We all negotiate throughout our lives. In fact, it’s often hard to get through a day without haggling over a price, discussing the terms of a job offer with an employer, asking for a pay raise from our superior, persuading our colleagues to support a new business proposal…and so on.
But, for a contract professional, negotiation takes a deeper dive into an inseparable part of our contracting role, because, just for starters, we must discuss many contracts and claims. Negotiating the terms of a purchase agreement or a claim related to an extension of time or altered costs are just a few examples of what we do as contract managers.
Negotiating is not an easy job (although many seem to believe they are natural experts). Some of those people may have attended courses or read articles and books about negotiation strategies and techniques and think they are therefore able to negotiate. While having knowledge about negotiation skills is vital, a solid negotiator should have good knowledge plus experience not only in negotiation but in other fields as well.
Seven knowledge steps are critical.
- Know about the product or service you are negotiating
Unless you know the commodity you want to negotiate, you will not be able to negotiate with confidence. Do not make the mistake of seeing yourself as part of a team where you should resolve only the contractual matters while other team members deal with the technical aspects. To make sense, a negotiation must be orchestrated by someone with holistic understanding of the entire deal.
So, before entering into negotiations, gather sufficient pertinent data about the product or service you are negotiating. Know the different types of a particular service or product and their relevant functions or features, especially their relative importance to your business users. Know what risks might happen technically to the product or service, including its likely lifecycle. Research applicable documentation, review library catalogs, search supplier information on the website, and talk with technical personnel to get the needed information so you can be an intelligent negotiator.
- Know about contracts
Know relevant contract law and contract drafting skills. Get acquainted with the stipulations of the governing law of your contract. Civil law countries usually have both civil and tort law; International Arbitration Law; and other laws which you could apply to the contract you are negotiating. Statute law may mean that certain parts of the contract are essentially non-negotiable and Common Law is based on very different principles of precedent.
Learn the terms normally included in the type of contract you are negotiating. For example, if you are negotiating a contract for supply of materials, you should know that the delivery terms are an important part of the contract. Or, for example, in an agency contract, clearly define the territory in which the agent should perform on behalf of the principal party to the contract.
Furthermore, make sure you know (or have access to) high quality drafting skills. In other words, if you want to be successful negotiator, do you know how to draft a contract, or effectively describe intended terms to an expert drafter? And do you know what the words in the contract really mean? As the old saying goes ‘the devil is in the details’ which means if you include any word in the contract or another binding document you should have good knowledge about what that word means and what consequence could result from its misuse. For example, a simple error of writing “may” instead of “shall”, or stating “reasonable efforts” instead of “best efforts”, will make a big difference in the meaning of the sentence and the obligations created.
- Know about the issues related to contracts
Cost and claims are crucial in each contract. After all, a transaction is being made for value. So, make sure you have a great understanding of how value-related issues are addressed. Do you have a clear answer to how much the product or service costs, and how your negotiation could affect it? For example, if you seek to pass high levels of risk to the supplier, how might this impact their costs or your price? Do you really need that high level of insurance, or those rights to Intellectual Property?
- Know about your own organization and the other party
Try to find as much data as possible about corporate strategy, action plans, objectives, organization structures, cultures, weaknesses and challenges of both parties. Keep in mind each party’s objectives are different. You are negotiating for the objectives of your organization, and the other party is negotiating for its own interests. A successful negotiator is one who understands where those interests may be in conflict; they seek to reconcile them; and they know that a successful relationship ultimately depends on each side feeling they will gain benefit.
- Know negotiation strategies and techniques
No one is born as a successful negotiator. Solid negotiators have either acquired negotiation skills through experience, or by crafting their own strategies for negotiation, or by learning from others. Many courses, books and articles are available with the primary aim to teach you how to become a better negotiator or ‘deal maker’ whether you are a novice or expert. As well, many negotiation courses provided by reputable institutions and individuals that could be found on the internet. For example one tool is LinkedIn Learning. It provides a lot of courses and videos with topics related to negotiations such as sales negotiation, negotiating salary or job offer, creating great first impressions, conflict resolution and so on.
I prefer the courses provided by Program on Negotiation, which is a consortium program of Harvard University, Massachusetts Institute of Technology, and Tufts University. It offers a number of courses taught by leading Harvard faculty and experts in the field of negotiation, mediation, and conflict management. Cost may be involved.
- Know external forces by using a PEST (political, environment, economic, social, technology) analysis1
Be conversant with the current political, economic, social and technological situation of the region(s) or country(ies) involved in the transaction and the future possible changes. Some examples of PEST external forces are inflation rate, taxation policies, environmental protection laws, population demographics, lifestyles, energy availability and costs, business cycles, monopolies legislations and new discoveries and developments.
Build up your knowledge of the suppliers, their capabilities, their prices and so on. You need to know the current market situation and the possible future changes. You should know the practices of customers and suppliers of any specific product or service. Know the region(s) or country(ies) as well. This includes the residence of the parties, the place of execution of the contract, or any regions in which the goods or services could be located in for a short period of time.
- Finally, know yourself
Make sure you are aware of your personal positive and negative features. Each human being has his or her own characteristics, skills and weaknesses. Make sure you are aware of all of these and try to take advantage of your positive attributes. Don’t let your weaknesses impact negatively on the negotiation. And through this self-awareness, also observe behaviors within your team and the counter-party. Manage the negotiation in a way that plays to your strengths; come to recognize when the other side is bluffing, or using tricks. Build relationships that can survive outside the negotiation room because the real success of the negotiation comes later, with successful delivery.
Experience is knowledge
Knowledge is not enough to be a solid negotiator. Experience is as important as knowledge. But even more important than either of these, if you wish to be a leader in negotiation, is the ability to look more broadly, to understand the bigger picture and the potential trade-offs from a commercial, technical and strategic perspective, so that you deliver outcomes that bring sustainable business value and strong, committed relationships.
- A PEST analysis is a strategic business tool designed to discover, evaluate, organize, and track any factor that might impact business success. The framework examines opportunities and threats due to Political, Economic, Social, and Technological (PEST) forces. See also Group Map PEST Analysis