Consultant: “There is only one outstanding issue to discuss in this contract. We are unable to accept liability to a third-party as noted in clause 5 of this contract. Can we discuss this clause in more detail?”.
Client: “Yes. But we cannot agree to delete this clause as there may be third parties involved in the project”.
Consultant: “Understand. Let’s talk about to what extent will these third parties be affected by the provision of our services?”
As you can tell from the tone of this discussion, the parties’ intentions were to resolve the issues, finalise the contract and get on with the project. It turned out that the scope of services that Party 1 was providing was stand alone and had no impact on client so the clause was deleted. This was a successful outcome for both parties.
Before you start negotiating, think about your game. This will set the tone for the discussion to follow. Negotiating contracts doesn’t have to be daunting or confrontational. Negotiations can be broken down into a four-stage process – planning and preparation; exchanging information; problem solving or discussing; closing and implementation.
Planning and Preparation
Good preparation is crucial for successful negotiation. The more prepared you are preceding the negotiation, the more likely it is that the result of the negotiation will be acceptable for all parties involved. You should know the contract thoroughly and understand what services are being provided. This way you are equipped with background knowledge to enhance your negotiation. The more information you gather, the more power you have to negotiate a favourable outcome.
Exchanging Information
Then begin the discussion by addressing the issues, seeking clarification on points you are unclear about, and asking open ended questions. Rather than taking the hard line in the discussion and going in with the all or nothing approach, asking open ended questions help to open up the discussion so the other party does not feel attacked. It is equally important to actively listen to the other party during the conversation to find areas where they may be willing to compromise or where they provide clues for further negotiation.
Problem Solving or Discussing
During the discussion, you should be able to make compromises that mean little to you, while giving something to the other party that means a lot to them. By asking questions to understand the other party’s objective and maintaining a positive relationship, contract negotiating is expected to go smoothly and generate an outcome benefitting all parties involved.
Closing and Implementation
You may close the negotiation by letting the other party know that you have reached an agreement on everything. Keep the closing in mind during your discussion and aim to bring the negotiation to a mutually acceptable solution. Both parties should be able to walk away from the negotiation satisfied and with clear direction on their next steps. Get agreements in writing as soon as possible so both parties are clear on what has been decided.
Even with the best intentions, solid preparation and effective conversations you may not always be able to negotiate a successful outcome. It is important to have a plan B in place with alternative solutions, so you are not forced to accept an offer that it not in your business’ best interests. Understand and prepare for the worst possible outcome you are prepared to accept in the negotiation. With good preparation, clear communication and logical persuasion when negotiating you are more likely to achieve a successful result. A good negotiation should leave each party feeling satisfied and ready to do business with each other again.
Our new Practice Guide on Contract Negotiations elaborates on these negotiation strategies and provides additional guidance for effective contract negotiation. Like all of our Practice Guides it is available to informed subscribers and many professional indemnity insurance clients of Planned Cover, who can download it from our website using their login.
Cordilia Thomas
Risk Manager