CAREFUL HOW YOU GO - CONTRACT NEGOTIATIONS (PART 2)

In the first of our two part article on contract negotiations we looked at the art of getting the best outcome from the negotiation process. In short, 11 tips for successful negotiations.

In the second part we look at avoiding some traps for the unwary and why expert legal advice is always a sensible investment. In short, 9 tips to protect your business.

WINNING THE WAR OF WORDS - CONTRACT NEGOTIATIONS

In the first of a two part article on contracts, we look at the subject of negotiating the best deal for your business and give you 11 tips to help you and your business succeed.

1. Break the negotiation into parts. Some negotiations disintegrate because the parties take an "all or nothing" approach, in which the other party must agree to all of their terms in order to move forward. A good way past this type of roadblock is to break the negotiations into sections ("compartmentalize") and reach an agreement on each part separately. This makes it feel as if you are reaching a series of solutions -- and making progress -- rather than battling one big war.
2. The "I'm only asking for what's fair" approach. This approach emphasizes that one party's requests are simply in line with industry standards or current market prices. This strategy relieves you of the obligation to justify your terms or spend time negotiating for them. If you emphasise that you are asking only for standard deal terms, the burden shifts to the other party to convince you that you should make an exception in this case (and to make that exception worth your while by offering concessions elsewhere).
3. The Getting to Yes approach. To reach agreement (to get to "yes") the negotiating parties must separate the people from the issues (that is, remove the emotion from the equation), look beyond the negotiating parties to see who or what is the real interest or influence affecting each party, generate options to create a problem-solving environment, and neutralise conflict by sticking to objective and easy-to-justify principles of fairness.
4. Take control. Controlling the location, timing, topics, and pace of negotiation (sometimes called "controlling the agenda") may create an advantage. For example, lawyers often believe that the lawyer who drafts the agreement is in the contractual driver's seat. Similarly, by controlling the negotiations, you get to decide which topics are discussed and in what order. Sometimes, parties use a passive approach to take control -- for example, by seeming to act as the moderator for the negotiations or by offering to "summarise" where things stand (in a letter or brief statement at the start of a negotiating session). No matter how the reins are seized, the party that frames the issues generally has more control over how those issues are eventually resolved.
5. Prioritise, prioritise, prioritise. Contract negotiations typically focus on price and risks. But clearly, some revenues and risks are more important than others. When you negotiate, you need to know what your top priorities are -- usually the business or money-making opportunity offered by the deal -- and how your other priorities rank below that. This will help you keep your eyes on the prize and avoid getting bogged down in issues that are not as important to you.
6. The "offer-concession" strategy. Make sure the other side leaves the negotiation feeling they've made a good deal. The offers you make should always leave you enough wiggle room to make acceptable concessions to the other side. Or as one businessman put it, "The most important trip you may take in life is meeting people half way." This also means you shouldn't start negotiations by revealing your absolute bottom line. If you instead leave yourself room to negotiate, you'll make the other party feel that they've won something -- and you may be surprised to find that the other party is willing to give more than you would have been willing to accept.
7. Question rather than demand. If the other party is taking a hard line on certain issues, ask why? Questions open up the discussion; arguments often close communication down.
8. Find points of agreement and end on a positive note. This upbeat approach requires that you find opportunities to say, "You're right about that," or "I agree." However small these points of agreement may be, they help set a collaborative tone. At the same time, if negotiations are spread over a series of meetings, always attempt to end each one positively. This too, goes a long way to establishing a collaborative tone that is more likely to be conducive to progress and result in an agreement.
9. Do your research. The party with more information usually has more leverage. For example, if you know that the people who put an offer on your house have already sold their own house and must move quickly, that gives you more leverage -- and some extra bargaining chips. You may be able to insist on a higher price, particularly if you're willing to allow them to close the deal fast. Sometimes, even personal information about the parties perhaps obtained through LinkedIn may affect your ability to create a more collaborative atmosphere.
10. Dealing with ultimatums. If the other party resorts to threats ("Agree to these terms or there's no deal") or wages a war of attrition by dragging out the negotiations, you'll have to decide what the underlying deal is really worth to you. If the ultimate prize is so valuable that you're willing to accept the other party's ultimatum or put up with endless haggling, that's fine. Similarly, if the other party has all the power (for example, it's the only known buyer for your product), then you may have to grin and bear it for a while. If not, however, the best strategy is often to walk away from the negotiations. If the other party really needs you, it may re-evaluate its tactics and return to the table. If not, you can move on to more productive negotiations with someone else.
11. Use facts, not feelings. Successful negotiators separate business from personal, facts from feelings. They avoid letting an unpleasant personality or style drag down the negotiations. They also avoid making the negotiations seem personal by using language such as "I believe" or "I think," focusing instead on statements of fact ("If we pay this price, both parties to the venture will be at risk.")

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In the second part of the article we shall look at common pitfalls when trying to draft a contract.

This article contains general advice and comments only and therefore specific legal advice should be taken before reliance is placed upon it in any particular circumstances.