Contract Negotiations: Are You Prepared PART 1
L. Douglas Mault
Negotiating a contract of any sort, such as employment, buy/sell, goods/services exchange, subcontractor/general contractor, can be a trying process. The outcome can be quite rewarding or quite damaging, depending on how well prepared you are for the negotiations.
There are several obvious things you should know before negotiations begin. Having said that, too often the obvious is overlooked. Based on research, study or knowledge of your business, at the very least, you should know the following:
- What you want out of the negotiation.
- What you realistically can get.
- What you realistically can accept and still make an acceptable profit.
- What, or how much, you are willing to cede in order to get what you need.
- What the going market price range for the goods or services is.
- What your competition gets for the same goods or services.
- Your strengths and weaknesses.
- Your competitor’s strengths and weaknesses.
- The other party’s needs and desires.
Some of the key items to be addressed in the process often include the following:
- Goods to be provided and/or work to be performed.
- Performance and outcome to be achieved.
- Length of contract.
- Start and finish dates for the contract and for key subsets thereof.
- Price and the ability to deal with unanticipated and uncontrollable events affecting price.
- Delivery process and terms.
- Insurance coverage, both yours and theirs.
- Bonuses or penalties and the criteria on which they are based.
Once the process begins it is important to keep your goals in mind while at the same time realizing that the Law of Business Balance, i.e., both parties must benefit, will pertain. If you’re happy with the deal and they’re not, or vice versa, then the Law of Business Balance has been violated and someone will often pay the price for the other’s unhappiness. Always remember that the tables may be turned in the next negotiation. The goal is to have both parties reasonably happy and willing to proceed with the work to be done.
When the terms of the contract are on the table, don’t just accept them without a detailed reading or, if necessary, review by your attorney. It is unfortunate that the days of the handshake agreement are pretty much in the past. The other party may use tight timelines to force you or cajole you into accepting terms that ultimately are detrimental to you. Don’t be reluctant to say that the terms are complex, that you’d like a reasonable amount of time to review them (this might be minutes or days depending on the complexity of the terms or your acumen, or lack thereof, with contracts) and only then accept or reject some or all of the terms.
About the Author
L. Douglas Mault is president of the Executive Advisory Institute, Yakima, Wash.