How to Negotiate Commercial Contracts Effectively

From a legal point of view, the key to a good business deal is to ensure that both parties end up with a balanced contract, with risks, rewards and obligations they can live. Effective negotiation is about give and take – it’s not about being the winner, or getting one over the other side, it’s about laying the foundation, and setting the precedent for a mutually beneficial relationship.

Understand the Drivers

Getting under the skin of the other party – understanding what drives them – is crucial so that you can satisfy their needs. For instance, a company may be driven by profits, margins and the bottom line, while a public authority will be more concerned about getting value for money, and perhaps more importantly, being seen to get value for money. Knowing what motivates the other side will also help you anticipate and counter the positions they will take.

Preparation is Key

Make sure you are set up for every phone call, every session and every discussion by preparing your position beforehand, anticipating the response from the other side, and knowing what your “walk away” position is. It is very important that you have a mandate to negotiate from key stakeholders in other parts of the business to ensure that you don’t have to backtrack on previously agreed points. Doing so undermines good faith.

Build Trust

Build rapport and get things going by putting some of the easier issues on the table so the parties start to feel a sense of success. Make sure adequate break times are structured into the day to allow for break-out sessions to regroup and resolve outstanding points, and to allow for more informal “coffee machine” discussions which can be very helpful in resolving sticking points away from the “heat” of the negotiating table.

Keep a Helicopter View

In the heat of negotiations, it is easy to get bogged down in detail and forget to look at contentious issues in the context of the whole deal. Haggling over how much interest a party in default should pay ignores the fact that there are likely to be much more serious issues if things ever get to that point. Negotiations work best when there is a sense of momentum. As such, if contentious issues bog things down, park them and move on. Time and distance may allow fresh perspective of the problem.

Work as a Team

Each member of the negotiation team – regardless of function – should understand and be comfortable with the key aspects of the deal. Communication and planning is crucial. Team members should pre-meet before negotiations to agree their respective roles and strategy (i.e. who does the talking, who does the recording, good cop/bad cop etc.) and then de-brief afterwards to share insights, lessons learned and plan for the next stage.

Keep it Professional

Negotiations can get heated, but they should never get personal. The parties represent their respective businesses. Getting bogged down in personal point-scoring is unproductive and slows the process down. If there is a personality clash, try changing the spokesperson for a while so that things have a chance to simmer down. The best deals are done when the parties enjoy mutual success based on a collaborative and respectful approach.