How to Prevent Contract Negotiation Pitfalls
Ask any contract manager, “what are the top three skills of a successful contract manager?”, and you’re bound to land with negotiation skills as one of them. However, often too much time and money is wasted in negotiations. Regardless of their industry, businesses could be saving resources by handling contract negotiations more efficiently.
Here are four strategies to streamline contract negotiations and prevent common pitfalls.
1. Standardize Non-Disclosure Agreements
In a recent article at IACCM’s Contracting Excellence Magazine, Paul Golding (Director of TRG Law) recommends to create standards for non-disclosure agreements (NDAs) to minimize the costs involved in talking about when you will start talking business.
While some contract managers will scoff at the idea of jumping into negotiations without absolute legal safeguards in place, all contract managers will agree that any NDA that scares away all potential customers is a bad idea. Golding suggests a NDA template that doesn’t favor either party, omits provisions that aren’t absolutely essential (e.g. destruction of all copies), and does away with penalties that are so onerous as to become deal breakers. Having access to a standard NDA in the library of a contract management system allows your sales staff to enter negotiations
2. Don’t Focus Only on “Winning”
In Fisher and Ury’s “Getting to Yes”, there is an anecdote about a spectator arriving to a tennis match and asking “who’s winning?” Focusing on that single question during your negotiations misses three important issues.
- What kind of negotiation are you doing?
- How are parties dealing with one another during the negotiation?
- What are the shared and different interests involved in the negotiation?
Picking every single battle and not budging even a bit for any issue is the surest way to reduce your chances of getting repeat business. Remember that effective client management is essential to keep a sustainable operation. One of the top reasons why client defections occur is because of “indifference by supplier.” Take the time to find out what truly matters to your client and allow the other side to have victories of its own.
3. Creating an All-Party Map
Harvard business professor, James Sebenius specializes in analyzing and advising on complex negotiations.In his book “3-D Negotiation: Powerful Tools to Change the Game in Your Most Important Deal”, he points out that any effective negotiation requires careful consideration of all players in a negotiation:
- highest value players,
- potentially influential players,
- potential blockers,
- potential allies,
- agents with wrong incentives,
- influential agents in key decision makers,
- decision makers,
- parties necessary to implement the agreement, and
- parties who truly have no say in the negotiation.
Defining a full all-party map as part of your contract lifecycle is a necessary step to foresee any potential obstacles and define points of contact in case that those obstacles come up during negotiations.
4. Establish the BATNA of All Parties
Coined in 1981 by Roger Fishers and William Ury, BATNA stands for Best Alternative To a Negotiate Agreement. This term is a useful guideline for contract negotiation because it establishes thresholds in which better alternatives are available than continuing the negotiation.
Keep in mind that a BATNA is different from a worst-case scenario. When you have a worst-case scenario, you have no other good alternatives left. On the other hand, a BATNA provides a list of available alternatives that can be considered should a negotiation fail to render a favorable agreement.
While the benefit of defining your own BATNA is clear, the benefit of finding out the BATNA of the other parties may not be as clear. However, having an idea of the BATNA of the other party allows you to keep negotiations amicable and within guidelines that create value for both parties. Nobody likes to waste time and if you present options that are still better than available alternatives to the other party, you’re increasing your chances of closing deals faster.
You can prevent common contract negotiation pitfalls by standardizing NDAs, not focusing only on “winning” every single aspect of a negotiation, creating an all-party map to a negotiation, establishing the BATNA all parties involved in the negotiation.