The art of negotiation is an individual discipline. With corporate contracts, the stakes are high, and preparation is worth spending the time. There are many approaches to preparing for negotiations. This article includes a list of key practical tips to carry out successful negotiations. Simplicity and balance are the key elements of success in negotiation, especially when negotiating with a foreign party. Prepare to learn and listen, as an international counterpart may see the entire case from an entirely different perspective.
1. Listen to the other party's statements but do not rely on them.
The worst idea for contract negotiations is to do all the talking alone. A desire to control the conversation in order to prove the merit and importance of your position is understandable, but fighting this war alone is impossible. Listen to the other party and gather as much insight as you can. This approach is particularly important when negotiating with international counterparts. You may be not well-informed about the local market, operations management, or cultural values of your foreign contractors. So, listen carefully and jot down the most important messages. By listening more and talking less, you will create open communication, which will make the other party more relaxed and more prone to accepting your proposal.
However, you may want to refrain from relying on the information your counterpart provides. This recommendation is particularly important for contracts in which subcontractors are involved. For example, consider a situation where you negotiate for the construction of a solar power plant with a selected contractor, but the contractor overlooks specific information provided by subcontractors who are in charge of supplying equipment. Your organization may also find itself in a situation where the subcontractor, who is not directly accountable to you, fails to provide important information, thus jeopardizing the potential project.
2. Avoid restrictive Terms and Conditions (T&Cs).
Be prepared to insist on discussing terms and conditions. Many vendors tend to avoid the subject and resort to vaunting talk, such as: "We sell hardware/software solutions to a wide variety of large Fortune 100 companies and government contractors. In each case, we are bound by the terms of our customer's purchase order". In reality, such documents usually contain a number of exclusions from the general terms and conditions, which may become an unpleasant surprise in the future.
This is particularly relevant with IT/telecommunications and software vendors, who tend to offer a "one-size-fits all" solution. Failure to detect these restrictions may translate into extra costs for your organization or client. Terms and conditions should not be regarded as a mere formality. Their content, and how they are presented to the other party, matters for the success of the negotiations. Keep insisting on a detailed study of the T&Cs to ensure that your future contractor is aware of what you expect them to complete. The same concern applies to contractors: if your organization is a contractor, ensure that the client does not trick you into vague rules that you will not be able to follow. Simplify and clarify items in advance to be on the safe side.
3. Know the initial compromises of the other party, and never start with your own.
Knowing what compromises are inherently acceptable by the other party increases you chances of convincing them to accept your terms. Compromises usually arise on issues that are sensitive for each negotiator. Your counterparts may lack expertise or resources to defend their position strongly. Moreover, focusing on points where the parties are willing to compromise may help to soften the discussion regarding other issues that matter to you. Identify as many potential compromises as possible, as each of them can be essential for the overall negotiation process. Never expose your own compromises early: start with your strengths, but mind tip #1 above.
4. Draft the first version of your negotiation strategy, avoid standard language, and emphasize important aspects.
It is essential that you draft your negotiation strategy and the agreement document to frame your key objectives. Once the main benefits that you expect are already embedded in the draft, you will be able to gain momentum to persuade the other party to agree to the terms proposed. Your counterpart may not be prone to accepting this, especially when the conditions are disadvantageous for them.
Avoid standard language and clichés that are often subject to debates and disputes - for example, in sponsorship agreements, when the sponsor insists that any contract breach by the other party must trigger the immediate termination of the agreement.
Be specific and precise, so your offers cannot be interpreted otherwise than as you intend. This is particularly important for international negotiations, when parties from different countries may be familiar with different approaches to formalizing terms and conditions. In such a situation, state your main points, and once agreed, ask how they will be recorded in the contract. Ambiguity is the enemy of good contracts, and entering into a partnership with a foreign contractor may be particularly risky.
5. Be ready to leave with nothing, and avoid rushed decisions.
Identify your bottom lines, and the red flags that will be the first signs that you may need to terminate the negotiations. Obtain your own research and market data, and any other evidence that you can use as strong arguments. This will make you less vulnerable to pressure from your counterpart.
Do not rush to a resolution. Sure, time is money, but it doesn't necessarily mean that you have to take the first offer the other party proposes. If you see any red flags, admit that you will not accept the terms proposed, so the other party has to come up with new offers or terminate the negotiations. The chart below presents a simple map for leading negotiations under such circumstances.
6. Consider building your argument on the basis of the other party's statements.
Your counterpart will propose a number of statements with which to agree. You can use this to your advantage. Listen carefully, and you will find a wide range of gaps and misconceptions in the other party’s offering. This will enable you to show the other party that their statements are inappropriate for the context of the contract. Then, offer a viable alternative, and you will be more likely to get the other party on your side. As previously mentioned, you may be not cognizant of the other party’s perspective, especially when they are foreign.
7. See the big picture instead of focusing on single issues.
It may be difficult to tackle some of the points immediately in the negotiation. These can be put aside for a while. Pushing hard on a single issue may not help you win the rest. Instead, find other points on which you can bring your counterpart to agree. Once the counterpart has agreed on one issue, he or she is likely to be less reluctant to accept the remainder of your propositions.
Subcontractors are also encouraged to be aware of the bigger picture of the deal. The contractor may employ subcontractors to complete a narrow, specific type of work. Keep in mind that the final beneficiary of this work is the contractor's client. Therefore, if you are a subcontractor, study the client's expectations.
For example, let’s assume you are required to create a business intelligence system for a large re-tail chain. You are in charge of providing hardware, but as the contractor you are still expected to provide the whole infrastructure. It would be reasonable to arrange communication between the client and the subcontractor. A solution may be to have the client and the contractor discuss in presence of the subcontractor, and have the contractor explain the importance of the subcontractor's role in the project to be negotiated.
8. Insist on your language for the Terms and Conditions.
Vendors and subcontractors may lure you into a dark forest of contract wording, the complexity of which may lead to misunderstanding. Insisting on simple and clear text for the terms and conditions may be an effective tool to win negotiations and gain greater benefits from the deal. Success of negotiations largely depends upon the outcomes the parties reach, and terms and conditions are essential inputs in this regard. The discussion titled “Contract Negotiations – Terms and Conditions” published by the Association of Corporate Counsel includes useful information about selecting the proper language for contract documentation.
9. Do not let the other party make you feel uncertain.
A common mistake is reliance on the other party’s statements. If you feel uncertain about certain aspects of the contract, do not hesitate to clarify them. A standard reply that everything has already been included in the draft may lead you to agreeing to unfavorable conditions, or may even jeopardize your business. The best tactic here is to ask for an opportunity to study the document on your own, and to clarify any uncertainty that you spot. Nevertheless, do not be hostile; your aim is to clarify unclear parts in order to ease the tension in the negotiation process, not to heighten it. This is particularly important when negotiating with foreign companies, a situation where you may need time to have documents translated, digest the information, and gain a clear-er understanding of the issues.
10. Have a "bad guy" in your team.
Any negotiation requires diplomacy, but excessive delicacy is not a strong asset, especially when dealing with hardline counterparts. If you cannot act assertively on you own, enlist assistance from someone who can. It is not about expressing aggression or impoliteness. It is about behaving proactively at critical moments to make your counterpart more eager to accept your terms. This is an effective, but dangerous weapon, so make sure you can handle it right.
Conclusion: Focus on numbers, and do not take extreme positions.
Following the tips above will help you be on the right track in corporate contract negotiations. Focusing on numerical data will help you overcome misconceptions and mitigate risks. Avoid taking extreme positions: do not be too assertive or excessively soft. Instead, prepare yourself by collecting as much evidence as you can; your statements will be more convincing if you support them with relevant data. At the same time, simplicity is a key aspect of successful negotiations. Do not attempt to impress your counterpart with intricate answers or too sophisticated propositions. Provide enough data to immerse the other party into "your world", thus helping them move toward your own objectives. Of particular importance, consider the differences between your organization and the other party, especially in international negotiations. Clarify and simplify areas of uncertainty or ambiguity, until you observe clarity and harmony in the parties’ understanding.