Contract negotiations can be daunting, particularly when both legal and business teams need to address multiple points of friction at once.
One way to reduce these frustrations is to set non-negotiables from the outset. This enables both parties to focus on achieving the same goal more easily and reduces chances of negotiation breaking down over minor points of contention.
1. Make a case for a new contract.
When negotiations become stuck, the first step to breaking them apart is making a compelling argument as to why a new contract should exist. A well-researched argument will convince both parties and can sometimes give deal-breaking issues new life. Furthermore, listening and understanding your counterparty’s needs allows creative solutions to emerge while disregarding them may cause both parties to stagnate further down their respective paths.
An effective starting point should be to review the total costs of your current contracts and compare them with similar agreements from other suppliers. This will identify areas for savings or service improvements that could be implemented, enabling you to negotiate effectively for them.
Suppliers may be resistant to making changes when renewing or extending contracts, so taking the time to extract maximum value is critical. One strategy would be putting into place terms that require supplier performance improvement over the life of an agreement, providing additional motivation for them and helping avoid annual price increases due to inflation or external factors.
Negotiate short-term contracts to provide natural breaks for renegotiation. This will enable you to review supplier performance, negotiate new terms as necessary and possibly find alternative bidders when appropriate. This strategy may reduce reliance on costly contracts while making it easier to identify new solutions to shifting market conditions.
2. Create a new contract.
Under certain circumstances, it may make sense to create a new contract with different terms. This might be necessary because either the original one was poorly structured and ineffective or because your business model has since changed since it was created.
As part of creating a new contract, it is vital to refrain from making sudden and drastic modifications without fully considering their wider ramifications. Avoid changing currency payments or permitting one party to opt-out of adhering to new regulations unless required to do so by changing a contract in an unexpected manner.
If the current contract contains an exit clause, make sure not to breach it by suggesting changes that could lead to early termination. Doing so can damage relationships and undermine trust.
To reduce errors of this nature, Juro offers an easy solution that streamlines contract negotiations while eliminating admin overhead. Teams using Juro have found they regain over 70 percent of time they spent on contract admin; freeing them up to focus on creating contracts that benefit everyone involved. To learn more about how Juro can transform your contract negotiations contact us, or download our free guide on starting contract negotiation software which contains invaluable tips for making every deal more fruitful.
3. Create a new agreement.
Though it can be tempting to focus on just the terms of a contract, it’s essential that we consider how the relationship can be strengthened and its value maximized. Furthermore, setting an example by creating an explicit yet respectful contract could provide for future discussions that reflect your business’s true worth.
If the previous contract emphasized supplier expectations for improvement, a new contract should take this into consideration when being written. This negotiation tactic can help offset inflationary increases while simultaneously leading to productivity enhancements that would not otherwise happen.
At an office contract renegotiation meeting, raising tension is a powerful tactic to increase pressure without adding unnecessary stress and confrontation. A negotiator might claim they are returning the contract back for review due to instructions from above – this tactic adds tension without creating unnecessary strain or confrontation.
While it can be challenging to predict how business conditions will change, one way you can protect against scenarios like Daley’s parking deal is by entering shorter contracts that allow natural breaks for renegotiations and review. You can then evaluate how these contracts are performing and discover new avenues of value extraction. Contract renewal software can be invaluable here as it centralizes all contract dates for easy review before negotiations.
4. Negotiate a new agreement.
Renegotiating an existing contract can be challenging. The goal of any negotiation should be to find an agreement that meets both parties’ needs and provides mutually beneficial solutions. While understanding your own needs is essential, listening and considering those of your counterparty’s is also essential – neglecting their concerns could result in an unproductive negotiation session.
Public sector procurement teams frequently view contract renegotiation as an opportunity to extract additional value from long-term agreements. Unfortunately, many suppliers can be unwilling to change their ways and view renegotiation as a threat – so buyers need to employ strategic negotiating techniques in order to make it difficult for their suppliers to maintain status quo agreements.
As an example, using tactics related to financial or decision-making authority can add tension without overwhelming negotiations. Furthermore, creating a “Best Alternative to Negotiated Agreement (BATNA) framework can be used during pre-negotiation stage for enhanced pre-negotiation discussions.
Planning is key to an effective contract renegotiation. By identifying both parties’ core interests in relation to their overall negotiation goals, and framing negotiations accordingly, negotiations will become more productive, efficient processes that seek out win-win deals.
