Editor's Note: This is a guest post by Dan Unter, attorney at Cleantech Law Partners, a law firm that serves the unique legal needs of renewable energy and cleantech companies in the United States and around the world. Mr. Unter can be contacted at dunter[at]cleantechlawpartners.com
Bend But Don't Break: The Art of Contract Negotiation
When handed a business contract, you should know that there will be terms that either don’t comport with your business or create too much risk in relation to the benefit gained from the agreement. It is then that you have to negotiate those terms away.
When giving a client or supplier your standard contract, who then proceeds to strike out your protective clauses, it then that you have to negotiate them back in.
And finally, when the amount contemplated in a contract is in dispute, you must raise your negotiation skills into high gear.
Here we are going to talk briefly about the tactics of negotiation that I employ and have had success with over the past 10 years of almost constant contract negotiation.
Give To Get:
When starting a negotiation, you must first realize that you will be giving something to get something. Keep this in mind before you begin so you can put together a list of things you need, versus things that can be offered for sacrifice. Best case scenario is that what you are willing to sacrifice is exactly what the other side is looking for. In any event, this exercise will lay out the parameters by which you will be working within, and that will be key in determining how the negotiation will go, and if it is even feasible.
This mentality may also determine how you write your contracts, giving yourself some wiggle room on certain limits, like service levels, liability, and anything else that would appear your are “giving” at great cost to you.
Not Your Opponent:
In a typical business setting, the person on the other end of the negotiation is not your opponent, but more likely a future supplier, client, financier or partner. In other words, someone you most likely will be working with in the future. So, think about what continued arguing about that one last point will get you: most likely someone who won’t give you any leeway in the future on something more important.
However, there are many instances where the other party sees things differently. This happens way too often with lawyers and business people alike, who see a negotiation as a competition; a way to prove something to themselves or their superiors. This is a huge mistake on their part, but you don’t have to sink to their level, and in the end this is an opportunity for you to score a win. First, remember that if this is the person you will be dealing with after the contract is signed, this is a good indication of what you will be dealing with on an ongoing basis. Sound awful? Then maybe cut ties early and save your efforts (and sanity) for someone else. Second, if you are ready to push forward, try to understand their motivations. Is it to save face? To appear they’ve gotten something for nothing to their boss? Whatever it is, with some gentle prodding, the true nature of why they are pushing will be revealed. It is at that point, with skill, you can succeed in the negotiations.
An example on this point is once I had to deal with a company that wanted unlimited liability on the products we were selling them. This was not going to happen, but we wanted to get the deal done. Attempts to get their negotiator, an outside attorney, to understand we would not be putting the whole business on the line for one deal failed, so I switched to bend but don’t break mode. I know that many outside lawyers want to get their two cents in and need to show their clients they’ve gotten a few “wins” for them. In this case, I gave him whole list of things they could have on the marketing side, better service levels and higher insurance requirements. Once he got excited, I let him know that this was contingent on us not budging on the limits on liability, as I had to “take something back” to my boss as well. He understood this and we got the deal done. So in the end, we never had to deal with him again, gave almost nothing (the service levels and insurance limits were that high already) and got the contract signed.
Get To Yes:
Once you have your strategy ready, remember the ultimate goal: To get the contract signed (as long as it is good for you). Keep this always in the front of your priority list and you will see how it influences things like: keeping conversations on point, keeping cycles to a minimum and preferring face-to-face meetings. If you keep getting pen to paper as your ultimate goal, you will get it done.
Disclaimer: Legal information is not the same as legal advice -- the application of law to an individual's specific circumstances. Consult a lawyer if you want professional assurance that any information, and your interpretation of it, is appropriate to your particular situation.