Contract negotiations begin long before the parties sit down at the proverbial table. Before beginning a negotiation, it is important to prepare with comprehensive research.
Whether you are in legal, procurement, HR or sales, it is critical to understand what is negotiable and how to communicate your priorities. This can help you avoid lopsided contracts and costly mistakes.
Negotiation Process
Contract negotiations involve the process of persuading a business partner to agree on a deal that meets both parties’ goals and provides reasonable protection. Achieving these objectives requires thorough preparation that includes determining the zone of possible agreement (ZOPA), understanding the other party’s interests, strengths, and weaknesses, financial or time-based constraints, and any competing priorities.
Master contract negotiators carefully plan their meeting agendas, display procedural fairness and equanimity throughout the negotiation, and precisely manage the timing, frequency, and degree of concessions made during the process. They also use a “win-win” approach, which is the most beneficial for all parties, to establish win-win terms from the outset of each negotiation.
Requirements Analysis
In this phase of the negotiation process, stakeholders work together to create a contract that meets both parties’ goals. During this stage, it’s helpful to have a subject matter expert on your team to help you negotiate contracts effectively. This will ensure that you are covering all of your preferred contract terms and addressing any potential risks.
It is also important to communicate effectively during the requirements analysis phase. End-users and technical teams sometimes speak different languages, so it’s important to ensure that your requirements analysis report is clear enough to communicate your organization’s key business objectives to both camps.
Additionally, it is helpful to prepare for the negotiations by identifying your non-negotiable terms and clauses in advance. This will prevent you from being caught off guard by terms that are unfavorable to your business.
Drafting
After an initial drafting process that includes internal stakeholders across departments, contracts enter the negotiation phase when either side believes the contract doesn’t serve their business objectives. Errors, inconsistent terms, and outdated clauses are common reasons for a contract to move to this stage.
During this phase, businesses define and document the agreement’s terms. This can include pricing, intellectual property considerations, terms for early termination, conditions, and more. The process also involves exchanges of offers and counteroffers between both parties. These negotiations can be conducted via in-person meetings or real-time online collaboration tools. It’s important to prioritize your priorities when drafting an agreement so that it’s easier to compromise on less essential aspects. This will save time and resources in the long run. Ideally, this drafting stage should be managed by an attorney alongside someone from the business who is responsible for negotiating deals.
Reviewing
It’s important to understand your key objectives before entering into contract negotiations. Go into the process with a clear idea of your top priorities and what risks or rewards rank higher for you than others. Basing your initial terms around those will help keep conversations focused and efficient.
You should also prepare by ranking your priorities in order of importance. This will help you avoid wasting time negotiating over insignificant items or getting sidetracked by your counterpart’s demands.
A next-gen CLM platform can empower your team to review contracts in real-time and quickly track revision requests, comments and pending edits within one user-friendly interface. This can significantly speed up negotiation cycles and ensure all parties are on the same page before closing an agreement.
Negotiating
The negotiation phase is where you and your counterparty discuss and agree on terms. Knowing what you’re willing to compromise on and which items are non-negotiable enables you to strategically negotiate for an outcome that benefits both sides. This step requires thorough research into your counterparty’s company, products, and services, as well as any previous contracts.
It’s also important to know your own priorities. If you prioritize certain elements, such as strict delivery times that won’t interfere with production, you may find it easier to compromise on less-important aspects, such as pricing and risks. This is especially important if you’re negotiating for business-critical goods or services that your company can’t afford to lose. Contracts often involve rigorous legal requirements, so it’s crucial that all team members understand the implications of their decisions.
