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How to negotiate a contract

How to negotiate a contract

Contract negotiation is essential for modern businesses, but it isn’t always easy.

When giving his Inaugural Address in 1961, Former U.S. president John F. Kennedy stated:

“Let us never negotiate out of fear. But let us never fear to negotiate.”

John F. Kennedy

Although negotiation can make the suavest salesman scared, you can develop this skill over time. Don’t just run from it; you need to negotiate successfully with your business partners to reach a win-win situation and protect your bottom line.

But how do you ensure this process goes smoothly?

Let’s talk about contract negotiation in more depth. Along the way, we’ll share some pro tips and insights to help make your negotiation go smoothly.

What is a contract negotiation?

Contract negotiation is when two or more people discuss the current terms of a contract and come to a new, legally binding agreement.

Before the document is signed, you can negotiate (or change) parts of the contract until everyone in the business relationship agrees to the new terms.

You can renegotiate a contract during the life of the agreement or after the document expires. 

The most common type of renegotiation happens while you’re under the agreement.

Also called an “intra-deal,” this negotiation process legally allows you to cancel a contract or change the contract’s terms. Intra-deals are smoother if the initial agreement permits them.

That’s one of the reasons why it’s important to read every business contract before you sign.

Contract negotiating definition

During a contract negotiation process, everyone involved will assess their responsibilities, rewards (pay, benefits, etc.), and risks they’ll assume to form new contract terms. If dispute resolution is the main goal of renegotiation, you may want to involve a legal team.

The goal of contract negotiation is one where the new contract reflects a win-win scenario. It’s not always possible to make everyone happy, so you may need to settle for a compromise.

Goals of contract negotiation

It’s recommended to set goals during contract negotiation because they help focus your motivations.

While it would be nice to kick open the boss’s door and ask for more pay, you’re unlikely to get what you want unless you can explain why you deserve what you’re asking for.

Every contract has an underlying goal, and knowing what that is can make the discussion smoother.

With that in mind, ask yourself if your contract negotiation goals can stand up to the following questions:

  • Have I clearly explained all the terms and conditions of my renegotiation proposal?
  • Are the goods or services I’m providing defined appropriately?
  • Did I include a payment schedule, financing terms, and total costs in my compensation?
  • Have I set reasonable expectations for the business relationship going forward?
  • Are all the required renewal dates, effective dates, and completion dates clearly stated? 
  • Did I address liabilities and risks associated with the change of contract?

In the next sections, we’ll give you the tools you need to answer those questions with a “Yes.”

We make contract negotiation simpler

To help you streamline the process, we developed a contract negotiation feature that eliminates the back-and-forth tied to the negotiation process.

Coming in September, you’ll be able to close faster with PandaDoc.

We give you complete creative control to enable suggested edits for templates or individual documents in the workflow settings menu, manage recipients menu, and send documents dialog (documents only). 

Available for Business and Enterprise plans with the standard/creator license, these new features come with the same easy-to-use interface, competitive pricing, and world-class support you know and love.

While you wait, you can become a better negotiator by following our 10 part process.

01. Research the other party

Sherlock Holmes wouldn’t be able to catch criminals without a bit of sleuthing. Take a page out of his book and conduct your own research on the other party to help you lock up a great counter-offer.

The more you know about the person you’re speaking to, the less likely they are to surprise you.

Preparing is one of the best negotiation tactics in your arsenal because you’ll quickly foster trust and respect in the other party, which will help you build rapport.

You need to establish common ground early in a negotiation, and what better way to do that than to promote mutual interest and friendship?

Research requires some effort on your part, but it can help you reach the agreement you want.

  • Research past negotiations: Try to find information on what kind of agreements they reached, whether they’re self-serving, or what negotiation styles they prefer. Adjust your own contract proposal or negotiation style into something they were previously receptive to.
  • Speak to past negotiators: Ask other employees or clients for input on how you can improve your proposal, if possible.
  • Search the internet: Social media is a valuable tool. Linkedin can offer a goldmine of information about a person’s professional life. You can also research professional associations, like a bar association if you’re negotiating contracts with a lawyer.

Don’t assume it’s unprofessional to spark a casual conversation! Sometimes, speaking about your interests can help you establish common ground.

02. Brush up on your contract negotiation skills

Negotiation is a skill that you can learn and hone with a bit of practice.

Here are some skills you can brush up on before stepping into the negotiation room:

  1. Active listening: The skill of recalling specific details without repeating them.
  2. Communication: Get to know some nonverbal and verbal skills that keep you engaging.
  3. Patience: Rather than seeking a quick solution, hold out longer to reach your goals.
  4. Persuasion: Influence the other party to see why a proposal is beneficial to everyone.
  5. Adaptability: Being quick on your feet can change a lose-win to a win-win proposition. 

Improving these skills will make you a stronger negotiator and lead to more successful negotiations.

03. Understand basic contract law

There’s a good reason why many businesses staff legal teams: the law is endlessly complicated. Knowing where to start can save you time.

In the United States, the law of contracts varies between each state. 

State-controlled contracts are governed by The Common Law (leases, employment agreements, general business agreements). The Common Law is constantly evolving based on judge-made decisions yearly, so it’s important to keep up-to-date with these changes.

The Uniform Commercial Code (UCC) controls contracts that handle the sale of goods. This standardized collection of guidelines are incorporated with state-related sales laws.

A contract is made when there is an offer, an acceptance to an offer, and enough consideration to make the contract valid. A lawyer can help you determine if your contract is legally binding.

You may want to brush up on some contract terms, like procurement (to persuade someone to do something), bid (supplier’s quote), and others.

04. Consider professional advice 

While browsing the basics of contract law, did you feel like tearing your hair out? Did you actually tear some of your hair out?

We don’t blame you. Sometimes, it’s better to leave the heavy lifting to the professionals. 

Legal negotiation isn’t always frustrating. Small businesses typically use well-structured templates that cover their basic business matters. 

On the other hand, negotiating terms and conditions of a contract with a big-business legal team may require backup regardless of how small the change will be. 

Guidance from a law firm isn’t your only option, although it should be your first:

  • Contract lawyers: Lawyers specializing in contract law can draft contracts, review contracts, and protect your legal rights. Contract lawyers can offer legal advice if you need clarification of a legal term or legal language.
  • Business advisor: Business advisors specifically offer hands-on help, support, and advice for business areas. Hire one to ensure your business needs are met in a contract.
  • Contact your union or governing body: Some contract or business questions can be answered by a government branch. If you’re negotiating with a company that’s unionized you can speak to a representative directly about drafting a legal union contract.

05. Be professional

Like it or not, most employers will judge our professionalism based on appearances

It’s still important that you speak respectfully to the negotiator and appear prepared to all parties involved, but you won’t get far without a suit, a decent haircut, and proper posture.

Counterparties in your negotiation have to make a quick judgment about your personality, trustworthiness, and skill. If you’re professional and self-assured, you’ll come out on top.

You can improve your negotiation chances by checking off the following:

  1. Dress in a business casual outfit that makes you feel powerful and self-confident.
  2. Sit up straight with your shoulders squared.
  3. Keep your hands and feet still.
  4. Make eye contact with who you’re speaking to.
  5. Observe the other party’s posture and offer concessions if things aren’t going well.

06. Take your time

Quickly signing a contract leads to a lot of misunderstanding and tears. You may be signing away years of your life to an organization that makes you miserable.

Most of us don’t enjoy negotiating, so we rush to get it over with. 

We get that, but you owe it to yourself to take your time and read the proposal carefully.

Think of negotiation as a chance to add value and collaborate, not to “beat the other side.” Having a fresh take on negotiating may help you relax and even enjoy the experience.

07. Use templates

Did you know you can create a legally binding contract in minutes with a template?

You can use software to draft complex contracts that look professional and streamline the negotiation process. 

Here, we’ll show you how to use Word, PandaDoc, and Google Docs to make a contract.

01. Word

Microsoft Word has plenty of templates built into the software.

From Microsoft Office, click the Microsoft Word tab and select “More Templates.” In the search bar, search for “contract templates.” You can narrow down your search by specifying what type of contract you’re looking for, whether it’s a business or employment contract.

Let’s take a look at the pros of using Word:

  1. Easily Accessible: Most of us own and use Microsoft Office daily. You’re already familiar with how to use the software; you just need to make a new document and create a contract. 

Unfortunately, the cons heavily outweigh the pros:

  1. Lacks legality: While Word comes with a wide variety of template options, most of what you can use won’t be legally binding. Word templates are typically uploaded by users, not professionals. You’ll still need to research contract law or go to a lawyer, just to be sure.
  2. Not great for complex issues: Every industry has unique business negotiation needs that usually aren’t accounted for in a Word template.
  3. Too vague or too strict: Without proper legal knowledge, a Word template can offer terms that may leave your business open to legal or financial repercussions – not good!
  4. Plagiarism: Sometimes, a Word template is uploaded without the owner’s permission. You’ll need to find the original author to ask for their permission, or you’re committing plagiarism.

02. PandaDoc

When it comes to contracts, PandaDoc doesn’t mess around.

PandaDoc solves the legality, complexity, and plagiarism issues of Microsoft Word instantly. Through our contract management software, you can create custom, error-free contracts that are legally binding and fully integratable. 

Check out these great features you’ll get with PandaDoc:

  1. Fast and efficient: Our top priority is your free time, and with our library of pre-approved clause choices, you can build an expert-level contract in minutes.
  2. Removes bottlenecking: You can streamline your sales operations by following our approval process. With PandaDoc’s integrated workflow, you become free of burdensome tasks.
  3. Instant collaboration: Communication is important for business success. PandaDoc makes sure you and your team keep the conversation flowing with chat functionality. (This feature, as well as the ability to view, comment, and accept contract changes will also be included in our contract negotiation feature released in September!)
  4. Instant access: Our digital contract solution removes the need for binders and paper.

Although you’ll have an initial learning curve with PandaDoc, we help you every step of the way.

03. Google Docs

Similar to Word, Google Docs contains its own batch of templates.

From the Google Docs main screen, locate “Template Gallery” in the upper right part of the screen. Click “Template Gallery” to expand the template selection. If you scroll down, you’ll notice a few templates we’ve created, like the Consulting Agreement Template.

But here’s the bottom line: Google Docs suffers from the same problems as Word. 

Although Google Docs is easy to use and accessible, you’ll have no way of knowing if a template is legally binding or available for public use unless you do some digging. 

Still, if you choose to use Google Drive, we have created a PandaDoc and Google Drive integration software that keeps paperwork simple.

When you find the perfect template, our document add-on helps you generate documents and collect eSignatures all from one location. 

08. Be realistic

Understanding what skills you bring to the table is a critical point in contract negotiation.

Although one of our top priorities in contract negotiation is to receive a better deal from our counterparties, you have to offer up something in return to get what you want.

That’s why a term sheet is handy. 

A term sheet is a nonbinding agreement that outlines the basic terms of the contract in a bullet-point list. It can serve as a basis for future negotiations between both parties.

It’s better to keep your term sheet handy to address big picture items. If you can’t agree to a term sheet, there’s no point in signing a contract. 

If your term sheet proposal is rejected, there’s a strong possibility you’re asking for too much and not giving enough back in return. 

Ask yourself if your request for better healthcare benefits is worth a pay decrease or whether it’s fairer for the buyer to pay for closing costs in a real estate purchase agreement. 

You should always know your worth, but researching the company beforehand can help you determine what you can ask for in your contract negotiation.

09. Write it down

In some cases, employers will tell potential new hires that they can’t accommodate a request immediately but will revisit the proposal later. 

But unless that statement is written down as part of the contract, that request may never happen. At best, your employer will forget. At worst, your employer will deny you asked in the first place.

Nothing is guaranteed unless it’s in writing.

Don’t accept anything at face value. Protecting yourself is one of the most important contract negotiation strategies, so always ensure your terms are written down before signing.

We consider this step so vital that we disable your ability to sign contracts in our contract negotiation feature until all suggestions are resolved.

That means if you or your client adds a suggestion to a contract, it will invalidate all signatures. Both parties will have to finalize the document and sign again. This feature protects both you and counterparties from accepting terms you weren’t aware of!

10. Contract negotiation techniques

To negotiate agreements successfully, you’ll need to have a few contract negotiation techniques in your tool belt. 

Use these common negotiation strategies that are proven to work:

  1. Compartmentalize: Avoid an “all or nothing approach” when negotiating because your counterparties probably won’t agree with all of your terms. Pass this roadblock by breaking the negotiation into sections, so you reach more solutions in different parts.
  2. Seize the reins: The phrase “controlling the agenda” means creating an advantage in the negotiation by controlling the pace. If you set yourself up as the moderator, you’re more likely to convince the other party.
  3. Facts, not emotions: Try to remove emotion from the negotiation as much as possible and focus on what influences the counterparty. You can reduce conflict by figuring out what the other party wants.
  4. Ask for what’s fair: By telling the negotiating parties you’re “only asking for what’s fair,” you’re justifying your terms on industry standards. The burden shifts to the other party to make an exception, which you’d only accept if they offer concessions elsewhere.

Final thoughts

Consider our guide when negotiating your next contract.

If you’re prepared, knowledgeable, and confident, you’ll quickly become a negotiation master!

And, if you need help crafting the perfect contract, or just want to know how to negotiate employment contracts, reach out to us at PandaDoc.

Yauhen Zaremba

Yauhen Zaremba Director of Demand Generation at PandaDoc

Yauhen is the Director of Demand Generation at PandaDoc. He’s been a marketer for 10+ years, and for the last five years, he’s been entirely focused on the electronic signature, proposal, and document management markets. Yauhen has experience speaking at niche conferences where he enjoys sharing his expertise with other curious marketers. And in his spare time, he is an avid fisherman and takes nearly 20 fishing trips every year.

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