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Very few business owners manage to avoid the contract negotiation process. Your business will likely need to make deals with other companies to thrive. If those deals are of decent value, committing to them in writing is always advisable. However, in some situations, contract negotiations can be time-consuming and complex. This article will consider four helpful tips for companies aiming to simplify and streamline their commercial contract negotiations.
What is a Commercial Agreement?
This is a contract between two businesses which aims to record the finer details of a business transaction. Because the value of business transactions can be very high, it is essential to ensure the wording of business contracts is accurate and airtight.
However, it is not uncommon for both businesses to have different expectations regarding how the deal should work in practice, which can lead to ongoing negotiations. No business wishes to commit to a contract with various downsides.
The four tips listed below will likely help your company achieve better success in future contract negotiation processes.
1. Establish Common Ground
It is always helpful to remind everyone at the negotiating table of the reason for being there. Invariably it is because the parties believe the proposed deal is in the best interests of both businesses. It is useful to remind the other company of your genuine belief that this remains the case and that successful contract negotiation is possible.
For example, if the initial deal was for one party to provide a 12-month supply of ongoing IT services for a decent sum, it may be worth reminding the other party that:
- you are confident enough in their services to commit to 12 months;
- the value of the contract is good; and
- you intend to negotiate respectfully and achieve a good deal for both sides.
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2. Confirm Willingness to Achieve Reasonable Compromise
This advice may seem slightly counterproductive to some, particularly those who advocate a tough, aggressive approach. However, most negotiations succeed when both sides feel that the other has agreed to a genuine compromise.
One of the main reasons for failed negotiations is a business owner feeling that only their organisation is willing to compromise. Realistically, very few commercial contracts are so one-sided and advantageous. Thus, both businesses will likely suffer a slight disadvantage through contract wording.
3. Be Honest About the Feelings of Both Sides
Some inexperienced negotiators will simply focus on their own party’s goals. However, a skilled negotiator will acknowledge that two parties are at the table and both have genuine objectives within the contract.
It is usually worth noting that you can see the other side’s perspective, as well as your own. Accordingly, negotiations should involve figuring out the best way of achieving as much as possible. Of course, it may be beneficial to highlight that both sides will probably lose out on one or two preferences, but this is better than the deal failing altogether.
4. Consider Legal Support
It is not uncommon for a business owner to discover that contract negotiations are more complex or adversarial than first expected. At this point, many business owners consider obtaining legal advice or engaging a lawyer to negotiate on their behalf.
When a commercial deal is worth a large amount of money, a lawyer is likely to be worth the cost of breaking any deadlock and reducing any tension. Lawyers are specialists at conducting negotiations in neutral, carefully-phrased language. This can help refocus parties on the contract terms and wording rather than emotions. Accordingly, a skilled lawyer acting on your behalf, and steering negotiations can give your organisation the best chance of success.
Key Takeaways
Ultimately, successful contract negotiation can lead to a commercially lucrative outcome. Sometimes a good negotiation will fail to reach a suitable contract and vice versa. However, carrying out contract negotiations in line with the above tips can increase your odds. Where negotiation is particularly tricky or complex, it is worth engaging a lawyer to obtain legal advice on successful negotiation strategies and steer things in the right direction.
If you need help conducting commercial contract negotiations, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A well-negotiated contract will accurately record all relevant information as to the payment and the manner of the deal struck. It should also set out rules of engagement for any likely specific circumstances that may arise in the future.
There are two common scenarios. The first is because the parties cannot meet in the middle regarding specific terms and contract clauses. The second is because of a breakdown in trust between parties when negotiating certain contract terms, perhaps because one adopts a ‘take it or leave it’ position.
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