Practical Tips for Negotiating Business Contracts
About the Author:
JEREMY PARSONS
Director at Davenports Harbour Lawyers
Leading the firm's commercial team, Jeremy has a broad range of experience working in private practice and in-house legal roles both in New Zealand and in the United Kingdom.
All business people, will at some point, be required to negotiate a contract. Whether it is simply purchasing stock from suppliers or a more complex business deal such as buying a business or shares in a company, it can be highly advantageous to know some of the fundamental principles of contract negotiation.
Many of the ideas discussed in this article can be applied to all types of negotiation. However, this article focuses on contract negotiation in a business setting. It covers some of the practical strategies that can be applied by almost any business person during a negotiation.
Be reasonable
The quote at the beginning of the article from Willie Walsh is amusing, and there may be some truth to it in certain circumstances, but it usually pays to negotiate reasonably and in good faith. When a party adopts an unreasonable position it almost invariably results in the other side digging in their heels and pushing back even harder. It can also lead to resentment and in the worst cases a breakdown of the relationship. Remember, if the negotiation is successful you’re going to have to work with the other party on an ongoing basis so you really want to get off on the right foot. Being reasonable is not the same as giving in. If you have taken a reasonable position, there is nothing wrong with holding your ground.
A possible exception to this rule is when you are in an extremely strong negotiating position. For example, if you are a commercial landlord and there is a shortage of commercial property on the market you may not be willing to be negotiated down on rent or to contribute to the cost of tenant fit out - you may just decide to take the Willie Walsh approach and tell the tenant they can take it or leave it. But even then, markets can change, and if you’ve been completely unreasonable in the past the other party is likely to adopt the same attitude when given the opportunity. Even if it is a different party you’re dealing with in the future, you may have developed a reputation in the market place that makes it harder to attract quality tenants if you have behaved in this manner in the past.
Consider the other point of view
During a negotiation it can be easy to get fixated on your own position. However, there is a lot to be said for considering where the other side is coming from. When preparing for a negotiation it pays to spend some time thinking about how the other side may view each of the issues that will be addressed. By anticipating their point of view it will enable you to spend some time formulating counter arguments. Clearly it will be to your advantage if you have already anticipated what arguments the other side will put forward. By considering the other point of view alongside your own, you may even be able to formulate options where both sides benefit that hadn’t previously been proposed.
Understand the sticking points early
Typically in a contract negotiation situation, both parties will turn up with a copy of the contract, pen marks all over it and a page full of notes of issues they want to deal with. Perhaps a better way to approach this is prior to the negotiation, put down on paper what you feel are the main issues to be agreed and send it to the other side. They in turn can add to it and send it back for you to consider prior to the meeting. This means when you arrive for the negotiation you can immediately start dealing with the main stumbling blocks in a structured manner. Having said that, when the negotiation starts, I would recommend you begin with some of the easier points on the list first to get some runs on the board prior to getting on to the inevitable two or three big sticking points that need to be addressed.
Seating
Something else to consider that may seem trivial but can have an immediate impact, is seating arrangements. The natural seating in a contract negotiation meeting is the parties sitting across the table from each other working through their own documents as each clause or negotiation point is discussed. However, sometimes it can be beneficial to sit beside or at right angles to the other party. Sitting in this manner immediately reduces the adversarial feeling of the meeting and allows you to put one copy of the contract document on the table between yourself and the other party so you can go through the points together focused on the one contract. This gives the feeling that rather than working against each other you are trying to solve a problem together.
Maintain a degree of flexibility
No matter how well prepared you are for a negotiation surprises often arise. Sometimes where the other side will drastically change their position or maybe even introduce a whole new scenario into the mix that was not there before. While it is virtually impossible to prepare for this, it is possible to maintain a flexible mind-set and seek to adjust to these changing circumstances as they arise. Rather than just staying focused on the outcomes you had prepared for, try to have an open mind and consider the new fact scenario before you. In such circumstances, rather than being rushed into making decisions, there is nothing wrong with listening to the new facts . In saying that, given the change in circumstances, you will need a little time to go away and consider your position.
Further reading
If this subject interests you and you would like to read more I would recommend that you read “Getting to Yes” by Roger Fisher and William Ury. This is a classic text on negotiation that is often prescribed reading for MBA students and has shaped some of my thinking in this area.
Director
Davenports Harbour Lawyers
09 915 4381
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