Writing a contract and successful negotiation can be a source of strength for building a relationship, but can also cause seemingly promising partnerships to collapse. I’ve negotiated my share of contracts and have written 5 things to consider for a successful contract negotiation.
In a world where more and more people seem to be struggling to fulfil their obligations, I find that contracts are often not worth the paper they’re written on. I’m increasingly hearing about damaged relationships, lost business and frustrated business partners who just can’t understand where they’re going wrong. Upon asking a few colleagues, both past and present about their approch to contract negotiations, it seems that many are rushing through the drafting of contracts in their eagerness to acquire new business and get down to work.
It might sound obvious, but this eagerness to get started is actually setting the whole project off on a bad start. Rather than getting an in-depth understanding of your new business relationship, failure to preprare adequetely is actually handicapping both players from the word go.
1. Confirm your counterpart’s reason for negotiating
Sure, you understand what you get out of a successful contract negotiation; a new job offer, rent agreement or a new supplier. But do you understand what a successful outcome loosk like for the other team? If you don’t understand what your counterpart is trying to get out of the deal, you’re unlikely to find an offer which both parties are going to be happy with.
2. Confirm your counterpart’s authority to negotiate
They might have been the first person to contact you and you might have only been dealing with them since day one, but are you sure they’re the ’end authority’? There’s little point spending time and effort dealing with negotiations if your counterparty is going to reach the end of the process and inform you that they have to ’check with the team upstairs’, then return with a whole new set of demands.
You can head off this tactic by asking your counterpart to clarify their ability to make a commitment , rather than just assuming they’re the big cheese. By doing this you can help to spare wasted time and avoid a situation where it turns out your counterparty wasn’t actually authorised to negotiate at all, thereby invalidating your agreement.
3. Build incentives and penalties into the contract
Imagine you’ve just bought a new property for renovation. A contractor tells you they can finish renovations in four months. You’re sceptical of this claim, as every other contractor you’ve spoken to says it will be at least six months to complete the same work.
You’re not an expert in this situation; that’s why you’re hiring a contractor, but how can you resolve your differences over the time frame? Some would say that if it sounds ’too good to be true’, it probably is, but you might be missing a trick in not taking up the quicker contractor.
In negotiations, I’ve often found it helpful to include incentives and penalties to help gain prevent the other side from ’overpromising’. I admit that the contractor is likely to know more about the renovation works than me, but include penalties for missing pre-agreed deadlines to prevent them dangling an incentive they could never possibly meet to get the work.
4. Prepare for the possibility of non-compliance
When drafting contracts, a clever negotiator will not only use incentives and penalties to try to prevent non-compliance, but will also prepare for the possibility of disputes arising. By agreeing to regular updates, you give yourself the ability to prevent problems from snowballing whilst also giving the opportunity to give positive feedback, further strengthening your relationship.
Pre-agreeing dispute resolution clauses also gives you the ability to handle disagreements and alleged violations on both sides, helping to improve the chances of a successful contract completion.
5. Seek firm commitment
Ideally, we’d all have plenty of time for negotiations before reviewing and signing a contract, but if you’re anything like me – that ideal is rarely the case. Time is often in short supply during discussions, with paperwork often rushed through at 7pm on a Friday evening, providing little time to consider and check.
Even when agreements are signed, they may be non-binding. If you sign a new rent agreement and email it to your landlord, you might not receive a signed copy back. Without a contract bearing both signatures, you might find it difficult to regain control of your deposit when you later move out. If you later took the case to court, a lawyer would have a hard time fighting your case as the court tried to establish intent to be bound by a contract which only one party had signed.
It sounds daft, but make sure you always get a contract physically signed by both parties. Whenever logistics make this challenging, eliminate ambiguity by circulating minutes of meetings and making audio recordings (if agreed by both parties).
Conclusion
Strong negotiating skills are a brilliant asset to have in your arsenal. Although often supported by legal professionals, the ability to start contracts off on the right foot is an essential skill in your business and personal life. Make sure you have time to think through possible scenarios, both positive and negative, draft relevant clauses to protect both parties (and reward them when necessary!) and get a contract physically signed and returned to prevent the “I don’t remember that” card being played.