One of the most valuable skills an in-house lawyer brings to a company is the ability to negotiate contracts. While contract negotiation is an important skill, it is rarely taught in law school. Below we will discuss a number of contract negotiation tactics that in-house lawyers can deploy to help the business get more contracts completed in less time and with better terms.
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| Prepare |
| Understand leverage |
| Don’t give up control |
| Create a negotiation playbook |
| Nothing is done until everything is done |
| Listen more than you talk |
| Build a rapport with the other side |
| Take rational positions |
| It’s not a war |
| Your word is your bond |
Prepare
Preparation is the single most important factor for a successful contract negotiation. If you fail to take the time to properly prepare, you will almost surely get less than you could have otherwise gotten from the negotiation. The time you spend preparing should dwarf the time you spend negotiating with the other side:
- Know your objectives: What are you trying to accomplish? What issues are important to your client, and which ones are not? What is your “walk away” position?
- Know your client: Who is the business person you are paired with? What do they need to get a “successful” deal? Equally important is to manage client expectations and keep them realistic under the circumstances.
- Know the strengths and of your position: Where are your positions the strongest and the weakest? What issues/circumstances run in your favor, and which don’t?
- Know the other side: Use every resource to get a handle on the people on the other side of the negotiation. What motivates them? How do they negotiate? Do you know anyone who has dealt with them in the past?
- Get information: Information is power in a negotiation and the side with the better/more information is the side that usually comes out with the better result.
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Understand leverage
A key part of preparation is understanding the commercial leverage each party brings to the negotiation. Leverage is the ability to influence the other side to move closer to your negotiating position. Consider how much your side wants or needs the deal and the same for the other side. Evaluate each side’s alternatives if no deal is reached. Determine who is facing time pressure, as patience can be a highly effective negotiation tool. Consider where you or the other side would go for goods or services if a deal cannot be struck. If those alternatives are not as good as the product or service being offered, then some of the commercial leverage will fall to the party offering the product or service.
Don’t give up control
Resist letting the other side set a pace for negotiation that does not suit you or your team. If you need a break, take a break. If you want to go faster, push ahead. If you think the parties need to meet over the weekend to get a deal, set that out. Similarly, once there is a deal in place, work hard to get control of the first draft of the agreement. Make sure all of the issues and agreements are dealt with in the agreement (if it’s not in writing it is not part of the deal) and fight for language you are comfortable with. Don’t let up until the document is drafted and signed.
Create a negotiation playbook
For any important contract negotiation, invest the time to prepare a written deal “playbook.” This document will summarize the key issues you face in the negotiation and provide a point-by-point summary of your position and the other side’s position, showing how those positions change over time. You will set out your preferred “landing zone” for each issue along with your “walk away” point, meaning the minimum terms or value you are willing to accept before walking away from the deal. This last point is important; you must always be prepared to walk away from a bad deal.
Ensure you build room for flexibility during the negotiation, as a “take it or leave it” approach rarely works. The playbook should be regularly updated through each round of the negotiation. A playbook will keep everyone on your side focused on what’s important and will instill negotiating discipline, allowing you to maximize your leverage and strengths and focus on what’s truly important to your side. Here is an example of what a small section of a simple playbook might look like after one round of negotiation:
Nothing is done until everything is done
Do not try to resolve your issues one point at a time. For example, of the first three issues in a contract negotiation your side may only truly care about one of them. If you fully negotiate all three issues, when you come to issues 18 and 19 — which both mean a lot to your side — you cannot trade issues two and three to get what you want for 18 and 19. Go through all of the issues once and understand generally each side’s position, without fully negotiating each point. Most importantly, do not give something unless you get something for it. Be clear that there is no deal until all issues are agreed to.
Listen more than you talk
The best way to get information is by listening. The rule of thumb here is to listen 70% of the time and talk the other 30%. Ask them what they want and then listen hard to the answer. Let them explain their point to you and then summarize back what you heard to make sure both sides are thinking about the point the same way. This doesn’t mean you agree, but it will help keep you from missing each other.
Build a rapport with the other side
It is worth your time to build some type of relationship with the other side during your negotiations. Even if it’s just small talk about family, where you went to school, etc. There is little downside to being friendly. Sometimes during tough negotiations, I would invite my counterpart to step out of the sessions and grab a cup of coffee. We’d talk about the negotiations and things we could do as facilitators to bring the sides together or we just talked about sports or the weather or whatever and used the time to clear our heads. We’d almost always come back to the room with some new ideas.
Take rational positions
One of the most effective techniques in a negotiation is the ability to show why your position makes sense from a reasoned basis. There should be a reasonable, logical, and valid rationale for what you are asking for, and it should be fair. For example, if you can show that the clause you want to insert around liability caps is “at market” and is “fair” based on the revenue stream of the contract, it is difficult for the other side to refuse to agree. The focus of your negotiation is built on reasoning and logic, and not emotion. Likewise, you need to listen to the other side as they lay out positions and understand whether those positions are market-based, or are industry standard, or are otherwise “fair” under the circumstances. If you disagree, bring facts to bear and not just “I don’t want to do that.” And, if you can, always try to show how what you are proposing works for them or their position.
It’s not a war
A frequent mistake people make heading into a contract negotiation is to think of it as a “war” where someone has to “win” the day. The basis of a good negotiation is that everyone gets something and if you can help the other side feel like they got things important to them (even if they’re not important to you) it can go a long way to reaching a deal. If you want a war, that’s what the courts are for. Each side will go into the negotiation with strong points and weak points. Don’t overestimate your strong points or underestimate those of the other side. Every once in a while, you come across the “bully” negotiator. This technique rarely succeeds as there are many problems with preconditions and ultimatums and an attitude of “they lose” does not equal “you win.” If you do come across a bully, don’t make it personal. Let them rant and rave and then say either “Are you through and can we start the negotiation now?” or “We’ll come back when you can behave like an adult” and leave.
Your word is your bond
The one thing you have in your professional career is your reputation. If that gets tarnished, it is very hard to recover. People respect tough, hard negotiators. People despise liars and cheats and will look for the first of many opportunities to “stick it” to them down the road. If you have a reputation for being truthful, living up to your word, and doing what you say you will do, your negotiations will go much better and deals will be easier to reach because there is a level of trust between the parties.
Many experienced contract negotiators have different tools and “tricks” that help them succeed. The above just touches on the basics. You can add and subject or adjust to suit your particular style or the specific needs of the negotiation. There is no “one way” to negotiate but the above are tried and true and work. If you have access to Practical Law, you have many tools at your disposal to negotiate great contracts. They are just a click away.
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