Contract Negotiation Examples and Effective Strategies

Contract negotiation is critical (and avoidable) in the business world. Effective negotiation skills can guard you and your company against unfair deals and gives you more authority when dealing with the other party.

Here are some examples of contract negotiation: 

  • Negotiating Pricing With a Scaling Client: If a client has a long-standing relationship with a company and is looking to expand, the client might negotiate costs and terms based on their past trades with your company.
  • Contract Negotiation for Real Estate:  Customers sometimes negotiate prices with vendors based on new information if they perform assessments and find that they need to spend significant funds fixing problems that were uncovered.
  • Negotiating the Payment of a Supply Agreement With a Third-Party Supplier: Contracts can use many different payment alternatives, like month-to-month, yearly, or the cost of product delivery.
  • Negotiating the Details of an Acquisition: If a business is looking to purchase another company, they may discuss the provisions of the said acquisition, like what happens to customer data after acquisition and how much the acquisition cost of the deal will be.

Effective Contract Negotiation Strategies

Here are some basic strategies that will help you create a seamless conversation for better contract negotiation:

  • Understand Your Fundamental Requirements and Goals

Before starting the contract negotiation, you must understand your needs and objectives. These are primarily your reasons for doing trade with the other party. For instance, if you’re negotiating with a supplier that provides a necessary material for your manufacturing line, you’d want to ensure that the contract outlines suitable delivery times that won’t slow down your manufacturing operation.

  • Ask Questions

Raising questions during contract negotiation is essential because it allows you to understand where your client stands with the existing agreement. Furthermore, you will gain better insight into their mindset. The more you understand the reasoning behind their requirements, the more manageable it will be for you to align your requirements with theirs, and vice versa.

  • Never Be Oppositional

You may feel that you must enter contract negotiations with your shields up so that you never end up with a contract that doesn’t help you. Nevertheless, the objective of contract negotiation is for both parties to have their requirements fulfilled and walk away with a mutual benefit. While you can be firm on high-risk provisions, there is a distinction between being uncompromising and being confrontational.

Significant Factors to Consider During a Contract Negotiation

The primary aim of contract negotiations is to deliver privileges, responsibilities, and authorization to all parties. In addition, reasonable contract negotiation strives to eliminate the likelihood of arguments and disagreements, with both parties feeling satisfied with the details mentioned in the contract. Below are some significant factors you should consider during a contract negotiation for your business: 

  • Planning and Structure: It is essential to maintain a well-thought-out strategy to guarantee the success of the contract negotiation process, reduce misunderstandings, and save on hefty costs.
  • Transparency: The parties’ opinions and goals become more evident when they can interact openly during contract negotiations.
  • Determined Associations: Contract negotiations can help create trustworthy partnerships for your company, especially when speaking of long-term commercial alliances.
  • Assurance: The immediate objective of contract negotiations is to create certainty about the quantity, quality, and consequences of not fulfilling agreed-upon purposes on either party’s end.
  • Goal Accomplishments: Every business holds objectives tied to vital agreement negotiations that help place the company on the right track to attaining its goals.
  • Avoiding Cultural and Linguistic Misunderstandings: Because each jurisdiction, culture, and industry has distinctive priorities and perspectives toward work, well-prepared contract negotiation can help you match the expectations of both parties.

At the end of the contract negotiation strategy, you should own a legally binding agreement that should be transparent for both parties. Also, it is essential to guarantee your company has all its bases protected before signing the contract.

4 Phases of Contract Negotiation

Contract negotiation is the comprehensive method of settling and working out an arrangement between two or more individuals to reach a shared objective. In this approach, both parties come together and try to agree on the best feasible terms and prerequisites. 

There is no specified time frame for contract negotiations as it can be any length of time until both companies arrive on the same page. Nevertheless, most negotiations follow the same process:

  1. Presentation of Model Contract

The contract negotiation procedure always starts with sharing a baseline agreement that summarizes the significant terms included in the contract. It allows all parties to skim through its details and determine spots that need to be managed and negotiated during the session. In addition, both parties aim to deliver a draft as quickly as possible so that everyone has sufficient time to go through the draft and plan ahead of time.

  1. Conversation and Negotiation

During conversation and negotiation, you will reconcile the terms of the contract. Any requirements that either party has will be examined and added to the agreement. There can be some back and forth modifications in order to come up with a solution that serves the interest of everyone.

  1. Compromises

The negotiation approach will always concern some compromises from either side. You may need to allow specific things to stay as per the other party suggests, and vice versa. Furthermore, you will likely go back and forth between conversation, negotiation, and modifications until you reach the final agreement. 

The back and forth process is also called “redlining”: when two or more parties are negotiating or working together on a contract and using red (and contrary to the name, sometimes blue and green) lines to highlight specific changes in the contract.

  1. Finalization

Once both parties in the contract consent to the same terms, the contract will move on to the subsequent phase of contract administration:acceptance and signing.

The Bottom Line 

As there have been numerous texts and papers written on the craft and mastery of contract negotiation and contemporary theories are still getting developed all the time, it can feel considerably confusing to try and put all this guidance into action. So it will always be important to invest as much time as possible to prepare for impending contract negotiation. 

Using an intelligent contract negotiation platform such as Inkly will help you simplify your negotiation process and close your deals faster. Get started here to learn more about how our platform can help your business.

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