10 Procurement Tips to Sharpen Your Contract Negotiation Process
Contract Negotiation: The holy grail in every deal negotiation
Contract negotiation is important in the world of business. The art of negotiation has been a long time subject in many self-help books. Negotiating is all around us; from our daily lives to important business deals. The number one rule in contract negotiation strategies is to ensure a win-win situation. Having a contract that benefits both parties will increase the chances of a settlement. In the context of real estate procurement, a win-win situation for PMs would typically mean affordable price for quality services or products, and an adequate profit margin to achieve economies of scale for vendors.
When it comes to contract negotiation, it is crucial to set clear objectives to ensure that both parties are on the same page, so as to avoid unclear expectations resulting from different interpretations. Ensure that all terms and conditions including compensation terms, deadlines and after-sales services are agreed upon.
Here are 10 contract negotiation tips to aid in your next negotiation session, along with some pointers on what to look out for when drafting a water-tight contract in the future.
Contract Negotiation Strategies
1. Keep an eye on the clock
We’ve all heard the saying “time is money”, and it especially rings true for contract negotiations. Ensuring a timely response during contract negotiations helps lower the chances of undesirable situations from occurring, as well as derailing talks leading to a sales/agreement. Responding promptly is crucial in warming conversations and preventing interested parties from defecting to other alternatives. As such, good time management is key, particularly for executives dealing with queries or clients daily. Read here for more time management tips.
“Time is more valuable than money. You can get more money, but you cannot get more time.”
2. Include a warranty clause
It is essential to include a warranty clause in your contract in the case of defective items or unsatisfying services; that way, there is crystal clear agreement established prior to safeguard both parties’ responsibilities. Warranty clauses can range from repairs, replacement or refunds. A section of utmost importance that must never be overlooked.
3. Assess the risks involved
Before carrying out steps to manage risks like liability clauses and insurances, you have to know what the chances are to remedy them. There are standard risks such as defaulting on payments, or reputation risk by associating with bad actors, etc. Risks may change based on the external environment. Hence, it is paramount that contract regulations and requirements are kept to prevent violation of any contract laws and partaking in risk-averse activities.
“If you don’t invest in risk management, it doesn’t matter what business you’re in. It’s a risky business.”
4. Include a confidentiality clause to protect your company from the competition
Enforcing a non-disclosure agreement before pre-contract negotiations happen, protects the intellectual property of a business. This enables negotiations to occur with ease and without the fear of information leaking to unintended audiences. Confidentiality clauses are of the most standard practices when negotiating.
“Confidentiality is a virtue of the loyal, as loyalty is the virtue of faithfulness.”
5. Don’t accept the first offer
Negotiation 101, a fairly popular negotiation tactic is to never accept a first offer. Doing so may give off the impression that the other party may have underpriced their transaction or that they could have gotten more concessions out of you. This could increase the stakes in the next round of negotiations – either way, it does not bode well for you, nor does it leave a good impression. This could alter their perceptions of how the deal transpired, (often seen as desperate) resulting in a less-than-desirable offer than before.
6. Include a limitation of liability clause
Often a handy clause that helps limit or reduce risks, the limitation of liability clause acts as a safety net to hold various parties accountable to certain responsibilities. A good clause that can be applied to multiple scenarios ranging from late payments to delayed delivery of goods.
7. Get the help of professionals
It is never a bad idea to deploy the help of professional advisors and lawyers when putting together an airtight contract. Especially when real estate is concerned, a real estate lawyer can help devise a contract that avoids loopholes.
8. Identify Project Manager’s needs and wants
Getting to YES, a book written by Roger Fisher, Bruce Patton and William Ury introduces the concept of Best Alternative To A Negotiated Agreement (BATNA) – a framework that identifies a negotiator’s best alternative to a negotiated agreement, especially when at an impasse. It is necessary for negotiators to have identified their must-haves with terms that are negotiable before embarking on a negotiation to ensure the outcome is one of satisfaction.
9. Establish performance measurement standards
There’s more to a deal than just securing a low price. Quality is of utmost importance too. Hence, to prevent suppliers from skimming on quality to offer you low prices, implement supplier performance measures to help keep quality in check. The measurements can range from timeliness to productivity, depending on the nature of your business.
10. Be creative with your terms and conditions
Terms and conditions may vary depending on the type of business and services/products offered, therefore it is never a one-size-fits-all solution. It would be beneficial to customise your terms and condition to your business. This can come in the form of offering premiums that adds value to the customer experience such as free training, reimbursement advice, or even add-on services. This gives you an advantage against all others and elevates your negotiation game as it is always nice to feel like one is getting more in the deal.
Do also remember to mention termination and renewal dates explicitly to help ensure contracts are watertight. Seek professional counsel where needed to produce a solid contract that could be used repeatedly when negotiating with varying counterparts.
As with most things, practice is key. There is no overnight solution. To become better at contract negotiation, think about the multiple points of view before entering a negotiation, play out different scenarios. To improve your contract negotiation process, try applying some of these tips and tactics next. You might just be surprised by the outcome.
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