5 Tips on Negotiating Contracts

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Few people are effective negotiators. Humans tend to avoid putting themselves in uncomfortable positions, and negotiations are often discomforting. A recent study showed that only 46% of men, and 34% of women negotiated their salary. For entrepreneurs and freelancers, negotiation is not limited to salaries but permeate every aspect of our professional lives.  This blog aims to act as a primer, with general tips on negotiating contracts:

1.Understand the ‘Why’. Always ask yourself why your customer is interested in doing the deal. What are the benefits accruing to them, and how important are these? How will they affect your customers goals and aspirations ? When you understand the end goal, it is rarely money that acts as the decider. Clients typically look for outcomes - which directly affect the individuals you are negotiating negotiate with. If you are dealing with business owners, the outcome directly effects their business. If you are dealing with decision makers in the company, a decision they make that has a favorable outcome increases their standing in the company. All you need to do is assure them that you will be able to achieve the outcomes they are looking for.

1.This isn’t a winner takes all game. People, particularly lawyers, tend to get caught up in negotiations. It is easy to mistake negotiations as an end in itself. However, it is important to remember that the end goal for the parties involved is to create a business relationship that is mutually beneficial to both parties. Focus on the core clauses that have a direct and measurable impact on your business to negotiate. The idea is to not sweat the small stuff – don’t lose the war in the process of trying to win small battles.

3.Conversational approaches seem to work best. We have found that taking a lackadaisical approach to negotiations often results in you being walked over. Conversely, an aggressive approach often results in negotiations turning hostile, with each party tying to gain dominance over the other. A negotiation is largely a fact-finding mission, with disputes unlikely to arise where the incentives for both parties are aligned. Accordingly, we have often found that the best approach to negotiation is a conversational approach, with the parties working to sort out disagreements amicably, keeping in mind the others goals and objectives. 

4.Its important to know what you don’t know. Often, you will come across intricacies in your customers business that you just don’t understand. A natural reaction for most people is to skim over it, under an assumption that it just isn’t that relevant, or to avoid coming across as someone who doesn’t know what they’re talking about. It’s okay to be unaware of certain things – and to ask questions. Always try to understand everything being discussed – both at a high level and the specific nuances. Having a good understanding of the subject matter helps you assess the ‘Why’ and establish your credibility and fitness for the role. 

5.Bargaining power is limited. Know what to focus on. Frequently, you will find yourselves in a position where there are a number of items in a contract that you would like to change. Its extremely unlikely that your counterparty will accept all the changes you request. It is here that it is crucial to know what to spend your bargaining power on. Use your experience to understand the difference in what aspects of your agreement are likely to have real-world implications, and which are purely from an academic perspective. Given that your bargaining power is limited, it often makes sense to understand items that are likely to have real world implications, and negotiate to minimise the risk posed by any clauses that significantly affect these.