What Is Contract Negotiation?
Contract negotiation is the process of reaching an agreement by negotiating a set of legally enforceable terms (in this case, between two firms). When two firms negotiate, both want beneficial terms while minimising financial, legal, and operational risk.
The primary purpose of contract discussions is for each party to be happy with the rights and duties that have been assigned to them. Business talks also serve to ensure that the conditions agreed upon are as advantageous to both parties as feasible, with as little risk as possible.
When negotiating a contract with a vendor, one should aim to advance your company’s interests by obtaining more compassionate termination rights. However, the vendor is likely to seek the reverse.
By working together to discuss and negotiate the terms and conditions of the contract, the parties may compromise and reach an agreement on mutually advantageous conditions.
Why Are Contract Negotiations Important?
While there are clear best practices for contract negotiation, the sheer amount of collaboration necessary during the process makes the process logistically challenging for all teams. Teams who do not have a centralised system for contract tracking and negotiation frequently spend the bulk of their time putting together contract revisions from various business teams and locating the most recent copies of contracts. The scenario is significantly worse for organisations that have quarterly sales cycles.
These are among the main reasons legal teams need to negotiate contracts. Other important reasons for negotiating contracts include:
Structure and Planning
Planning is considered the most crucial step of any project for which contract negotiation skills help to discuss planning and mapping out the structure.
Efficient contract negotiation strategies establish a solid basis for a successful project, eliminate unforeseen misunderstandings, and save money. To get the greatest potential result, everything from the project’s inception to the project’s goals must be precisely laid out.
Certainty
The primary goal of contract negotiation is to gain certainty on quality, quantity, and the consequences of either party failing to meet their objectives.
However, the level of confidence required to ratify an agreement is determined by the facts of each specific instance, allowing significant room for judicial interpretation. Contract negotiations play an important role in clarifying these facts & instances so all parties are on a level when it comes to contractual obligations.
It’s important to note here that while failure to describe a critical term (such as price, rent, quality, quantity, or time period) is likely to render an agreement null and void, it is not always necessary to fill in every detail, for example- even if the agreement contemplates future documentation, it may still constitute a binding contract.
Long-term connection
Focusing on the component of bargaining generates long-term relationships, and is critical for businesses to form allied partners and business agreements. A proper negotiation and agreement strategy is required to carry out this process to its conclusion while building business relationships along the way.
Risks and Liabilities
It is at the contract negotiation stage that both parties may anticipate and plan for future risks and liabilities. Smart negotiations and the art of how to negotiate a deal help in anticipating and minimizing these challenges.
Avoiding Disputes
Since the repercussions of a conflict are time-consuming and costly, it is critical to spend time and money during the contract negotiation stage to avoid potential disputes.
Convenient Dealings
Within the negotiation process, it is critical to preserve clarity rather than confrontation. Negotiations should result in the best possible outcome for both parties. It is critical for both sides to negotiate and reach an accord on which they can both agree.
How To Negotiate Contracts – Workflow & Tactics
While the process of negotiation depends on several different contract negotiation techniques, all forms of negotiations follow the same basic steps.
The contract negotiation process always commences with the distribution of a baseline contract outlining the key aspects of the agreement.
This allows all parties to look over the contract specifications and identify any issues that need to be addressed and resolved at the meeting. As soon as feasibility is achieved, parties offer a draft so that everyone has enough time to study the document and prepare for negotiations ahead of time.
Subsequently, the contract negotiations process involves –
Presentation
Every time you present a contract, you can utilise a different presentation approach. You can present the contract to the major party principal contact online. You may offer the contract to numerous parties either offline or over email. If the presentation technique is enabled, you can also show withdrawn contracts that have been restored or contracts that have been saved as new ones.
Discussion and Negotiation
Next, negotiate the contract conditions and try to remain closer to your terms throughout conversation. Any requirements that either party has will be considered and incorporated into the contract. Reaching a consensus on the terms to be included may take some time and involve several back-and-forths. Ultimately, the goal is to find a solution that works for everyone.
Adjustments
Concessions will always be made by both parties during the negotiating process. Certain items may need to be dropped in order for the other party to feel appropriately represented in the contract, and vice versa.
Finalizations
Once both sides are happy, the contract will proceed to the final stage of the contract’s lifecycle, which is approval and signature.
Common Challenges Encountered During Contract Negotiations
Contract negotiations cause significant delays in the completion of the contract lifecycle. This has a negative influence on the business due to delays, friction, and the stress that teams are put under. When contracts do not achieve finality within the desired timetable, a protracted and extended negotiating process can result in an uphill path for business growth.
The challenges in contract negotiations include:
Rapid exchanges
There is always external pressure to complete discussions as soon as possible. Individuals under tremendous pressure may not always have the facts, numbers, and papers to back up their reasoning and compromises. This can cause individuals to overlook important facts that could have increased their bargaining power.
Lack of a centralised system
Many attorneys and in-house lawyers lack a centralised system for managing and tracking contracts and negotiations. They spend a tremendous amount of time manually putting together every single piece of information and modifications to various contracts. This results in unforeseen manual errors and lapses in judgment.
Coordination Challenges
All parties must work together to negotiate and agree on the parameters of a contract. However, since the coordination required is so extensive, it is easy to lose track of key developments.
Anxiety
Individuals who entered negotiations anxiously typically leave the table with offers that are 12 percent less financially appealing than those who entered discussions less concerned. Anxiety is one of the burning issues due to which negotiations fail in the corporate world.
How Does CLM Help In Contract Negotiations?
Contract negotiations might take a substantial amount of time & effort from legal teams. The standard procurement or buy-side contract takes 4-6 weeks at least to negotiate according to reports.
Additionally, multiple back-and-forths between vendors and clients also make it difficult to complete business contract negotiations on time.
Leveraging a Contract Lifecycle Management (CLM) platform can help alleviate these challenges and get negotiations done in a timely fashion.
Generally, negotiations of a contract occur at numerous levels in a business organization and involve a diverse set of parties. The various forms of negotiations encountered in a business setting include the following.
- When a corporation negotiates contracts from top to bottom, redlining and in-depth revisions are performed.
- Mid-level negotiation occurs when a company alters contracts by adding or removing terms and depends significantly on standardised agreements.
- Low-level negotiation occurs when an organisation handles large contracts such as NDAs.
- Non-negotiable contracts, such as when a corporation sends out non-negotiable customer service agreements or terms of service.
Here’s how smart CLM can streamline contract negotiations using a number of features –
Digital Negotiations
When corporate organisations negotiate, it is obvious that everyone participating in the conversations will be intently focused on the content of their exchanges. What is maybe less obvious is the function and effect of the specific communication media that may be used in this digital age.
With CLM, negotiations are conducted digitally by inviting parties to comment and leave suggestions on a master agreement. These suggestions are accepted if they’re amenable to all parties and rejected otherwise.
CLM tools enable easy negotiations for all four negotiation scenarios encountered in a business setting:
- Same Time; Different Place –
The discussion process is synchronised, yet the persons participating are located in various locations. Here, calls or video conferences can provide a sense of proximity with the other party and real-time suggestions & updates keep all parties in the loop.
- Different Time, Same Place –
The parties negotiate asynchronously, while having access to the same document or sharing the same physical area at different times. In this case, parties leave suggestions and comments for the other party to view at their convenience. Real-time notifications and suggestion histories help establish a sense of continuity.
- Different Time, Different Place –
As with the previous scenario, suggestions and comments help establish proximity and transparency during the negotiation process. Parties receive updates whenever there’s any change suggested to the contract’s content and all previous suggestions can be viewed from the document’s history. The asynchronous nature of the medium may be utilised to build proposals, find backup points, create reference-based arguments, and give the facts and data that support them.
- Same Time, Same Place –
The parties involved rely on direct communication as well as a wide range of signals that allow them to swiftly understand information. The uncertainty included in all talks can be better controlled than in other contexts since the specified plan can be implemented more efficiently.
Streamlined Negotiation Management
CLM software makes accessing the most recent version of a contract relatively simple via version tracking capabilities. When looking for contract search and retrieval takes longer than it should, contracting operations come to a standstill, increasing the possibility of miscommunications and errors in the final draft.
Cloud-based contract management software simplifies document storage and retrieval. Businesses can safely store agreements in a centralised contract repository provided by the contract management platform. Users can easily access documents since the contract database software makes document recovery simple.
With tools for contract milestone monitoring and a complete contract activity tracker, all workflows are monitored in real-time.
Efficient Version & Change Tracking
CLM software makes it simple to monitor contract history. The contract repository securely stores time-stamped activity and archives each version of every document.
When it comes to corporate contracts, document version control software is essential.
In accordance with the terms specified in the contract’s termination wording. The document management team reviews any documents that are about to expire, need to be renewed or need to be edited.
The most efficient technique to manage the timeline factor is to track milestones. Effective project planning focuses on the essential deliverables, so tasks clearly illustrate how the work will be structured to meet the deadlines.
Resolved Compliance Issues
Contract templates and clause management are great strategies to improve compliance and reduce risk in your contract lifecycle management operations. Instead of physically reviewing an organization’s contract templates and clauses, a digital alternative will save legal teams time when generating the initial contract draft, resulting in accurate contracts prepared at a quicker pace.
One may utilize libraries of pre-approved contract templates and clauses to help you quickly generate correct contracts when producing contracts with a CLM software solution.
Digital Negotiations and Comment History
Contract lifecycle management allows for the participation and communication of numerous contract parties in order to properly develop a contract. CLM software allows teams to use powerful collaboration tools and audit trails to monitor the effectiveness of the negotiation processes, allowing for the identification of areas of strength and development.
An audit trail helps in monitoring a detailed history of document versions, reading comments, and watching contract approvals to simplify compliance responsibilities with internal standards, external rules, and relevant security regulations.
If businesses need boilerplate, non-negotiated contracts to be executed quickly by dozens or hundreds of people, a CLM program with integrated E-Signatures can assist stakeholders in presenting the contract as a smooth, digitally native agreement capable of being signed instantly and remotely.
Contract Negotiation Tactics Everyone Should Know
A contract negotiation strategy refers to the process of negotiating legal agreements with the purpose of obtaining the desired outcome for yourself or your client. Unfortunately, there is no one method that can help you win every negotiation.
Let’s have a look at a few negotiation tactics that one should know while conducting a business deal:
- Don’t enter a negotiation until you have something to bargain about. One of the most common mistakes sales teams make is negotiating relationship conditions before they have been written out in a contract.
- For even experienced professional negotiators, first proposals may be used as powerful anchors during the negotiation process. To create an even stronger impression, try starting serious talks with a draft agreement, or standard-form contract developed in collaboration with the legal counsel available and any important decision-makers on your team.
Though such drafts are not always suitable, they might strengthen your bargaining power.
- One of the most effective contract negotiation tactics for avoiding these back-and-forths is to identify key decision-makers and encourage them to negotiate instead. However, it is critical to do this gently and without ignoring the stakeholders that are presently engaging. When processes are defined using a contract tool, they will be immediately requested to grant their permission, which will allow speed legal review without bypassing senior contract stakeholders.
- When negotiating to resolve an issue in the face of a lawsuit, parties may be irritated by a counterpart’s seeming incapacity to make or consider reasonable, good-faith offers. Final-offer arbitration (FOA), commonly known as baseball arbitration, is a promising but under-utilized method. In FOA, each party makes their best and final offer to an arbitrator, who must choose between the two offers and not any other value.
Negotiate Contracts Digitally With Smart Contract Management
SignDesk’s end-to-end contract management tools – CONTR.ACT – allow you to draft contracts and negotiate provisions in real-time. CONTR.ACT also offers simple eSignature and eStamping connections for executing contracts quickly and securely.
Reports suggest that the global Contract Lifecycle Management market is projected to grow at a compound annual rate of 13.5% between 2022 and 2032.
Manage bulk contracts and provide a streamlined workflow procedure, all while cutting TAT by 90%. Automation has resulted in considerable cost savings for our clients.
Contact one of our sales professionals to learn more about how our contract lifecycle management solution can speed up negotiations for your business.
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