There is hardly any doubt that negotiation skills are an important part of doing business. In today’s hyper-connected and increasingly competitive market, the ability to negotiate effectively is more valued than ever before.
Lack of good negotiation skills can cripple a company (or your client) far more quickly than losing key customers. Just give it a thought!
Before we go into technical details of how to prepare for negotiation and come out victorious, there is one important thing.
While most negotiating strategies seem like common sense, it’s not uncommon for people to get caught up in the emotion of the moment and ignore sound principles of negotiation. Things such as overt emotion and luck have no place in a successful negotiation.
While creating a course on contract drafting and negotiation, we spoke to many successful negotiators about their experience of contract negotiations and the big wins and losses. Here is an example.
It was quite an enlightening experience. Most of the time, managers, lawyers and other people who are expected to negotiate are left on their own to learn and become good at negotiations, a skill on which a lot depends.
It is also quite rare for one to make a special effort towards learning either legal or technical aspects of contract negotiations, although it can significantly increase their competitive advantage.
In real life, the onus of negotiation lies primarily on the shoulders of managers and lawyers depending on the scenarios.
Most of the time, when contracts end up in disputes, and negotiations break down, the blame lands on the negotiators involved in the immediate task.
However, how are they supposed to learn the skills involved and improve their performance?
Here are 5 common pitfalls that people frequently fall into while negotiating contracts.
1. Unclear Terms and Undefined Projects
Parties involved tend to get lost in the midst of the negotiation and lose sight of what they set out to achieve owing to incomplete preparation. This makes things unclear at the negotiation table, which then leads to either side going home unhappy at the end of the day. Or even worse, half-baked terms and conditions make their way into the contract, creating trouble later.
Effective planning is the most important tool at your disposal on the negotiation table. Often, in a hurry to get things over with, people take the preparation period lightly and find themselves without contingency plans and back-up strategies during a negotiation.
It is important to make adequate inquiries beforehand. Not doing that will cost you.
You cannot rely on unwritten terms, or assumptions that are not documented in the contract.
Also it is important to clearly define the scope of negotiation before you begin negotiation. Too many clients simply want the best price for services without defining the specifics of their requirements for the project.
Don’t fall into that trap. Unless you have a clearly specified scope which reflects the details and challenges of the project, you and your client shouldn’t begin a negotiation.
What You Can Do To Avoid This Pitfall:
Preparation is key. As the person leading the negotiation, you have to take up the reins of any and all preparation and make sure that you have absolute clarity about scope of project, your costs and profit margin, price point, if you are going to offer any concessions, terms of payment and all other major commercials.
The next step is to communicate these important boundaries, and ensure that both parties understand exactly what is expected of the other.
Large companies create negotiation playbooks which specify to what extent their teams can compromise on specific terms in a deal.
a) Understand the commercials of the deal before you review the contract
If you’re going into contract negotiations, you need a thorough understanding of the deal before you review the contract.
I have seen many rookie lawyers, even if they are working in good law firms, write terms which will actually benefit the other side but will not help their client. This happens because they do not understand the commercials of the deals and assume that the business teams will deal with this.
This way of thinking reduces the value that you can add.
You must then review the document and each of the clauses.
I would assume that before the negotiation takes place you have turned in your changes as the other side will expect time to review the changes you are suggesting. Your knowledge, understanding and preparation about what the other side needs and what your client requires, and how much bargaining power you actually bring to the table, will eventually determine the outcome of the negotiation.
b) Define your goals
In order to negotiate effectively, you have to be thoroughly sure of what your company’s goals are and why. As you must know already, a contract negotiation usually has just one or two major goals and the rest are secondary issues.
In any case, you should go in with a much longer list of demands.
However, be clear on which of those asks you can sacrifice and which ones you are not going to relinquish. This is at the heart of your negotiation process.
c) Identify your interests
Successful negotiations focus on both parties’ interests, rather than focussing just on the positions taken. Your interests are all the underlying concerns or needs, factors that will motivate you to take a certain position in a negotiation. Good negotiators are able to expand the scope of the deals and create win-win outcomes for both sides.
Talk to CEOs and business teams where needed. Some lawyers are specifically engaged by clients just for their negotiation skills.
d) Establish Your Alternatives
Not all negotiations are successful, and you need to plan for this possible outcome. Consider all alternatives and viable choices regardless of any positions you take or the other side claims to be taking.
e) Analyze the other party’s position in the market, their interests and goals
To be able to maturely handle a negotiation, you have to see through the eyes of the other side. You need to know what situation they are in, in this market.
Once you can see the contract through their eyes, that will make a world of difference in your effectiveness when you negotiate with them.