Is there a perfect recipe for contract negotiation?
Every expert lawyer knows how important it is to carefully negotiate contract terms before reaching the signature stage.
Signing up to unfair and/or unbalanced terms can be significantly detrimental to a business as, after signing, parties will be bound by the contract provisions.
This is the reason why the negotiation stage is key to fully understand, address and deal with contractual risks to secure the best deal possible for a company.
Negotiations must always be tailored to each contract
Nowadays, most organisations try to impose their own terms and conditions to facilitate their risk assessment process.
However, this does not relieve their legal representatives from a duty to monitor and address any risk which may arise during the negotiation phase.
In fact, a party cannot expect the other to accept the proposed contract in its entirety without raising any objections or request for amendments.
Therefore, it will always be necessary to agree a balanced contract which addresses both party’s needs, obligations, and liabilities.
I would imagine that all commercial/contracts lawyers at the beginning of their career have thought: “what is the best way to negotiate a contract?” and subsequently found out, from experience, that there is no right answer to this question.
Each contract negotiation has different challenges and risks to consider, and these will depend on the nature and objective of the contract.
In each negotiation, the economic position of each party must also be considered. However, this should not necessarily stop the negotiations and mean that the requests of the stronger party should be accepted without proper assessment.
This is why is so important to adopt and develop the right approach to each negotiation. In essence, each negotiation must be tailored to the circumstances surrounding the specific contract.
It’s vital to identify contract risks early
One of the key aspects of the process is assessing risks at an early stage. This allows a party to maintain control of the negotiation and understand how to manage unforeseen circumstances.
It is also important to focus on both parties’ objectives and on how certain risks can be mitigated in the event the other party maintains a firm position in that regard.
It is essential to have alternative proposals ready to demonstrate that both parties’ needs can be addressed without necessarily undermining the other party’s position under the contract.
I read in several legal articles that the “art of negotiation” is to understand issues and risks of the other party to be able to propose successful and acceptable solutions to satisfy the business needs. Experience has taught me how right this is!
If the other party does not understand the value of the proposal or contract per se, it won’t agree to buy a service or a product or start a business collaboration even if it’s advantageous to them.
Therefore, gathering information about the negotiating counterparty, understanding their interests (including expectations, challenges, concerns) provides solid basis for the negotiation.
Trying to satisfy both parties' interests will increase the likelihood of a successful deal.
Think about what each party wants from the contract
Having an in-depth knowledge of the contract objectives and the business of the other party are other key aspects of the negotiation.
It helps avoiding protracted negotiations which are detrimental to the commercial relationship.
However, this does not mean being uncompromising is the answer. You should show flexibility and openness to the discussion and consider the views of the other side, based on the accurate review and knowledge of the contract.
This approach contributes to establish a solid relationship between contracting parties even in challenging situations.
We should never forget that there is an reliance between contracting parties.
Indeed, each party’s aim is to achieve their objectives, but such achievement is subject to cooperation and exchange of resources, although there may be a conflict in the way benefits, obligations and liabilities are allocated.
Negotiation can be seen as a research process where parties explore different alternatives to find a common benefit and reach an agreement.
Surely, preparing for a negotiation is never an easy task. It requires time and effort, and understanding the other party needs can be a hard work.
Also, determining the level of communication and information that can be shared may be challenging (although recent negotiation theories advise us to reveal information to increase value).
When entering negotiations, always have a plan
There is no “perfect recipe” to conduct a successful negotiation and we always must be prepared to give up on something in the process.
The only certain point which may guide us through the process is that we cannot approach a negotiation without a plan.
Having a plan is an important instrument to define the negotiation priorities and manage timescales.
In conclusion, the scope of a negotiation is not to change the parties’ respective views but, to show them different opportunities to satisfy their interests under the contract.
Negotiation is a key stage of a commercial transaction and taking time to prepare, understand interests and objectives, develop a strategy increases the potential of achieving a positive result.
I want to know more
Explore our in-house resources, designed to offer support and advice on key issues facing all in-house lawyers working in the corporate and public sectors, not-for-profit organisations and charities.