Successful Contract Negotiation Strategies

Whether you’re new to contract negotiations or already an experienced negotiator — there is always more to learn to achieve the best possible outcomes. In this article, we examine some strategies that might help you develop your contract negotiation skills.

With all the initial enthusiasm for a new project, there can be a temptation to jump straight in and get started with work on a contract. While harnessing that energy is great, rushing may cost a lot. Take some time at the start to plan the process you will follow. Profound planning at the beginning will always pay dividends, increasing the chances of getting the successful contract negotiation best practices.

If it’s a significant project, transaction, or contract, the negotiation process could last for an extended period of time. If so, agreeing on an initial term sheet, heads of agreement, or memorandum of understanding could be a good idea. This type of document can even be relatively informal. You can use this initial agreement to:

Manage carefully the time spent on this initial document. There is a risk of losing momentum if you try to be too detailed and negotiate every minor issue at this early stage. It’s more important to agree on the key issues — and then get moving.

From the outset, it’s essential to know why this contract is vital to your organization. How does it fit into the organization’s strategy? What are you trying to achieve? Documenting your answer to these questions will help you later when you need to make tough compromises and trade-offs.

Working with your team, list out the objectives you are hoping to achieve from this contract. Identify which are non-negotiable (that is, which ones would cause you not to go ahead with the deal). Try to list your objectives in their order of priority so everyone on your team knows their relative value. You could also list alternate outcomes that would equally be acceptable.

This exercise can help you overcome another problem that can sometimes arise. This is when two businesses with a common goal agree on their high-level “commercial” or “business” terms (such as the price and structure of a deal). Then, sometimes, as the negotiation team starts to grow (for example, as professional advisers are engaged), new questions and issues start to be raised. 

These new issues can distract the parties from their original objectives and, in the worst cases, even jeopardize the deal. Having a list of pre-defined objectives can help prevent this from happening.

As you negotiate a contract, you learn more about what the other party wants and how you might work together. Good communication and a flow of information are essential to keeping the contract negotiation techniques moving.

When there is a lack of information, mistrust can easily creep into the contract negotiation process. When that happens, you might start to doubt the data from the other party. You might even think the other party is deceptive or has an ulterior motive. A good way to overcome this negativity is to always assume the other party has positive intentions and keep asking questions. In turn, answer the other party's questions as open and honest as possible.

This is why some negotiators take a different approach and negotiate instead of a relational contract. They recognize that the traditional contracting process and contract negotiations tend to be defensive. A contract is the equivalent of a “prenuptial” agreement in a marriage — dealing with what will happen if things go wrong. The problem is that with all the focus on negative issues, there is a risk of damaging the goodwill that the parties will need if the contract succeeds.

Still using the marriage analogy, a relational contract is more like working together to agree on the “wedding vows.” The negotiators discuss the types of risks and hurdles that they might have to overcome and how they will work together to solve them. They recognize they might never predict everything that will happen — but they can at least agree on the values and principles they will apply together to overcome these challenges.

It’s not always easy to reach an agreed-upon position when negotiating a contract. Your chances are also much lower if the negotiators allow personality conflicts to derail the process.

Try to take a more data-driven approach to the negotiation process to keep emotion out. Data-based arguments can be highly persuasive and difficult to argue against. 

You will have a far higher chance of success if you can present information, such as pricing or risk data, and explain what the data indicates and why your position is justified.  

Before going into a high-stakes negotiation meeting, it’s worth investing the time in practicing negotiating your position.

For example, you could rehearse for the meeting by getting an experienced colleague (or an external professional adviser) to play the role of the other party. This can help you understand the perspective of the other party. It can also help you identify potential objections, refine your position, and even come up with new ideas that will help move the process forward.

There have been countless books and articles written on contract negotiation tips. Elite business schools continue to teach it to this day. New theories are still being developed all the time. It can feel hugely overwhelming to try and absorb and put all this advice into action.

It is always good advice to invest as much time as possible in preparing for an upcoming negotiation. By incorporating one or two new techniques, for instance, studying relevant contract negotiation examples each time you approach a contract negotiation, you can continually refine your approach. Moreover, with a reliable resource vendor like Lawrina, you can have access to valuable legal resources, helping you equip yourself better for future negotiations.