Mastering Contract Negotiation – A How-To Guide – In a perfect world, a supplier would just provide you with their service or product at the price you want without any hesitation. But we don’t live in a perfect world. In procurement, you have to negotiate the contracts to get the best deal for your organisation, which will take a combination of negotiation know-how, interpersonal skills and planning. Do you have a contract to negotiate for your project? Then find below our useful contract negotiation guide.
Prepare
Brief your team before the negotiation. Set objectives, define roles, decide your tactics, plan the meeting and decide who will lead the negotiation. As part of your preparation, review data such as purchasing volumes, past prices and current ones, historic spending and suppliers, previous contracts with the same supplier, and existing terms and conditions with current suppliers.
You should also decide upon a BATNA (a best alternative to a negotiated agreement). This is a fall-back solution in case you can’t achieve the result you want. Define the point at which the deal would no longer be to your advantage. The BATNA will allow you to enter the negotiations with peace of mind because you can be more sure of leaving with a beneficial deal.
Agree on a negotiation process
Contact frequency, team composition and meeting venues can all impact the effectiveness of the negotiations. Although doing so isn’t always straightforward, clarify these beforehand so that both you and the other party (or parties) are on the same page. This is also a good opportunity to test your potential supplier.
Manage your emotions
Financial pressures, time pressures and professional ones can all intensify emotions and cause tempers to rise, which will create problems during the negotiations. Identify any conflicts of interest and get rid of them, and make yourself aware of the priorities, loyalties and preferences of anyone involved. A lot of well-planned negotiations fail not because of major differences in commercial positions or desired outcomes, but because of personality conflicts or misunderstandings.
Practise active listening
Avoid rehearsing your arguments in your head while the other party is speaking. Instead, listen carefully to what they have to say. This puts you in a position to reformulate their argument, point by point, and make sure you’ve understood them correctly. You can also record the information they’ve provided you consciously and use it in your own arguments.
Ask open-ended questions
Asking open-ended questions helps to steer the negotiations in the right direction. Ask the other party about their needs, limitations, terms and expectations. The purpose of the questions is to get the other party to disclose information about themselves so that you can understand what their real issues are.
Progress step by step
If you’re participating in an integrative negotiation, one in which the parties are searching for a win-win situation, as opposed to the distributive negotiation in which one party loses and the other wins, go step by step. Use each round of negotiations to focus on a specific aspect of the collaboration. This is so you can create an agreement that, in each round, costs the parties the least and provides a mutually beneficial solution.
Be aware of anchoring biases
Be aware that the first price quoted in the negotiation can determine the discussion. Even though an objective, reasonable third party might set 50% as the balance point, anchoring bias suggests that if you set 30%, you’re more likely to get 40%.
Set a benchmark figure as a starting point and use it to lead the discussion in your direction. If the other party is aware of the anchoring bias principle and leads on the anchoring, keep your BATNA in mind to avoid being dragged down a path you don’t wish to follow.
Make multiple offers simultaneously
To avoid ending up in a ‘take it or leave it’ situation, make more than one proposal per theme. For instance, if you’re discussing delivery terms and conditions, offer several different ways, using variables such as frequency, times and delivery points. You want to identify the best solution for both parties and if no deal is possible, you’ve opened the door for the other party to tell you what they need to reach an agreement.
Learn the lessons from the negotiations
Once you’ve signed the agreement, a debriefing will be necessary so you can ascertain what you’ve learned from the negotiations. Could you have prepared better? Did you make any mistakes? There may be things you wish to remember from this negotiation that will stand you in good stead when it’s time to renegotiate the contract.
Good negotiation requires interpersonal skills and know-how. Prepare well for your negotiations, and be aware of what could go wrong and what could go right. If you’re feeling uncertain about how to negotiate an upcoming contract, we can use our expertise to help you negotiate solid, beneficial agreements for your projects. Contact us and find out which of our services you can hire to support your contract negotiation.
