Contract Negotiations, Part 2

L. Douglas Mault

August 2006

Last month we talked about negotiation a contract and the obvious things you should know before the negotiation process begins. This month we’ll discuss what may be missing in the contract—the absence of some terms. Often it’s what is not there that counts as much as or more than what is included.

If there are terms that you need, negotiate them into the deal. And never, never accept verbal assurances that are not incorporated into the written contract. If it’s worth agreeing to verbally, it’s worth having it in the contract. When you’re told, "Don’t worry about that because ...”, simply counter by telling them that it’s just good business practice to capture all the issues in writing. Any attorney will tell you that a verbal agreement is only worth the paper it’s printed on.

When it comes to the negotiation process, carefully cede those items you’ve identified in exchange for concessions on their part. It is almost a surety that they’ve got their give-away items as well. Don’t be too quick to cede even if what they’re offering in return is more in your favor; take some time to "contemplate” it so that they don’t think they’ve been had.

My own rule of thumb in negotiations is that the first person to talk loses. In other words, the first party to put their offer on the table has lost a bit of the advantage. Try to draw the other party out because their first offer, regardless of the topic, will give you a sense of where they are and what they value.

Who should negotiate for your side? Well, if their key negotiator is their attorney, then, at the very least, your attorney should be part of your team—or even, perhaps, the lead negotiator. However, based on my experience, attorneys have the uncanny ability to screw up more business deals than to make them work.

If you’re the company owner or CEO, it might be wise to have someone else do the face-to-face negotiations. Why? Because if the owner or CEO is the negotiator, you may well have given up the ability to buy some time to review the offer. If the negotiator is, say, a co-owner or executive vice president, they can always say something like, "This item is critical and I’d like to run it by the other partner/the owner/the CEO,” even if the negotiator is empowered to make the deal.

Just be sure that your negotiator, or negotiating team, has a clear understanding of all of the bullet points discussed here and in last month’s article, and are aware of the extent of their ability to commit the company.

If the people with whom you’re negotiating are not the people who brought you into the process, be sure to keep in touch with them because they’re the ones you’ll be living and working with for the duration of the contract.

So, remember the Law of Business Balance: Strive to get the best deal you can while at the same time remembering that the other party should as well.

About the Author
L. Douglas Mault is president of the Executive Advisory Institute, Yakima, Wash.