How to negotiate a contract

Juro knowledge team, 22 April 2021

Negotiation is a normal part of the contract process - but how and when do you do it, what's the process, and what outcomes are you looking for?

Contract negotiation is about much more than reaching an agreement. Contract negotiation is an opportunity to add to the economic value of the relationship, shore up supply chain vulnerabilities, and protect your organisation against risk. 

Unfortunately, companies often still rely on outdated manual contract negotiation processes that detract from these goals. 

This article will show how bringing the collaborative phase of a contract negotiation into a transparent, unified platform empowers your negotiators to achieve larger business objectives while simplifying and speeding negotiations. 

Learn how in-browser contract negotiation features enhance clarity and comprehension to help legal and business teams save time and identify more opportunities to create shared value. 

Plus, assess your negotiation skills and walk away with contract negotiation tips that will help you get to yes faster and accelerate business gains. Use the menu below to navigate this resource.

What is contract negotiation? | When to negotiate a contract | Contract negotiation process

How to negotiate a contract | Essential contract negotiation skills | Contract negotiation strategies | Tried and tested: negotiation tips | Find out more

 

What is contract negotiation?

Contract negotiation is the process through which two or more parties come to a legally binding agreement on the terms of their relationship. The main goal of contract negotiation is for each party to be satisfied with the rights and obligations assigned to them, and ready to sign. 

When to negotiate a contract

The contract creator should ensure the relevant internal stakeholders and the company’s legal counsel approve a draft contract’s language before sending it to a counterparty for review. If contracts are created from templates, then this text might be locked down, minimizing the risk of error.

During initial drafting and review, each party works toward its own objectives surrounding issues such as risks, liabilities, and potential outcomes. The contract moves to the negotiation phase when a party is unhappy with the terms offered, or the language doesn’t support all their objectives. Errors, contradictory terms, and outdated clauses also spark negotiations.

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Lawyers often review and negotiate contracts. Sales, procurement, and HR managers, operations executives, and financial leaders often complete contract negotiation on their own or become involved when requested revisions require their input. For example, sales teams use order forms and NDAs when closing deals. People and talent teams send employment contracts to new hires. Finance teams monitor agreements to track spend and forecast revenue.

When business colleagues need help to interpret a contract’s language, determine whether to approve risk-shifting terms (such as indemnification and limits of liability), or push back on unfavorable language in a draft contract, they turn to the company’s legal counsel for guidance. 

Without a centralized digital contracting platform, in-browser, the need to include input from additional reviewers can further complicate and extend an already confusing contract negotiation process. 

The contract negotiation process

In Word

Tracking revisions is critical during contract negotiation. Before the modern era, negotiators wrote revision requests and comments in red ink on paper. In the 1990s, MS Word and email allowed negotiators to swap their red pens for digital “redlines.” 

In a process that continues to this day, the contract originator emails a draft contract to a counterparty as a Word document. The counterparty typically saves the document to their local drive and turns on Word’s “track changes” feature. Their suggested revisions then appear in red on the screen, and comments show up in boxes on the side. 

The counterparty then emails the “redlined” document back to the contract originator. Now there are two versions of the same contract – one saved in the originator’s drive and a redlined contract stored in the counterparty’s drive. 

The originator turns on their “track changes” feature to respond to the counterparty’s comments and revision requests and make suggested revisions in a third version of the contract. The originator sends version three to the counterparty, who creates the fourth version in reply. This back-and-forth negotiation process can drag on for months, particularly when dealing with complex contracts.

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It becomes nearly impossible to track the many versions or to accurately determine who made what revisions and why amid the confusing tangle of redlines. It’s easy to lose track of essential attachments and of who needs to respond to what edit or comment next. The lack of control and visibility can lead companies into lopsided and unfavorable arrangements that can cost thousands of dollars in contract leakage and missed opportunities. 

In Google Docs

Google Docs offers some improvement, but counterparties can watch your team’s internal dialogue play out live in the comments. You must also share access to your company’s cloud storage and, as with MS Word and email, you must still switch to another application for electronic signature. The more software tools you use to negotiate and finalize contracts, the more friction and security risks added. 

Because you can’t easily integrate MS Word, Google, or PDF documents with your CRM software or financial software, all contract details such as names, addresses, dollar amounts, and dates must be obtained, entered, and tracked manually. You’re unable to efficiently capture the multiple levels of business intelligence contained in your contracts. 

How to negotiate a contract

Using an all-in-one contract automation platform like Juro enables parties to negotiate contracts, in-browser, in one unified workspace.

  • Parties mark up a single document using an intuitive in-browser editor
  • They can designate comments as “internal” or “external” to ensure confidentiality
  • Comments can be linked to particular parts of the contract, making it easy to see what's in contention
  • An uncluttered view helps negotiators immediately focus on critical issues, while the software tracks every revision, aggregates comments and emails them to counterparties
  • This digital audit trail is securely captured, so you can learn from each negotiation and develop better templates

 

Throughout multiple negotiation rounds, a dashboard timeline serves as an on-demand audit trail that provides a one-click view of prior draft versions at any time. 

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Through a more collaborative and transparent negotiation experience, parties better understand each other’s relative positions. A clearer picture of everyone’s needs helps negotiators determine what to concede, and when to stand firm. Negotiation is more likely to result in shared gains, reach mutually beneficial objectives, and increase the contract’s economic value for both parties. 

Data is captured at the point of contract assembly rather than gathered manually after the fact. Analysing contract data can deliver insights that help guide future negotiations to more favorable outcomes. Your legal team can develop contract templates and company playbooks to steer business colleagues in more strategic independent contract negotiations.

A playbook identifies negotiable points and provides the company’s preferred fallback positions, including the new language to substitute automatically. Your lawyers maintain playbooks and templates to ensure new contracts always contain the most up-to-date, risk-adjusted language that aligns with your company’s overall business goals.

You can use conditional logic in Juro to build these fallback positions into your contract templates, so business users can self-serve on negotiation, rather than needing the legal team to support each time. 

Essential contract negotiation skills

Strong contract negotiation skills support efforts to build long-lasting mutually beneficial relationships. Here are five of the top skills that help negotiators: 

  • Sound legal knowledge
    • This used to be solely the domain of lawyers. But automated contract negotiation processes, contract templates, and company playbooks are all designed by lawyers to codify and share sound legal knowledge, making it available to all your business teams. 
  • Awareness of risk appetite
    • The same self-serve processes, including company playbooks that offer fallback provisions, guide business colleagues to stay within established risk limitations while still enabling them to close deals independently. Easy collaboration supports adherence to guidelines that are critical in light of today’s regulatory uncertainties and data privacy challenges. 
  • Clear, concise communications
    • Write and edit draft contracts using plain, easy-to-understand language. Parties need to make accurate assessments to fully understand all potential consequences. The less time parties spend trying to decipher a sentence’s meaning, the faster they reach an agreement.
  • Commercial savvy
    • Whether you are in legal, HR, sales, or procurement, you need to know which provisions are negotiable and how to offer concessions that still result in favorable outcomes for your business. Transparency helps parties understand each other better to help in strategically solving issues while seeking added value sources that serve your company’s larger business goals.  
  • A non-adversarial approach
    • “In more than 50 per cent of today’s negotiations, one or both parties engage in positional tactics, seeking to impose their standard terms on the counterparty, often irrespective of suitability,” according to a World Commerce & Contracting report on the Most Negotiated Terms 2020. Contract negotiation is the time to collaborate and add value, not “beat the other side,” especially when counterparties are strategic business partners whose services and products help your company maintain competitive advantages.

Contract negotiation strategies

At times, an unequal power balance affects negotiations, such as when larger vendors force smaller customers to agree to terms that are more favorable to the vendor. Or, a party may say “Agree, or I walk” in a hardline approach. Learning useful negotiation strategies can help you create win-win results in any situation. Helpful tactics include:

  • Look beyond the individual negotiator and consider the counterparty’s fundamental interests in the relationship.  
  • Ask “Why?” to open up dialogue.
  • Identify ways to create options to resolve disagreements. 

A recent survey found that 88 per cent of those in the contracts and commercial community hope for increased levels of collaboration and a more 'fair and reasonable' approach to negotiations, and 74 per cent believe it can happen. With a non-adversarial approach to negotiation, you can be part of that change for the better. 

Tried and tested: contract negotiation tips

Here are a few tips to get started with effective contract negotiation:

  • When tempted to revise, ask yourself, “Do I even need to bother? Am I adding unnecessary friction?” Don’t make revisions without a strategic goal clearly in mind.
  • On the other hand, if the counterparty’s language doesn’t make sense, say so. Sometimes contracts are poorly written or based on manually maintained templates that have been revised so much that they contain errors.
  • Focus on terms that actually matter. Ironically, the terms parties most often negotiate are not the same as those that negotiators say are most important, according to The Most Negotiated Terms 2020 report. Don’t get sidetracked by irrelevant issues or spend too much time on matters of little importance.   

Most negotiated contract terms
Image Source: World Commerce & Contracting organization’s report on the Most Negotiated Terms 2020.

  • Streamline negotiation by emailing a list of key concerns to a counterparty to discuss on the phone. Be sure to incorporate revisions digitally, with comments in your contract automation platform's sidebar, and add notes about the conversation to ensure an accurate and informative audit trail.
  • Company playbooks benefit organisations of every size. Some contracts will always require scrutiny from legal and leadership teams. But with a contract automation tool like Juro, business users can generate and negotiate many standard agreements independently guided by a company playbook.  

Find out more about contract negotiation

Here are resources that will help you learn more about contract negotiation:

With Juro you can negotiate contracts quickly and efficiently while always staying in control. As a result, you transform contract negotiation into a seamless process, and a revenue and savings opportunity. If you’re ready to save time and try collaborative, in-browser contract negotiation, hit the button below to get started now. 

Topics: Contract magic

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