Identifying all the stakeholders that the contract will touch upon and impact. The contribution of business knowledge, by these stakeholders, will be vital for the successful operation of the contract. When contracts are negotiated in a vacuum, they rarely work without amendment, often resulting in frayed tensions and cost escalation.

• Understanding what your commercial drivers and deal breakers are. Being armed with this knowledge will give you the confidence to fight for but also compromise on the right points.

• Identifying and understanding the commercial drivers and deal breakers of the other party. Hopefully you will have a sense of these from the pre-negotiation mark-ups (see point 2 above) but, if not, put yourself in their shoes and imagine what they might be. This should help you to predict the tone and the direction of the negotiation and allow you to plan your approach; for instance, what points are you willing to concede and what might you want in return (never give something up for free if you can help it!).

4. Understand the contract.

This should go without saying but, if you don’t understand the contract, you’re unlikely to be able to negotiate it effectively.

5. Get the right negotiation team.

Make sure that the relevant stakeholders as well as the decision makers attend the negotiation. Not all decisions should be made during the negotiation - it’s good to take some points away to reflect on, but negotiations become frustrating if third-party escalation becomes commonplace.

6. Pre-negotiation preparation.

All stakeholders and decision makers from your business should sit down before the negotiation to run through the contract to agree on key positions and strategy. Internal misalignment is a weakness on which an opponent’s negotiation team may capitalise. 

7. Take breaks.

It’s always good to have a “break-out” room to enable the parties to take time to discuss controversial points in private and to generally re-group. Internal negotiations and disagreements should not unfold in the other party’s presence – giving away too much information is likely to weaken your negotiating position.

8. Power play.

You don’t always have the bargaining power you want but you may have more than you think - don’t be afraid to ask for what you need or to, ultimately, walk away. If you’re acting reasonably and there is compromise on your part, you should be able to expect the same in return. Companies that refuse to negotiate should raise a red flag as it may be indicative of their ongoing approach to your relationship. Always question if there is someone else in the market that can offer you the same products/services and who may be more flexible. Even if you don’t wish to change provider, sometimes the mere mention of a competitor in a negotiation can soften a third party’s approach.

9. Don’t fixate on cost.

Everyone wants to get value for money. That said, there can be repercussions with getting a deal that’s too good to be true. When you negotiate on price, make sure that it is workable; ultimately, if it’s a relationship that you want to foster and a service that you need, you’ll end up paying in other ways if you drill too hard on costs.

Also, bear in mind that it’s worth paying a little extra for quality; the saying ‘buy cheap, buy twice’ is very true when it comes to choosing the right partner for your business. Often businesses choose the cheapest option on the market, only to find that they are unable to deliver or difficult to work with.

10. No gloating.

If you manage to cut a great deal, never disclose to the other party that they could have done better. Gloating may drive them to extract the lost value, from you, at some point in the future.

11. Negotiation overview and next steps.

Finally, once the negotiation comes to a close, take the time to ensure that both parties are on the same page and that momentum is maintained. This means:

• Running through the action points from the meeting.

• Identifying the owners of each action point and a process to close them out (i.e., who needs to speak to who, how will it be reported back/discussed and by when – both parties may want to consider appointing a Project Manager to run this part so that it is centrally managed).

• Making a list of what has been agreed, even if it’s just a list of key points; believe it or not, it’s very common for parties to walk away believing that they’ve each agreed different terms.

Top Tip: The support of a commercially focused legal professional in contract negotiations can be invaluable, especially if the contract is complex, you are the underdog and/or the relationship is an important one. Try not to compromise on legal support; the associated costs are a long-term investment in the success of your business and your partnerships.

Disclaimer: Re-think Legal is a boutique legal consultancy providing businesses with legal support. The information contained in this blog is simplified and must not be taken as a definitive statement of either the law or practice of any given jurisdiction and does not constitute legal advice.