Contract negotiations could be stressful enough without the added pressure of using the other party’s draft version, or jockeying for control throughout the entire process.
While having full control over the deal making process and swaying the outcome to your advantage, might seem like a great way to a successful contract, that level of control is not likely in the real world. But regardless, there are ways to get the most out of a contractual deal making.
I discuss below seven such overlooked but crucial elements that could result in successful deals. They may look like no-brainers but are highly effective.
1. Be prepared. Being well prepared could help build your strategy leading right up to the actual negotiation. It also means that you are better equipped to handle unforeseen developments at any stage of the deal making process.
Deal making has several working parts to it - the players, the contract that is put to play and the actual negotiation itself. The nitty-gritty of contract preparation depends on what kind of a contract it is and other relevant factors, but the basic approach remains the same for all kinds of deals.
Good preparation starts with knowing what you want from the deal; what your opponent wants and what your leverages are. Try to understand what a given contract means to your organization and your own business unit in particular; the stakes involved, the benefits if you succeed and the repercussions if you fail. This would give a good idea as to your motivators, your strengths & weaknesses and your leverages.
A good way to build leverage is to identify your USP (Unique Selling Point), how it benefits the customer and how it sets you apart from your competition. Once you know the stakes and leverages, you will be better able to assess your bargaining power vis-a vis the other party and commence the deal making process much more confidently.
2. Play to your strengths, but beware your weaknesses. You may not completely know and understand the opponent’s game plan. But you can and must assess your own strengths and leverage them to your advantage; identify your weaknesses and address them adequately.
Knowing your own strengths and weaknesses will help you to understand where you stand with the customer and in relation to your competitors. This knowledge will not only help gain advantage over competition but also give crucial leverage in subsequent negotiations with the customer.
Here, I would like to make reference to what negotiators call “BATNA” (Best Alternative to the Negotiated Agreement), a term coined by Roger Fisher and William Ury in their 1981 bestseller, “Getting to Yes: Negotiating Without Giving In”. BATNA, is the alternative option that you have outside the current negotiation, to the thing that you are negotiating for. Knowing your BATNA, will not only help you identify possible alternatives, but also gives you leverage to strike a good bargain.
For example, you are negotiating an agreement to create a particular widget for your customer. Let’s say, the customer does not agree to your pricing, or timelines. If you know that there are other players in the market, who also need the same, or a similar widget, you could always go to these other players for similar contracts. Or, let’s say there is no other provider of that widget in the market except you. All things being equal, those other potential customers and the fact that you have no competition could be your BATNA.
The knowledge that you have these alternative potential customers can be great leverage in negotiating with the customer. Once you know what you want and the best alternative to it; then you can work on your leverages to getting it. That will help build a good strategy right up-to and during the negotiation.
3. Know what the other party wants. Information is the best leverage. Especially, when it relates to knowing what the other party (customer, supplier etc) wants from the deal. Knowing this, is just as crucial as knowing your own needs and leverages. Once you have a good understanding as to what the other party expects from the deal, you could successfully position yourself as the best or the preferred alternative in the market.
The more information you have, such as alternatives to the product or service that is being negotiated, the more leverage you will be able to get. Of course, a lot of information would be confidential and not be out there for the asking. But with some due diligence, you could always come up with sufficient data that is already in public domain or information shared by the other party, using which you could get a fair idea as to what their needs are, the stakes involved and their leverages.
This will help you to anticipate the customer’s requests and be prepared with an alternative option.
4. Internal stakeholders. Your greatest strength and your greatest weakness in the whole process is your own team. That a team is only as strong as its weakest link, is true in negotiations as elsewhere. No amount of preparation or information will work well if the team does not work well together. So, what does one do to create a strong team for the negotiation?
I found the following method particularly effective:
Start with getting on board all internal stakeholders to the deal. Usually, it includes the business or client engagement manager, the finance manager, the delivery manager, and of course the lawyer. Sometimes, depending on the nature of the deal, there would be a risk manager and an IP (Intellectual Property) manager and other stakeholders as need be.
While it is true that lawyers are assumed to be the owners of an agreement, it is equally true that there are several clauses, which require a technical, finance, business or other approval.
Identify the different areas of the deal and the parts of the agreement that relate to these different teams and get the stakeholders involved in the discussions. Do an internal discussion on the entire agreement, identify your main areas of concern, identify the owner for those terms, and plan your strategy. Get their buy-in, their approvals and their alternative options in case of an impasse.
That way, during negotiations no matter what clause is being discussed, or what comes their way, your team would be well prepared.
5. Negotiation etiquette and tactics. The need for civility and professional courtesy cannot be underscored enough, especially when you do not see eye to eye on certain parts of the deal. This is also crucial because some negotiators consider brow beating the opponent to be a great negotiation tactic. Polite firmness achieves more. Enough said.
Some other Dos and Don’ts on the call :
a) Identify who would drive the call or discussion. Usually it’s the lawyer, with the others pitching in when their inputs are needed. This will keep the negotiation flowing smoothly without unnecessary interruptions, confusion and cross talk.
b) At times, there could be an impasse in the discussions, because the other party may refuse to meet you halfway or they might have genuine concerns about a certain clause. In such a case, go beyond the text of the clause, to the spirit of it. See what they are asking, what they actually want and whether you can address their concerns with a little change to the text without compromising your interests. I have successfully used this method in so many agreements that sometimes, a customer may use a certain clause because it is a standard requirement, but may find that it may not have much relevance to the deal that is being discussed or we could change it so that it is not as damaging to us; but still addressed their concern.
c) When in doubt, or when the customer asks something for which you will need internal approvals, explain to the other party that you will need to consider it, or seek internal approvals. Do not hesitate to park the topic, and ask them if you could come back to it later. It is easier to take time to consider, than to recant a promise or statement, for which you did not get an approval.
6. Don’t promise what you cannot deliver. A highly glossed over requirement to a successful contract, is to know what you are promising, be absolutely certain that you can deliver on that promise and ensure that you do it. This is the other side of the business tenet- “Under promise, Over deliver”.
Over promising could happen at any stage of the deal making. It could be at the pre-sales stage, where you are trying to sell your services or product, at the final negotiation, or anywhere in between. At best you could lose the deal, at worst you could be looking at massive penalties or even a claim for breach.
It usually starts as a harmless sales pitch, where an enthusiastic business manager promises to create and deliver to the customer, a certain widget at certain price and within a certain time. The problem? He didn’t discuss the timelines with the delivery manager or the price line with the finance manager. Right there, is a likely potential problem with delivering the product at the price and time as promised.
Take for example, “industry best standard” requirements, “bench-marking” requirements and other clauses, which could have massive repercussions unless they are well thought out and discussed with all relevant stakeholders. A sales pitch could have “best of breed”, “cutting edge” and other fancy terms, but legal obligations must be more cautiously worded. Unless you are actually providing service that is best of breed or is at the cutting edge of a highly evolving technology, and you have the ability to provide this service consistently, it is better to avoid such terms that could instantly put you at heightened risk for breach.
7. Recap the discussion. This is something that works well for both in-house as well as external discussions. I found that at the end of every discussion, when you recap the main items that were discussed, preferably on a mail, immediately thereafter, there would be very little scope for confusion or false assumptions. Also, when you get together for the next round of negotiation, you can pick up the threads seamlessly without waste of time or effort. This eliminates overall confusion, frayed nerves and all the delightful accompaniments.
I also found that, time permitting, making red-line changes while the discussion is in progress, not only streamlines the redlining and but I also do not have to worry trying to recollect what exactly the other party stated.
While it is a great thought to have full control over the negotiation process, most of the time, it is aspirational. In order to get a favorable outcome, one must make the most of what one has; or, as the Danish folk saying goes - “Bake with the flour you have”. With the above points taken care of, rest assured, you will still have a better contract than you would otherwise.
What other tips would you like to add to this list? I’d be interested to know.