Six Elements of Successful Contract Negotiations
Everyone has negotiated a contract. From haggling on the price of an old television at a garage sale, to negotiating salary and benefits at a new job, we have all negotiated a contract of one kind or another. That doesn’t mean everyone negotiates contracts well. Negotiating contracts is a skill like any other, and some people are naturally skilled and effective negotiators, while others develop the ability over time and experience. But regardless of the type of contract you’re negotiating or how often you need to do so, consider these tips and things to remember the next time you need to negotiate a deal.
(1) Sticks and stones can break my bones, but words lead to ambiguity, vagueness and lawsuits. Words matter. When dealing with a written agreement, text and phrasing must be chosen with due care and forethought. A single line in a written contract can have long-term implications if not properly worded. Contract language must mean exactly what you intend in order to avoid a potential scenario where a judge or jury has to guess and interpret what was meant. Take time in writing contract language. Don’t simply jot down the first thing that comes to mind, assuming it means what you think it means. Will a third party know what it means? Read and re-read the language. Consider it from a third party’s perspective. Then read it again. Don’t put the power of contract interpretation in a judge’s or jury’s hands.
(2) Know strengths and weaknesses. Consider your own, and those of the party with whom you are dealing. What is your tolerance for risk? The other party’s? The more you have considered the respective stance of each party, the better prepared you will be to handle offers and counteroffers, arguments and counterarguments.
(3) Identify your goals. Knowing what you want and need from a contract negotiation will enable you to craft arguments and reasoning to help strengthen your case and accomplish those goals. Avoid the “sure, why not?” approach and instead tackle the transaction forearmed with a plan. Goal planning, both long and short term, will help you determine what terms need to be in the contract, and those that cannot be.
(4) Know your “deal killers.” What are the bright red lines that you simply cannot cross? Identifying these deal breakers ahead of time will help you work to avoid approaching those points of no return, while also giving you the leverage of playing the deal-breaker card if and when necessary. Don’t play it unless you plan to follow through, however, as being called on a bluff will weaken your bargaining position.
(5) Assess and identify risks, your own risk tolerance, and whether each risk can be tolerated. Contracts carry risk: the risk that you will breach and be liable for damages; the risk that the other party won’t perform and you will need to incur costs to try to enforce the contract; etc. Carefully consider the risks of each contract term and whether they fall within your risk tolerance. If so, you can move forward with the contract with confidence (assuming the contract works for you, otherwise). If not, then you need to either walk away or modify the contract to accommodate the risk or compensate you for it.
(6) “Reasonableness” and “fairness” are not four-letter words. At the end of the day, if a contract is too-one sided, the put-upon party may consider it more beneficial to breach than to perform. Then the non-breaching party is left with the difficult choice of considering their next move. Believe it or not, enforcing a contract is not a straightforward task and carries cost and uncertainty of result. A fair and reasonable contract, therefore, even if it favors one party over the other, will more likely be performed and lead to repeat business. Be reasonable and compromise where you can, while remembering the other five tips above.
LEGAL DISCLAIMER
The information herein is not legal advice and does not create an attorney/client relationship. The information is in the form of legal education and is intended to provide general information about the matter. The above is not, nor is it intended to be, legal advice. Consult your attorney with questions.