Negotiating a Contract: How to Waste Less Time and Get Better Deals

Rob Enderle

Life sometimes seems like one long negotiation. We negotiate allowances and rules with our parents as we grow up, negotiate relationships as we proceed through life and into marriage, negotiate compensation for our various jobs, try to negotiate with traffic cops (some more often than others), and often have to negotiate for both personal and professional purchases. You'd think most of us would be expert at this. Unfortunately, most don't have a clue and often leave the table thinking, and for good reason, the other side screwed us.

 

Slide Show

Winning at Contract Negotiation

Rob Enderle provides strategies that have proven to result in more favorable deals, less chance of litigation and better overall outcomes.

I'm doing a talk on this subject for the CIO side of IT Business Edge this week (link is here if you are interested) and this post is for those that don't get to listen in.

 

I started my training in contract negotiation in the 1970s, was assigned to one of the IBM legal teams for contracts in the '80s, and have lectured on negotiations and contracting on and off since then. It is more of a fascination than a career aspiration, but there are some relatively simple rules to learn.

 


I'll talk about why information is power (and why it's worth it to do your homework), how to negotiate from strengths, learning when to walk away (folks forget this at auctions), methods to assure compliance (something folks that negotiate with Apple forget), how to enter and exit a negotiation with confidence, and how to close a deal (something that a lot of folks in sales, ironically, don't seem to know how to do).

 

 

Information Is Power

 

A negotiation is a battle. One of the best books on war is "The Art of War" by Sun Tzu. One of his key points is that, before you enter into a battle, you must know yourself and your opponent well. If you don't, your goals will not be achieved.

 

Know what you want: If you don't know what you are attempting to accomplish, it is virtually certain you won't get there. Often you aren't just negotiating for a good price, but adequate quality dates that need to be met and as little aggravation as possible. Price often isn't anywhere near the top of that list. Before entering into a negotiation, sit down and think about -- and if it helps, write down -- what you seek to accomplish and prioritize your needs.

 

Know what they want: The other side has needs, too. They want what you are selling. They may want your endorsement, they may want credit for the deal, and they may need to hit a certain commission threshold. If you know what you want and what the other side wants and can map priorities, it sets a negotiation foundation that should get to an acceptable agreement more quickly.

 

Know any time constraints: It does you no good to negotiate a contract if you fail to meet deadlines for either the negotiation or for the delivery date. Know what the pressures are and who is under them to help you avoid being put at a disadvantage and having to renegotiate the deal.

 

Look for leverage: And not just your own. Where does the other side have an advantage? Where do you? These will be tools that you will use, or have used against you, during the negotiation.

 

Understand weaknesses: Where are both of you most exposed? Be careful here, though, because if either side is too aggressive with a critical weakness, it can cause the relationship (or the partnership) to fail. This also might suggest that the other side can't actually perform under the agreement, even if favorable terms are reached. If that weakness is on your side, it might suggest a job change.

 

 

Identify a win/win story: What might a win/win deal look like? You are not obligated to create such a scenario, but if you know where the line is, you can make sure you don't drift the wrong way over it. On the other hand, there are negotiators that believe that the only way to win is for the other side to lose. That might not be a negotiation in which you want to take part.

 

How is your opponent being compensated? Typically, you are both operating as agents, which means that their motivations are likely tied closer to their commission plan than they are to optimizing profit for their employer. If you know their plan, you might be able to craft a deal that optimizes both your opponent's commission and your savings.

 

Negotiate from Strengths

 

Now that you have a basis of information from which to work, craft a plan to negotiate from your strengths and against their weaknesses. Make sure that they, not you, are under time constraints. In Asia, a common practice is to wine, dine and entertain until a few hours before the opposing negotiating team has to leave, and then enter into formal negotiations. This puts a massive amount of pressure on the side that wants to get the deal done and go home. Cash generally isn't the most important thing on either side's list. Deal with your priority first so that it isn't under-prioritized and, assuming there isn't a conflict, use theirs as a tradeoff.

 

For a vendor, items that might be more important are hitting a volume target, getting a good reference account, getting credit for a job well done (for the team), and/or getting good publicity.

 

Leveling

 

One of the key skills in a negotiator's toolkit is leveling. This means making sure you are speaking to the other side as a peer, adjusting to the same language, and appearing as less of a threat. If you don't do this regularly, this skill will be used against you. Because it puts the other side at ease, it can be used by either side to more quickly drive to a closed deal, which ultimately is the goal. To do this, you need to listen to speaking speed, how they approach a sentence, what is important to them personally. Then you mirror that so you sound and act familiar and less different.

 

Walking Away

 

Some deals shouldn't be done. Here in the Silicon Valley, that pretty much includes any deal with Apple. There are key elements that should cause you to immediately discontinue negotiations and exit. First is integrity and trust -- or lack thereof. While a contract assures the deal, it is more of an emergency measure. Litigation is expensive, embarrassing and time-consuming. If you realize that you can't trust what the other side is agreeing to, then the agreement will end badly. The best example of this was the initial Sun/Microsoft agreement on Java. Neither side could trust the other, and the result was a train wreck.

 

Another key element: Is there no middle ground? Look at Israel vs. Palestine, for instance. There is no middle ground. Each side wants from the other things that they won't ever agree to, so all they have is constant conflict and agreements that break. If you can't find an area of agreement, move on. You are wasting time.

 

 

No authority: Another common tactic in Asia is that the negotiating team doesn't actually have the authority to negotiate. This is done so that additional concessions can be achieved when a team with authority eventually does show up. If the other side has no authority, you are spinning your wheels until you can get someone who does at the other side of the table.

 

Excessive risk: Beware if the company you are negotiating with is undergoing a massive management change, looks like it might be acquired by an unknown, is financially unstable, is under criminal investigation, or has other elements that, when factored in, make a relationship excessively risky. Exit and find someone else.

 

Unreasonable demands: Either side can be to blame for this, and you personally should exit the process if your side is being unreasonable, as it likely will reflect badly on you personally. But if it becomes clear that your opponents are being unreasonable, just walk away. It might simply be a negotiating tactic, but the best response is to exit and assume they will invite you back with a more reasonable position.

 

Personality mismatch: Sometimes the two sides really don't like each other personally. This typically will end badly, and it would be better to change members of the negotiating team than to proceed.

 



Add Comment      Leave a comment on this blog post
Sep 17, 2010 1:33 AM Anthony Lee Anthony Lee  says:

Great refresher for us C's in business.  I learned and re-learned a few tips that will help give me a little more leverage as well as a few good books that were recommended that are now on my list to read.  Thanks for the heads up and good article.

Reply
Sep 17, 2010 1:39 AM Rob Enderle Rob Enderle  says: in response to Anthony Lee

Welcome thanks for the note!

Reply
Jun 11, 2013 5:27 AM Contract Negotiation Contract Negotiation  says:
Excellent information!! I really like this post and thanks for sharing. Reply

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