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Mastering the Art of Contract Negotiation, Part 2

The first part of this article focused on pre-meeting preparations ahead of a major contract negotiation. In that blog, I discussed the importance of making sure key participants and departments were represented in the preparatory phase. (See: Mastering the Art of Contract Negotiation, Part 1.)

In this concluding blog, we will look at the next stages in the process.

The venue or meeting place
Usually, a conference room free from outside interruptions needs to be reserved in advance, so make sure you have given the room administrator notice of your time and amenities requirements. Refreshments should be offered, and seating arrangements usually define themselves. Their group will sit on one side of the table, and yours will sit on the other.

Don't try to be overly friendly by sitting on their side. They may want to share papers among themselves during negotiations, and putting someone from your team among them may inadvertently create an awkward situation if they are sending confidential notes to one another.

Any AV equipment should be verified as working before the meeting begins.

The meeting
In the pre-meeting, you already assigned an individual to introduce the members of your team and give brief descriptions of the role they play in your company. This can be very informal, or your team may have all the people introduce themselves while handing out their business cards. Their team will most likely follow suit. This is also a good time to indicate the proposed schedule or agenda. If you anticipate a long meeting, include comfort breaks and provide snacks or sandwiches on a buffet table close to the conference table. Make sure the coffee is hot.

Whoever initiated the meeting is now going to lead the discussion. If the visiting company wrote the contract and is bringing it to you, that company's team will present the contract and may ask if everyone has had the opportunity to review it and if there are any questions or issues. If your company initiated the meeting and wrote the contract, then your team spokesperson will extend a similar offer to your visitors.

Nobody on your team who has not already read the contract should be in that meeting. You do not want anyone on your team to be reading it while others are discussing issues. When a particular section is being discussed, the speaker waits until everyone is looking at that section.

Now, what I am about to say is probably the most important statement in this article. When you are engaged in active negotiations, leave your ego at home! There is absolutely no justification for using a negotiating venue to try to impress anyone with your superior negotiating skills. If you take any of the discussions personally, you may end up responding personally and unprofessionally.

One of the tactics of a skilled negotiator is sizing up the opposing team members, finding the weaknesses, and exploiting them fully. Also, assume that they have someone similarly well versed in these skills. Expect no contract you write to be accepted in whole at first pass. The contract should be biased in your favor to begin with. This leaves room for the negotiating give-and-take. Don't give up your buffer advantage too easily, or they will go for blood. Give up something, but only if you are getting some concession in return. If you find they are forcing you below your absolute bottom line, have a prepared response to which everyone on your team has already agreed.

You do not want your team members contending among themselves, so don't offer any surprises that may alienate your team members. Here is where you can respectfully ask if you may take your team to a place where you can discuss your collective response. When you re-enter the conference room, you will come back with a final statement or counter proposition.

Similarly, you may want to offer the other company's representatives the opportunity to discuss among themselves by taking your team out of the conference room for a brief time. After that time, knock on the conference room door, open it, and ask if they are ready to resume talks. These simple courtesies convey both professionalism and respect for your visitors and the negotiating process in general. Your courtesy alone may help gain a concession that could tip the contract back in your favor.

At the end of the negotiation, you will want to review any open-action items and the people and schedules required for follow-up. If all goes well, both parties will have generally achieved their desired outcomes and will be able to say, “We look forward to doing business with you.”

14 comments on “Mastering the Art of Contract Negotiation, Part 2

  1. Houngbo_Hospice
    February 7, 2012

    Thank you for the follow up article. Generally it is recommended to have  lawyers in a contract negotiation team so that they could be able to detect the “hidden details”. What do you think about that? If you are running a small business it is not always possible to have a full-time lawyer in your team, what do you advise in such case?

  2. Houngbo_Hospice
    February 7, 2012

    “Don't try to be overly friendly by sitting on their side.” 

    Of course, this is two different teams meeting to defend the interest of two different companies. You should be as “separate and distinct” as possible. Everyone stays in their team.

  3. _hm
    February 7, 2012

    Most new contracts are negotiated via email and over phone/webex. All party concerened get enough time to review it in depth. When all is ok, final meeting may be deisre as project kick-off meeting.

     

  4. elctrnx_lyf
    February 8, 2012

    Definitely a good list of tips that would result in great benefits if followed. 

  5. Barbara Jorgensen
    February 8, 2012

    I could have used something like this 20 years ago when I first began company visits. Even though I originated the contact, I agonized over whether or not I should invite these folks to lunch (they were on their turf); whether I should pay for the lunch (at least offer–although being female usually means they will insist on paying–equal rights or not); and ordering the cheapest meal on the menu. Your step-by-step negotiating etiquette is a huge help for people that are expected to hit the ground running when they are hired or promoted. Someday, we should start a message chain of “most awkward meeting blunders” just for kicks.

  6. dalexander
    February 8, 2012

    Barbara, I have been mostly on the receiving end of the business lunch invitations and so have that perspective mostly. I always welcomed the get-out-of-the-office opportunity and the lunch topics mostly revolved around business topics. It was also an opportunity to discover the integrity and sincerity of the vendor. I always kept one thing in the back of my mind, if I wasn't in the position of being of some benefit to my host, this individual wouldn't be in my life and I wouldn't be having lunch with him or her. I say that because it is about business and building a relationship based upon continuing or future opportunities. I knew that the lunch wasn't coming out of my host's pocket and that their managers had written into their budgets these business expenses. The nicer place I was taken, the more potential business was anticipated. So, I think you would be an excellent person to write an article on gratuities and where a company should draw the line as to defining a gratuity limit and when a gratuity could be misinterpreted as a bribe by management. I know several company's that insist that game tickets and weekend golf trips etc. go into a company pool for a raffle rather than just the Materials guys scarfing up all the goodies. Please consider writing something from the Host's perspective. I could see where your position could have had some very awkward moments. I think we could all benefit from your experiences.

  7. dalexander
    February 8, 2012

    -hm, I think you are right about most of the preliminary discussion being handled on the phone or some service like Go-To-Meeting these days and these early discussions involve the first key people and not so much the management or money decision makers. I think of the Design Engineer who has identified a part or module that may involve considerable cost, Non Recurring Engineering, (NRE) and tooling charges. That Engineer can go a long way into determining if the company can afford the potential buy, but at some point the discussion has to expand to other key people in Materials who have to “condition” the business to conform to company cash flow or other business requirements. Hence, the written contracts with performance expectations that are the meat of the give and take negotiating discussions. These discussions may only require two people if they are the decision makers in their respective companies, but when their are multiple departments impacted, each should be represented in the “live” negotiations, so each can “own” the final points and actions of the mutual agreements. I would like to insert a word of caution here for the top decision makers who feel their people don't need to be part of the discussion or negotiations. Any commitments you make with regards to timing or resources, without consulting your supporting staff, may endanger their ability to complete other time-based commitments they have made, and if so, may undermine company morale as you have just communicated to your people, their input is neither of value, or has any real impact on day-to-day operations.

  8. Barbara Jorgensen
    February 8, 2012

    Douglas–that's a great suggestion. I may ask another one of our contributors to pursue that idea because as a journalist, I operate under a different set guidelines. We aren't supposed to accept anything with a value of more than $25 (that figure is arbitrary, determined by your employers, and might be old). Strictly speaking, that could include meals, although lately I've been splitting the bill during business meals becuase everyone is really on a budget. In the olden days, when our office got unsolicted gifts, they were shared or split amonst the staff so no one was “tainted” by accepting a gift from an advertiser!

  9. dalexander
    February 8, 2012

    Hospice, First, let me apologize for the late reply. I don't think a lawyer has to be in these discussions if someone on the team has taken the time to learn about contracts in general. We all understand that the signatures at the bottom from both sides, means the contract is binding. However, if in the Terms and Conditions there are caveats for contractual suspensions based upon non performance, first article failures, or “Acts of God” etc, then that is where a lawyer may be involved and his or her involvement could be after the negotiations, before the contract is signed, and usually a normal expectation for conclusion of business. If the company is very small and the contract terms entail very significant obligations, then you may want to “hire” a consulting lawyer just for the single contract review. It may cost you some money up front, but also may save your company on the back end. It is interesting to note that people generally have a family relationship with a lawyer who could “help out” from time-to-time without charging the company an arm and a leg.

  10. Brian775137
    February 9, 2012

    While I thoroughly agree with Douglas' blog in general, I'd like to clarify a few points.

    Firstly, I'd like to address/reinforce Douglas' comments

    You never want any disruptions to a negotiation meeting.  This means that you want to be sure that there are no surprises.  The exact room desired, at the desired time and which is clean, should be used.  A quick check before the meeting will assure that this surprise does not occur.  Left over coffee cups from a previous meeting in the room leaves a very bad initial impression.  Someone who is not a meeting attendee should be designated to keep the coffee hot and assure that the refreshments are available. Usually, this is some member of the cafeteria staff, or other designee.  Napkins, paper plates and eating utensils should also be available.  Nowadays, smoking is, generally, forbidden so there is no need for ash trays.  However, smoking areas outside the building should be shown or described to the visitors, as should the restrooms' locations.  Seating arrangements usually sort themselves out, and a gentle word to any of your staff who tries to sit amongst the “other side” should be sufficient.  Note pads should be placed at each table position so notes and questions can be made while fresh in the questioner's mind.  There should be a sign-up sheet passed around at the beginning of the meeting, which lists the name of each attendee, their company and telephone number (with extension if appropriate).  A copy of this sheet should be made available to the leader of the negotiating team prior to the end of the meeting or at its wrap up.  It should be printed up, not just a copy of the rough sign-up sheet – anything else is unprofessional.

    It is critical that the AV equipment is working properly, and a spare bulb should be on hand “just in case”.  The screen should be of sufficient size so that everyone can see it comfortably.

    The meeting should be scripted before the visitors arrive.  A nice touch, is to put place-marks at each seat, so there is no confusion.  Everyone on your team should be briefed prior to the meeting, and sometimes a “dry run” helps to avoid embarrassments.  Since you will be in negotiations, you don't want anything which does not portray your side as being totally professional and competent.

    Generally, introductions are started by the meeting moderator and progress down the team in order of seating along the table.  Don't skip from one person on the right and then to someone on the left if the moderator is sitting in the middle of the table.  I believe, that the best situation is that the moderator sits at the head of the table and the leader of the other side sits at the foot.  This way, the moderator can start his/her introductions with the person closest to him/her and continue down the side of the table sequentially.  If there is any problem with hierarchal position on your team, make sure that they sit in the appropriate position at the table – usually highest to lowest rank within the team.  The seating order can be adjusted prior to the meeting for special situations.  If a lectern is to be used, it should already be in place prior to the  start of the meeting.

    Prior to commencement of the meeting, is the best time for exchanging of business cards.  Make sure that all members of your team bring a sufficient quantity of their cards so that they can be given to all members of the “visiting team”.

    Make sure that everyone of your team visits the restrooms, before the meeting starts.  It is disturbing to the negotiation process if someone has to leave for any reason.  Thus, all cell phones should be turned off in the meeting room and any calls should be forwarded to an operator or an answering machine.  This includes the “other side” as well.  Nothing should disturb the negotiation procedure.  Meeting breaks usually are scheduled for every 2 hours, and their duration should be specified.  As Douglas stated, snacks should be at hand near the negotiating table. Don't forget the plates and napkins.  Lunch break time, duration and place should be announced at the beginning of the meeting.

    As Douglas stated, the discussion will be led by whoever initiated the meeting. Whichever team wrote the contract will be the one to present it and will open the floor for discussion when the presentation is completed.  Questions interjected during the presentation are, generally, rude and should be held until after the presentation is completed.  During the Q&A session, broad questions should be asked at the table, but if there are some questions which are very specific in nature, these may be answered “off line” and then restated later in the wrap-up session of the meeting.

    I fully agree with Douglas – everyone who attends the negotiation meeting should have read and thoroughly understood the proposed contract.  Nothing is more disturbing than for someone to ask for a clarification of something which is fully explained in the contract.

    Leaving your ego at home is a prerequisite for every negotiation.  Remember, business is business and anything else is superfluous.  A “time out” for either side to caucus is acceptable, but  they should be few and far between, else they may make the caucusing party look “weak and unprepared”  The best times for a “time out” is, generally, during one of the scheduled breaks.  This does not cause disruption.

    Lastly, it's not about how much you can gain over the other side, it's about how the two teams can come together as a partnership, to create an agreement which is acceptable to both parties.  Always try for a win-win situation, not a “gotcha”.

    In my opinion, lawyers should only be brought to a negotiation meeting after all the details of the partnership have been worked out and the costs involved need to be converted into “legalese”.  Who does what and when are seldom in need of a lawyer to specify.  How they are done is another story.  A lawyer may be necessary, but in concert with the agreements reached during the negotiation meeting.  Financial matters, however, are usually handled by a separate lawyer-lawyer negotiations which may include Purchasing personnel.

    Barbara brought up the subject of gratuities.  I thoroughly believe that these should never be allowed.  With the government scrutinizing transactions as closely as they can and do, one should never put themselves in the position of having many questions raised about them.  The best bet is to not accept gratuities of any kind and this includes meals.  Pay for your own meals and drinks, and no-one can fault you for anything.  Only zero dollars is not an excessive gratuity.  We live in a different world now.

    I fully concur with Douglas' comment about assuring that all of the team members are involved in the negotiations.  Headcounts and drop dead dates are a cost of doing business and who is better at determining what is needed to complete the task on time and within budget, than the whole team?

    _hm:  I have never seen a complete contract negotiated from start to finish by email or over the phone.  A contract is a legal document and, as such, must meet certain legal requirements.  Preliminary “negotiations” can take place in an exploratory manner, but a contract almost always involves money and the exact financial conditions need to be signed as a legal document.  There's no such thing any more as a “handshake” legal agreement.

    Hospice:  I have always had  the best luck with a negotiation which is concluded when both parties have come to an agreement which is to the benefit of both parties.  It should not “them” and “us”, but “we”.  We are working to the mutual benefit of all.  I've always thought that there should not be any “hidden details” after a good negotiation.  Everything should be spelled out and agreed upon, or eliminated.  No-one should be left guessing after a successful negotiation.  Truth and honesty is paramount in any successful negotiation in which both parties are winners (“win-win”, not “I gotcha”)  I cannot stress that too much – partners, not competitors.

    I welcome opposing views to mine, but I have many years of experience and will debate my thoughts with anyone.  I wish eveyone success in their negotiations, not “best of luck”, and where everyone comes out a winner.

  11. bolaji ojo
    February 9, 2012

    Brian, You and Douglas broke this down extensively. I never thought about many of the elements discussed here. In fact, it's amazing what goes into simply having a meeting to discuss a business engagement.

  12. dalexander
    February 9, 2012

    Brian,

    Nice job! I thought since you had written so extensively, I would summarize by saying that aside from all the details,, to think in terms of oversweeping generalities with regards to: Presentation, Thoroughness, Preparation, Follow-Up, and Documentation. I really appreciate you pointing out the venue particulars like a clean and prepared conference room. No dirty coffee cups, pads of paper and pens for note taking, and the like. Thank you for putting so much thought into your reply.

  13. Brian775137
    February 9, 2012

    Bolaji:

    Let me simplify what I, and I believe Douglas too, have been saying is –   you must remove everything which distracts from the main purpose of having a meeting – to resolve a problem.  There should be NOTHING standing in the way of that end.  When ALL distractions are removed, then the problem resolution becomes easy. 

  14. dalexander
    February 10, 2012

    Brian, Removing all distractions allows a greater focus, but the resolutions and agreements can still be protracted depending upon the particulars of the requirements of both parties. The PLO and Isralies would back me up here. But, let's not bring any politics into the meeting room. I have no taste for it and at the risk of taking us off track, politics and ego go together like a horse and carriage. No thank you. I prefer walking to being taken for a ride.

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