Negotiation – the art of reaching an agreement – is challenging to say the least. But without a well-planned approach plus a clear understanding of the terms or clauses you typically negotiate, you face defeat. Would you like to prevent this and get it right?
IACCM recently unveiled the findings of its 2018 Most Negotiated Terms survey and highlighted five steps (below) for streamlining your approach. Other related IACCM reports are also available to put you on the right path and help you stay alive with the negotiation outcomes all parties expect.1/2
Negotiating successfully is tough within a world where perceptions of value are often clouded by the more immediate issues of price and risk. Our report shows that there is often a disconnect between the terms that are most negotiated and those that negotiators recognize are actually the most important.
Ten most negotiated terms:
- Limitation of liability is a clause or provision in a contract that defines the financial exposure a company could face if it fails to
fulfilits commitments. In general, it represents a "cap" on potential damages.
- Indemnification, also known as a hold-harmless provision, protects the indemnified party against losses from third-party claims related to the contract -- for example, a claim that property rights have been infringed.
- Price/charge/price changes are the terms related to the sale price or charge and also the provisions governing changes to that price or charge.
- Termination clauses set the conditions under which termination of the agreement will or might occur and may also specify the consequences of termination.
- Scope and goals/specification - the Scope or
Specification maybe a clear description of the customer requirements that the supplier has commitedto meet,or may bea supplier document describing the product or service they will deliver. It typically describes the work activities, deliverables, timelines andmilestones, along with performance levels or quality requirements.
- Warranty - a guarantee or promise by one party assuring the other party that specific facts or conditions are true or will happen.
- Performance/guarantees/undertakings – a bond or other financial instrument provided by the contractor(s) promising that they will perform all obligations under the contract.
- Payment – the provision governing the client’s obligation to pay for goods or services.
- Data protection/security/cybersecurity - safeguarding important information from corruption, compromise or loss, including compliance with relevant regulatory requirements.
- Liquidated damages -
amountthe parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach (e.g. late performance).
Five steps help develop
While the terms listed above are certainly of real significance, the problem is that they often divert attention from ensuring that the parties have a shared understanding of what they are seeking to achieve and how they plan to work together. This is especially an issue in contracts that cover services, rather than just products.
IACCM’s Most Negotiated Terms Report – 20181 recommends five steps to help you develop a strategy for achieving your negotiation goals:
- Contract negotiators are often not involved in the contract’s ongoing management and are not measured
onperformance or outcome.
- Negotiators’ knowledge is limited on how the contract lifecycle applies.
- Negotiators usually focus on consequences of risk rather than on terms that could reduce risk.
IACCM research shows the five top contested terms causing the most claims and generating the highest revenue losses and contention are as follows:
- price changes
- invoicing – late payments
- delivery or acceptance
- scope and goals
Inappropriate contract terms have wasted much of your time during negotiations.
You or other parties entered the process too late and find yourselves working with the wrong type of contract.
Your customer selects the contract, but it is inappropriate for the type of acquisition applicable.
3. Reduce repetitive negotiation by adopting the IACCM contract principles.3 These principles, developed through research and involving experts from some of the world’s largest corporations, provide a framework for drafting terms that reflect a reasonable position for both parties. The guidelines were compiled and reviewed by negotiators in more than 150 corporations representing both buy and sell side. By declaring a shared commitment to follow these guidelines, organizations can streamline contract review, acceptance
4. Improve implementation and understanding by automating extraction and dissemination of contract terms. Automation reduces cost and time normally spent during traditional processes. It also reduces risk and creates the possibility of machine-based decision making. Automation can reduce errors and delays, resulting in fewer disputes that too often result in pressures to renegotiate, or which damage trust for future transactions.4
1. Most Negotiated Terms 2018, An IACCM Call to Action downloaded from Most Negotiated Terms Report – 2018 (Top Terms) 11 June 201
2. Example of a decision tree article: Using Decision Trees to Complete Your BATNA Analysis – George Seidel, Williamson Family Professor of Business Administration and Thurnau Professor of Business Law
3. Other references citing similar problems:
- Commitment Matters blog of June 12 titled Most Negotiated Terms 2018
- IACCM’s Contracting Principles
- See article in Contracting Excellence Journal by Hal Bretan titled, IACCM Contracting Principles posted 25 Jan 2018
4. Articles about contracting and automation:
- Contracting Excellence Journal: Want to improve your contracting processes? Put technology to work! Jonathan Marciano, LawGeex, Nov 9, 2017
- Commitment Matters Blog: The cost of a contract, Tim Cummins, Nov 2, 2017