4 Strategies for Contract Negotiations & 6 Mistakes to Avoid
Planning for contract negotiations is the first step to success. Often the outcome is decided before any face-to-face negotiations occur. Negotiation is one, but important, step in the contractual process.
Start planning early at Request for Proposal (RFP) stage.
This is the point at which you need a strategy to achieve your preferred outcome. Ideally the contract terms and conditions should be drafted and attached to the RFP or tender and the prospective supplier should be requested to comment. The issues, which you now know about, can then be discussed in negotiations.
Research the other party in advance.
Knowing what the other party expects to achieve will assist with your strategy. Negotiate from strength because knowledge is power in contract negotiations. Is their aim to get the best deal on price, is it to gain market share, expand into new markets or defeat their opposition? Find out if they have a walk-away position and what it is.
Structure your negotiating team.
It sounds obvious that the interests of all the team members should be aligned but often they are not so. Finance want to get the best price, lawyers was to make the contract watertight, procurement want to see the cost savings secured, others may want to close the deal quickly and go home. Contract negotiations can fail if each person's loyalties, preferences and priorities are not voiced.
Before and at the table
Preparation is vital - conclude your own internal team negotiations before you engage with the suppliers. Undisciplined behavior and emotional outbursts can undermine even the best thought-out strategy. Simulate the negotiation with rehearsals including role plays using a lead negotiator and allocate individual roles to eliminate surprises. Overall, negotiating as a team has been more successful than using a sole negotiator despite the inter-personal challenges.
Sometimes contract negotiations are undermined by one of your own team. Here are six common blunders, according to HBS professor James K. Sebenius*:
- Neglecting the other side's problem.
- Letting price bulldoze other interests.
- Letting positions drive out interests.
- Searching too hard for common ground.
- Neglecting BATNAs ("best alternative to negotiated agreement").
- Failing to correct for skewed vision.
An aspect often overlooked is the disbanding process and the necessity for a debriefing. It's important to schedule a "lessons learnt" session and it is a good idea to make this outcome available to other teams in the Company.
*Excerpted with permission from "Six Habits of Merely Effective Negotiators," Harvard Business Review, Vol. 79, No. 4,.