Eight contract negotiation strategies for a win-win outcome
Nearly every business relationship involves a contract. At the crux of every contract is back-and-forth negotiation and contract management. This undertaking requires purposeful and good-faith cooperation on both sides.
True contract negotiation requires active listening, considerate acknowledgment of both parties’ pain points, and the ability to forge a win-win agreement.
Here are eight contract negotiation strategies to improve your contract negotiation and contract management processes.
1.Use a template to start drafting the contract
There’s a lot to cover with initial contract drafting. There are myriad important contract terms, conditions, clauses, etc. to cover in written copy. As such, writer’s block is common, and many don’t know where to start.
This is where contract templates come in.
You should make sure you have a contract repository with standard templates. There are consistent elements to consulting agreements, MSAs,NDAs and other common contract types. As such, beginning drafting with the help of a template that has type-specific sections, clauses, and approved language is a huge first step that many business professionals have wised up to.
Start by selecting the best contract type for your process and – thus – the best template.
2.Gather data and items for your specific draft
Now you’re in a good place with a default template as a starting point, it’s time to dig into your specific data and items that will reflect the desired initial terms of your contract.
Begin with basic information that will be needed to power the contract, such as:
- the name of your organisation and that of your counterparty
- locations for both organisations
- the proposed contract term (duration)
- effective date, expiration date and other key dates
- key clauses.
The above will be subject to negotiations but gathering these basics is crucial before you can think about sitting at the proverbial table and negotiating a contract.
3.Combine the contract template and data/terms
Now you’ve decided on a specified contract template and gathered key information, the logical next step is to merge the two.
This step is critical. You want to come to the bargaining table with a good first draft. It sets the tone for contract negotiation and contract management.
You want an accurate and efficient way to marry a contract template with your specified terms. One example is automated merging of contract templates with contract metadata and pre-approved clauses within contract management software.
4.Include airtight, accurate contract clauses
There’s ample room for slip-ups during negotiation. The last thing you want is a legal dispute from unclear, vague or inaccurate contract clauses. Many contracting professionals and business partners leverage a clause library.
There are many different approaches to a clause library – but automation is recommended. Opt-in for a system that supports a bank of standard clauses and the ability to recognise where to insert them.
5.Ensure internal approval before negotiating
Before you bring a contract to the negotiation table, ensure all your internal resources approve of your draft. To smooth out this process, use a system that allows your team to:
- check-in and check-out a document so that multiple people are not making changes that get lost in the weeds
- clarify versions of a contract document with numbered version tracking and comprehensive audit trails
- automate contract workflows for a clear and defined approval process – ultimately seamlessly escalating to your decision makers.
6. Identify counterparty decision-makers
During negotiation, it’s important to know who will ultimately make the decision to reach a win-win contract.
Both parties want to ensure that only those who ought to be involved in negotiation and contract management are present at the ‘table’. It’s considerate both to your organisation and your counterparty to make sure that both parties’ big players are accounted for.
Approval workflows can be used to enable parties to add and edit a sequence of approval personnel to contract negotiations.
7.Do your research and be prepared
Contract negotiation skills are not simply the ability to play hardball and talk a lot. Perform ‘research’ on your counterparty’s needs. For example, let’s say they’re seeking to buy contract management software. You should know:
- How are they currently managing contracts?
- Roughly how many contracts are they managing?
- What costs have they incurred managing contracts manually?
- How much are they currently spending on legal resources?
- How will they scale as their business grows?
- Which features/packages will best serve them?
This process is less about knowing your enemy and more about knowing your friend! Business partnerships should be seen as just that: partnerships. It helps to display empathy in knowing your counterparty’s long-term goals to reach an agreement that’s suitable for all parties.
8.Assert your non-negotiables
Although contracts are partnerships, you don’t want to get steamrolled out of a beneficial negotiated agreement. Don’t play hard for the sake of it but know what you want and make it clear.
There may be aspects of a contract on your end that are ‘make or break’. This is fine. Your business might have hardline financing limits. Maybe your legal department has intellectual property demands. Regardless, you’ll want to make sure you don’t suggest flexibility where there’s none.
In summary
Hopefully, these strategies have given you confidence in starting contract negotiations. Given how complicated and crucial negotiations are, you must be equipped with the best tools for the job. The premiere solution for contract negotiations is Contract Insight, an award-winning contract management software acclaimed by clients and third-party analysts alike. It offers all the features above and more for contract negotiation and the other stages of contract lifecycle management.
Book a free demo with a Contract Insight® expert from Four today and see how we can help you streamline your contract management process.
Contact John O’Brien, CEO at Four Business Solutions – global business consultants and software integrators specialising in business process improvement.