3 Fundamental Steps to Contract Negotiation Process

When it comes to a contract negotiation process, the most difficult part may be to actually forget what you have been told about traditional negotiations processes, strategies & techniques.

Contract Negotiations should not depend on who’s smarter (supplier or seller), but on achieving the goal of concluding a contract that is fair, reasonable and beneficial to both parties. Let’s get to the meat of the contract negotiation process 3 steps.

Step 1 of Contract Negotiation Process: Prepare, Prepare, Prepare.

This is the most important step of the whole contract negotiation process. Understand that contract negotiation is not about who’s the better negotiator (this is important, but at the end of the day there’s only so many strategies to use and probably both sides will have good negotiators on the table).

Imagine having to negotiate a contract with your supplier and you have no clue about the price of the supplier and how that compares to the market. That means that you must have conducted a price/cost analysis, and you fairly know what it costs the supplier to deliver goods/services.

This is just an example of being prepared. Below are some other things that you need to prepare:

1. Issue Identification
Identify the issues you want to negotiate. For example read the suppliers offer, highlight important parts and jot down notes about part that you are not clear, or that you cannot accept.

2. Issue Information
Have good information about each issue that you want to negotiate (after all this is what preparing is all about).

3. Classify the Issues
Classify them according to: Negotiable – these are issues that you can negotiate and be flexible. State your maximum that you can negotiate on these points, so that at any point in time during negotiations you know your limit. (just in case you go over your limit and then you get that Donald Trump famous saying: “You’re Fired”). Non-Negotiable – these are issues that you will not negotiate and not budge.

4. Prepare the meeting agenda
When doing this you will outline your issues again, but more importantly you would want to give the supplier the first turn to highlight any issues they may have with your contract. When you have a prepared meeting agenda, you will work according to that, and will not forget any point.

5. Get ready to Negotiate
Understand the most important thing before going to the negotiation table: Most issues can be negotiated.

Yes, some “negotiation gurus” mention that ‘everything is negotiable’, but in real life it is not so. There are things that you or your supplier will not budge no matter what. With that in mind be positive and believe that it will go well. Most of the time it will.

Step 2 of Contract Negotiation Process: Negotiation Meeting

This is the meeting proper where you (and your team if there’s one) will sit down with the supplier. Important here is that this meeting most of the time is not called negotiation meeting – but any time you meet with a supplier to discuss their offer it means you are negotiating.

Your negotiation outcome however is most likely achieved before the meeting ie during the preparation stage, so again do not set foot in a meeting without being prepared.

If at any point during the negotiating meeting you find that you did not prepare for a certain issue, then simply mention that you would need to get back to the supplier on that issue. Then work out the other issues.

Some meeting tips:

  • Be friendly but professional e.g. I’m glad we have a chance to sit down and discuss how we can work together.
  • Be positive e.g. It’s good that I hear you have the same viewpoint on this.
  • Do Not Get Angry or Emotional. Keep your cool & calm. It’s just business after all. How do you do that? First, pause for a few seconds before saying something Second, if you are thinking whether something that you may say would offend the supplier, then don’t say it. However, if you really thought about it coolly, and then you still want to say it, then just go ahead and do it. For example during a meeting that we had with a client he was discussing about the need of getting a lower price without committing to a long term contract or bigger volume. When probing he revealed that it was their policy that even after a contract was concluded, they would still be looking for other suppliers who may offer lower prices. We simply said: “It looks like your philosophy towards your suppliers is – I’ll screw the supplier at the moment that I get the chance. It is difficult to then offer you what you are asking.” The client kept his cool and then said that it was the direction from HQ. Thirdly, breath deeply. It relaxes you. You may even joke with the supplier that you are practicing your breathing so that you don’t get angry or upset with what he said.

Step 3 of Contract Negotiation Process: Summarise all points

This is very important, as you need to get the other party’s agreement to all the points that you discussed. You can simply divide this into 2 categories:

a) Points that you have already agreed; and
b) Points that you or the other side would need to get back to each other.

Some of the points to summarise are:

  • Payment terms
  • Contract volume
  • When the contract/work will start
  • Price for the Contract

Once you have written this down, simply shoot a quick email to the other party and ask for their acknowledgement/agreement to this. Mention that if they have anything to add, they can add it during their reply to your email.

To write about the contract negotiation process, it may actually take much more that what is written here, but we trust that this simplifies you contract negotiation process to simply 3 steps. And that is key – simple.

As Albert Einstein said: “I like to make things simple, but not simpler”.

Trust we have achieved to make the contract negotiation process simple for you with these 3 steps.

Find out more information about Contract Management here, or Contract Negotiation Process here.

Or discover much more information about Purchasing & Procurement Management & Strategies here

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