It is often assumed that being a good negotiator is enough to get your contract over the line to a signed contract. But to create successful business deals you need many skills. Here are some tips to help you avoid going back to the negotiation starting line or failing to finish at all!
The dangers of negotiation by relay
Imagine the following scenario…
You’re in a negotiation meeting with your counterparty. There are no lawyers in the room, and you’re making good progress. You understand each other, and there’s a certain ‘meeting of minds’ that allows you to reach agreement on some key issues that are important to you both. As the meeting comes to an end, you say “I’ll arrange for an updated draft of the agreement to be prepared and circulated before our next meeting.”
Next day, you brief your legal advisor. You go through the contract and the points you and your counterparty have agreed. You ask your lawyer to update the contract.
You receive an updated draft and check it through. It covers the things you agreed, although it’s a bit more one-sided than you’d expected (in your favour, of course!). Your lawyer has added a few extra protections, in areas you hadn’t thought about during your meeting. You nod to yourself sagely, grateful your lawyer protected you from making an idiot of yourself, and send it on to your counterparty.
Your counterparty receives your document. They send it to their lawyer for review. Their lawyer throws up their hands and exclaims loudly about how one-sided the changes are, and asks your counterparty “Did you really agree to all this?”
Your counterparty feels embarrassed. They get the sense that their lawyer thinks they’re an idiot for agreeing to such things. They shake their head, and say that you’ve pushed the boundaries and gone further than was agreed in the meeting.
Your counterparty’s lawyer goes though your updated draft with their fattest red pen. They respond to your changes with stronger changes of their own, which push the balance back the other way. Your counterparty reads their draft, feels better (they’ve been saved from disaster by their lawyer!), and sends it to you.
In just a few days (or weeks, depending on how fast your legal team is!), you and your counterparty have gone from comfortable agreement and a solid working relationship, to mistrust and a feeling that you have gone backwards instead of forwards in your negotiations.
Sounds familiar? Then you’ll appreciate why being a great negotiator is not enough. Every time you hand your deal over to someone else to put your intentions into words, there’s an opportunity for things to go wrong. In some negotiations, the scenario above is repeated multiple times until:
- Both parties become convinced that their counterparty is not to be trusted
- The deal loses momentum, as it feels like you’re taking one step forward and two steps back
- The business gets frustrated with your lack of progress
- Tempers fray, goodwill evaporates and each party’s representatives look for someone to blame.
How to avoid looking like an idiot in negotiations
Why not develop your own contract law and drafting skills, so that you don’t need to hand over to someone else at the critical point? You don’t need to be a legal expert in every detail, but you do need a solid understanding of how the key contractual levers work, and what impact they have on your deal.
A good appreciation for the commercial impact of legal terms will help you to explore points more thoroughly during those negotiation meetings. Rather than agreeing something, only to discover later that what you’ve agreed creates all sorts of liabilities you hadn’t anticipated, you’ll be able to identify potential risks on the day.
Tip: It’s much easier to build a strong relationship with your counterparty if you spot and discuss issues while you’re together. You can push back on unreasonable risk allocation and have a sensible discussion about alternatives, with no damage to trust or integrity.
It’s not what you say, it’s how you say it…
Research conducted by IACCM suggests that the most trusted organisations are not those that are the most compliant or collaborative in negotiations.
Interestingly, the research showed that while those who were most trusted did not give in to their counterparties’ requests as often as some others, they were very good at explaining why. Having a clear rationale for a contracting position, and setting it out clearly, compensated for their refusal to compromise.
Tip: Be able to explain the rationale for your position to build trust and confidence in your counterparty. If you can set out your reasons clearly, you do not need to make as many concessions to reach a good agreement. Have a strong understanding of how contract terms work, and what impact they have on business reality. By understanding the nuts and bolts, you will be able to communicate better to your counterparty – and concede less!
…but talking a good story only gets you half way there
Understanding and communicating clearly on the legal and commercial points is obviously a great help in reaching successful agreement. But as the scenario above illustrates, if you hand over to someone else to write up what you’ve agreed, you create opportunities for dispute in your negotiation.
If you’re able to draft clearly and competently, this opens up even more avenues for speedy and successful negotiation.
Tip: When you think you’ve agreed a key point in principle, get the contract up on the big screen and jointly draft something with your counterparty. While each of you will want to reserve the right to go away and think about it, and possibly to seek advice from your legal team or others, you’ll be a lot closer to agreement. And neither of you will feel that the other has hijacked your negotiations – again, building trust and reinforcing your integrity.
So developing your drafting capability is a key negotiation strength. Even if you need a third party review afterwards, being able to engage in ‘live’ collaborative drafting will dramatically speed up your negotiation progress. It’s a good idea to have someone reviewing your work after the meeting, to make sure you haven’t missed something critical in the heat of the moment.
Tip: If you have made an error, pick up the phone and call your counterparty – anyone can make a mistake when they’re thinking on their feet, but they’ll be much more accepting of this if you handle it well and openly.
Being able to negotiate matters too!
So understanding contract law, and how contracts work in a commercial context is important. Being able to write a reasonably clear clause or too is helpful. What about the actual negotiation bit? Is it sufficient to have great technical legal skills if you’re negotiating contracts?
Unfortunately not. We’ve all worked with a fantastic lawyer who has a brain the size of a planet and knows more about the law than we could ever dream of – but who you’d never take into a negotiation with you because they’d terrify or annoy your counterparty! Understanding how negotiations work, how to solve problems collaboratively, think creatively and trade for mutual benefit is the essential third-leg of your contract negotiation stool.
Tip: Remember that in a contract negotiation, you’re trying to find a way forward that works for both of you. That means you need all your questioning, listening and exploring skills in addition to your technical legal and drafting abilities.
The well-rounded commercial negotiator
To negotiate well in a commercial and contractual setting, you need more than a strong bargaining instinct and good people skills. Having a sound understanding of commercial and legal risk, and the ability to explain and write clearly, can make all the difference.
If you’d like to enhance your commercial negotiation skills, we’ve put together exactly the programme for you. In October, you can attend our three day ‘Contract law, drafting and negotiation’ course. It’s designed to give you a good understanding of how contracts work, and how they impact business outcomes. The drafting day builds your confidence and teaches that while the legalese is important, writing clearly and unambiguously matters more. And finally, the negotiation day pulls all of this together to let you practice your skills in a supportive environment.
There are only limited places available, and the early-bird rate expires at the end of this month. So book now to secure your place, and get your business deals over the finishing line whilst building profitable commercial relationships that last.
Founder and Managing Director, Devant