NEGOTIATE SMARTER, NOT HARDER
Updated: Feb 11
Explains how you can create a "win-win" result in contract negotiations by taking a collaborative approach and how the company's lawyer can assist in this process without being adversarial.
The third in a series of articles on contract management.
You don't have to pound the table and shout to negotiate a good contract. In fact, that's probably the last thing you should do. All too often, however, people feel they must bargain ferociously in order to hammer out acceptable terms for their business transactions. Taking such an adversarial approach to contract negotiations is both unnecessary and counterproductive. It is easier - and wiser - to take a collaborative approach, one designed to produce a satisfactory result for both sides.
Advocates of the adversarial approach to contract negotiations suggest a variety of tactics that they believe will enable you to procure everything you want in the contract while giving up little or nothing. These tactics, which are of dubious value, include the following:
· Always avoiding the first move.
· "Flinching" in response to any and all proposals by the other side, in order to put them in a defensive posture and to gain the maximum number of concessions.
· Providing secret excess cushions on all issues, regardless of whether they are necessary.
· Automatically rejecting any schedule deadlines suggested by the other side.
· Invoking imaginary internal constraints as well as false limits on their authority to agree to your proposals.
· Giving as little information as possible while striving to get as much as possible and always holding back valuable information, on the theory that "information equals power."
· Always answering questions with questions, in order to avoid making a commitment.
· Invoking the power of silence and the consequent leverage of uncertainty, in order to elicit concessions from the other side.
· "Nibbling" on the other side after the settlement, in order to gain further concessions.
· Creating false satisfaction, by always declaring the other side the "winner" even if you believe you have beaten them into the ground.
These gamesmanship tactics undermine the trust and confidence necessary to the successful negotiation and performance of any contract. Truly successful contract negotiations require a collaborative approach, rather than an adversarial one. This approach, which constitutes an exercise in enlightened self interest, has two major elements. The first involves a diligent effort by both sides to probe for consensus on the essential issues. Each party must know its own actual needs in each situation but must also determine the other's true needs and capabilities. This requires a thorough understanding of the other's organization, the nature of its operations, its corporate structure, and its personnel.
The second major element in successful contract negotiations involves the diligent assertion by each side of its own legitimate business interests. This requires each side first to develop a thorough understanding of its true internal costs as well as its ability to meet the budgeting and scheduling requirements of the contract. These needs and capabilities determine the legitimate business interests of the parties and thus the range of positions that they can afford to take in the contract negotiations.
To use the collaborative approach to contract negotiations, instead of the gamesmanship tactics described above, you should do the following:
· Make the first reasonable move, in order to put the negotiations on a high level.
· If the other side "flinches" in response to your proposals, determine whether or not this reflects a legitimate business interest on their part or whether they're just posturing.
· Provide realistic cushions and deadlines.
· Determine any actual limits of decision-making authority of the persons with whom you are negotiating and make sure they designate an authorized project representative who has the authority to make commitments on behalf of the company, as well as to pay you on time.
· Exchange as much relevant information as possible, recognizing that "information equals empowerment."
· Answer questions to give the other side the knowledge it needs to work effectively with you and to perform under the contract.
· Recognize that uncertainty is dangerous.
· Label any concessions you make and expect appropriate reciprocity in the course of the negotiations.
· Create true, not false, satisfaction for the other party by negotiating the contract according to these guidelines and, of course, by performing to the best of your ability.
The role of the lawyer in contract negotiations should also be a collaborative one and therefore need not be adversarial. The lawyer should facilitate the process, not hinder it, by helping to define the legitimate business interests of the parties, identifying potentially adverse issues and suggesting solutions, and then clearly describing the negotiated result in the contract. Utilizing this approach will allow your contracts to become the means by which both sides achieve success in the contract negotiations and in their performance.