Negotiating Contracts: Everything You Need to Know
Negotiating contracts is a skill that you can learn. Successful negotiations end up with both sides feeling as if they've benefited from the contract terms, which can lead to long-lasting business relationships.3 min read
Negotiating contracts is a skill that you can learn. Successful negotiations end up with both sides feeling as if they've benefited from the contract terms, which can lead to long-lasting business relationships.
Objectives of Contract Negotiations
When preparing to negotiate a contract, consider your objectives in evaluating the agreement. You should make sure you do the following:
- Clearly explain all terms, conditions, and essential prerequisites.
- Define in clear terms the goods or services that will be provided.
- Make clear the compensation involved, including specifics related to the payment schedule, financing terms, and the total cost.
- Be sure all parties are aware of — and acknowledge — effective dates, completion dates, termination dates, and renewal dates.
- List and address all potential liabilities and risks.
- Set reasonable and well-defined expectations for the relationship now and in the future.
How to Negotiate Contracts
Following these steps may increase the chances of success for your contract negotiations.
- Take your time. If you rush into signing a contract, one or more parties may end up disappointed. Rushed contracts tend to be less than ideal. Although many people don't enjoy the negotiation process and just want to be done with it, taking your time with this step results in a more satisfactory final product.
- Get professional help when needed. Both parties may know what they want out of a contract, but they may need help writing it. This is when professional help can come in handy to make sure everyone's interests are protected.
- Begin with a term sheet. Term sheets outline terms and conditions in a big picture way, but they're not an actual contract, so they're not binding. At this early stage of negotiations, everyone should be happy and able to agree to items on a term sheet. If parties can't agree at this early stage, signing a contract probably won't work out.
- Negotiate one step at a time. Compare negotiating a contract to eating an elephant — you have to do it one little step at a time. Start by tackling some of the easier parts first and then work on gaining momentum. Your attitude toward negotiating is very important. If you can agree on some things early on, both sides will be pleased. Then you can tackle difficult issues. At that point, the process should proceed smoothly because by then, both sides are invested. Because you've spent time hammering out details, it can be hard to back out.
- Do the math. You should have a good idea of how much you stand to gain.
- Pick up the phone. A phone conversation can be very different from an email exchange. In emails, it's sometimes hard to convey your true intentions. As a result, miscommunication can cause all sorts of trouble. Don't allow a simple misunderstanding to turn into a full-blown disagreement. Just call the other party. Talking often gives a much better read on the situation, so you'll know if you should back off or ramp up your efforts.
- Understand that a first contract is exactly that — the first. The final contract could be very different, so don't get upset if the first one doesn't meet your needs. Ask for clarification if you're not clear on something. If both sides don't agree, ask to discuss the point. Talking about it, instead of emailing back and forth, can speed up negotiations.
- Consider having a partner. Some people aren't comfortable being assertive if something doesn't work for them. It may be helpful to have a partner play “bad cop” for this purpose.
- Be reasonable. If you don't know what's reasonable in this situation, do some research. Talk to industry experts to get an idea of what you should reasonably expect.
- Don't forget about the end game. Consider what you're really after and how much you want the partnership to work. Think about what you'd be willing to give up in return. These are all important considerations, but they can evolve over time, so plan your moves carefully.
Negotiation is sometimes considered an art, but it's one that almost anyone can master, as long as he or she follows some key tips. When both sides end up pleased with the results, you can consider that negotiation process a success.
If you need help with contract negotiations, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.