Contract negotiation checkpoints

I always encourage clients to negotiate a client-supplier business contract, particularly if the parties will have an ongoing relationship.

Business executives sometimes seem to shy away from negotiations. Some think a negotiation is a confrontation that will harm the relationship. Others think it’s simply better to get on with the business and only worry about things when they go wrong. Even when interacting, some don’t speak up as they feel dependent on the other party. Honest negotiations, however, are in everybody’s interest as they will allow both parties to:

• Explain and learn what’s really important and what’s less important for each party in the relationship.
• Practice together how to deal with future disagreements, both the talking and listening aspects.
• Open the way to effective early intervention when something untoward happens, reducing the chance of escalated conflicts.

One of my clients had terminated a supplier relationship for the same service twice before they realised their own lack of openness and clarity caused both relationships to fail. Of course it is the responsibility of both parties to query and explain.

I have found the following five practical negotiation checkpoints to be critical. Applying these during negotiations will bring both parties closer together, in the interest of a successful business relationship.

1. Understand purpose

Make sure you understand everything that is written in the draft contract and its practical use. If you don’t fully comprehend why something is written, ask. If the other party can’t explain it properly, suggest it is removed and see how they react. It will clarify the purpose of clauses for all.

2. Express expectations

Ensure your expectations for the relationship are included in the contract; deliverables as well as process and behaviour. You cannot expect the other party to satisfy you if you don’t tell them what you need and expect. Everything that is talked about but not included in the contract can — and often will — be forgotten. Relevant documents can become contract appendices.

3. Anticipate issues

Use your experience to play ‘what if’ scenarios and include them in the contract. It is a lot easier to talk about these when they are not yet reality. Ensure consequences and remedy strategies of non-performance are included.

4. Balance interests realistically

Ensure the contract is balanced so that both parties feel they are winners and look forward to making the relationship a success. If you feel the contract is not completely fair to both sides, find out what is making you uneasy and address it. Be realistic about the other side as perfection is rare; rate your contract partner relative to others. Be aware of becoming too demanding as this requires exceptional sensitivity and communication skills, and risks the other party giving in only to focus on minimising its losses rather than helping both parties to gain.

5. Communicate inclusively

Negotiations will cause some relationships to fail upfront. That is far better and cheaper than failing later. Relationships that survive good negotiations have a level of maturity and robustness that help make the joint experience that follows successful and enjoyable for all involved.

Victor Konijn is managing director at Plutonic Zoo. He works with clients and suppliers to review contracts at any point in the lifecycle and foster creative business-IT collaboration.

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