I was writing this article about contract negotiation while my daughter and her horse practiced their jumping. Bored with the ups and downs of equestrian life, Thomas (the horse) came over to have a nose.
He reminded me that many people describe negotiation as ‘horse trading’. As in: “
“Sales have done the important stuff – now it’s down to the lawyers to do the horse trading.”
Negotiating business contracts can be a thankless task. Days stretch into weeks, which stretch into months – and that’s just negotiating the applicable law!
Contract negotiation – time and money
Given that contract negotiation is a task usually given to experienced (and therefore expensive) staff, you might wonder if it’s really delivering a worthwhile return on your investment. With great chunks of time disappearing in conference calls, exchanging mark-ups by email and groaning under the weight of tit-for-tat bartering, it’s an area of your business activities that’s ripe for improvement.
Consider too that each week knocked off negotiation time delivers:
- A reduction in the cost of reaching agreement
- A better relationship with your counterparty
- Reduced opportunities for stress and discord, and
- Earlier contract commencement, with the commercial benefits that brings.
So the commercial justification for investing in more effective approaches to contract negotiation is looking pretty good!
Should we focus on WHAT to negotiate or HOW to negotiate?
Good question. Most negotiation books and training focus on the how. Techniques like NLP and deep-thinking chess-like strategies abound, in which you’re encouraged to consider your counterparty as a master negotiator in the vein of a Bond villain (complete with white fluffy cat and pinkie ring).
But the how you’re looking to use in your business must be appropriate to the business you’re in, and the negotiations you encounter. For example, there’s no point spending years mastering face to face negotiation tools if most of your negotiating is done by email. Similarly, deep exploration into complex negotiation strategies can be wasted if your counterparties are generally inexperienced, incompetent or seat-of-the-pants negotiators. These people rarely negotiate rationally, and rational strategies tend to add less value than you’d expect.
So while developing your negotiating muscles is essential, make sure you’re developing the muscles that will support you in the kind of negotiations that you encounter in your business.
And the what? It’s easy to get drawn into long discussions negotiating limits of liability, indemnities and the like. These matter. It’s important that a business understands, manages and correctly prices the risk it takes on through its contracts.
But they’re far from the whole story. What do you and your counterparty each want to get from this interaction? Presumably, you wouldn’t be negotiating in the first place if there wasn’t something in it for both of you. Productive negotiations start with a clear understanding of both your and the other party’s what. When you know what ‘good’ looks like for both of you, you can start to develop a vision that everyone can commit to. Then it’s back to the how to figure out the best way of getting your counterparty to share that vision and work towards an agreement that delivers value for you both.
“Our counterparties are usually disempowered, unskilled and don’t care about the ‘big picture’.”
It can be disheartening when you bring your shiny new negotiation skills to the table, only to be faced with a counterparty who, frankly, couldn’t care less. When you meet the “computer says no” negotiating approach, you could be forgiven for wondering why you bothered preparing your detailed strategy and tactics.
But, as Thomas the horse would say, it’s all about picking the right horses for courses. When you know the kind of counterparty you’re likely to be dealing with, you can look at the deal through their eyes. How do they feel about this negotiation? What hurdles do they have to jump over internally, if you want to change course from their standard terms? Rather than setting out your big-picture, strategic vision for a long-term commercial relationship, maybe this is the time to look at the short-term, tactical wins you can offer. How can you make their life easier, while still getting the most important things for your business?
“They’re in California and we’re in Reading. Face to face negotiation just isn’t going to happen…”
Building rapport is, without doubt, a key stage in any negotiation. It’s also a darned sight easier if you’re in the same room as your counterparty. But that’s a luxury you won’t always have – and if your negotiation approach relies on the twinkle in your eyes and your cheeky grin to soften tough messages, you’re in for a difficult time.
Far more contract negotiation is done by email than face to face these days. And research shows email negotiation takes longer, is more prone to misinterpretation (Noam Ebner’s “sinister attribution effect”) and encourages the use of aggressive negotiation tactics.
But there is light at the end of the tunnel. Just because you’re negotiating by email, you won’t necessarily fail to secure mutually beneficial outcomes and joint wins. Email negotiations are not doomed to be less emotionally satisfying than face to face ones. But getting positive outcomes through email negotiations does require more effort, planning and skill than you might expect.
“Our company has certain ‘red lines’ it will not cross. So every time, we end up arguing about limits of liability and indemnities. It’s so frustrating!”
I regularly hear that the toughest negotiations our clients face are those within their own business. A commercial manager at a large systems integrator told me recently that his clients were a doddle to negotiate with compared to his colleagues in other departments.
Especially if you work for a very big corporation (but even, to a lesser extent, with smaller businesses), you’ll have to work within guidelines and authority limits when you negotiate. Agreeing these is effectively your first negotiation. If your company insists on sticking to its guns on certain matters that are always contentious, leading to long, drawn out and ultimately fruitless negotiations, it might be time to re-evaluate. One company director confided that his organisation had never let their corporate guidelines get in the way of winning a deal. But they kept them in place so that junior negotiators didn’t ‘give away the farm’ at the first sniff of opposition.
Having a mechanism for determining when a certain point can be sacrificed for the greater good will help you become more effective as a negotiator. Developing the commercial awareness and risk appreciation of your organisation will help the business take a more results-focussed approach to deciding where this point should be. Research by The International Association of Contract and Commercial Management (IACCM) shows that while limits of liability and indemnities occupy most negotiation hours, the greatest value is to be gained from negotiating scope and goals, and relationship governance. Encouraging your business to look at its what from a pragmatic, value and risk-based perspective could make your next contract negotiation a whole lot more productive.
“Hang on a minute – isn’t Thomas the name of your Financial Controller?”
If you’re very observant, you may have noted that our Financial Controller is also called Thomas. He is not a horse. While both are dark, handsome and fiendishly good at what they do, Thomas the FC is great at finance and Thomas the horse is good at being a horse! Just wanted to straighten that out, so there’s no confusion.
Enough horsing around. What should you do next?
Do any of these contract negotiation challenges sound familiar? Then commit to growing your negotiation effectiveness or that of your team, browse our public negotiation courses or contact us to discuss tailored negotiation training delivered in-house.
Join me on these public negotiation courses:
- three-day course endorsed by IACCM – Understanding, Drafting and Negotiating Commercial Contracts, 10-12 October in London.
- three-day residential Contract Negotiation Masterclass delivered jointly with Keld Jensen, 18th – 20th September in Copenhagen.
If you’d rather put your contract negotiations into safe hands without scaring the horses, then consider outsourcing your contract support to us.
Founder and Managing Director, Devant Limited.