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 process 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.”
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. Obtaining information about the other party you’ll blow your meeting out of the park. It will also help improve your relationships with the party in the long run.
- Speak to past negotiators: Ask other employees or clients for input on how you can improve your proposal, if possible. This will not only give you more insight about the other party’s style of negotiation, but also how they present themselves during negotiations. Look for any potential weak spots and use them to your advantage. Are they aggressive? Do they ask questions with hidden meanings? Are there any catches?
- 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. This will also aid in getting to know the other party better. You can even try to get in touch with some of their past or current colleagues and ask for valuable insight. People love hearing about themselves, so if you show up with an arsenal of information about them, they will respect you more.
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. But, what are the most valid contract negotiation tactics and skills you’ll need to successfully close a deal that is beneficial for you?
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.
This shows that you’re invested in the process and that you aren’t taking it lightly, which is always appreciated by the other party. Active listening shows you’re able to engage with others and remember the information they share with you.
If passive listening is more your forte, it would be best to enroll in courses that teach you how to engage in active listening. You can try the course by the University of Pennsylvania to improve this skill.
2. Communication
Get to know some nonverbal and verbal skills that keep you engaging. Communication is the key to success and proper communication skills distinguish great negotiators from mediocre ones.
Make sure to be assertive but not aggressive. Use your body wisely – gesticulation is a big part of communication. Aside from that, you should build rapport with your counterpart.
You are more likely to reach an agreement if you spend some time getting to know each other.
You can ask questions to get the conversation going, but avoid posing “yes or no” questions. It’s better if you ask leading questions like “Can you tell me which challenges your business is facing right now?” This will encourage the speaker to talk to you rather than just saying “yes” or “no.”
3. Patience
Rather than seeking a quick solution, hold out longer to reach your goals. If you rush, you won’t give yourself enough time to negotiate the best deal possible.
Sometimes, your silence can give the other party a signal that they should improve their deal, especially if they’re really keen on working with you. Patience is one of the most effective negotiation skills because it gives you control over time.
You need time to prepare and understand what is being offered and whether there are certain risks. Some experts call patience the negotiating super tactic and you can learn how to improve it here.
4. Persuasion
Influence the other party to see why a proposal is beneficial to everyone. An important thing about persuasion is not to overdo it – you’ll seem aggressive and needy. Instead, use other persuasion tactics like the scarcity principle, statistics, and social proof and authority.
For example, let’s say that your employees need to select a team leader. They have two people to choose from, e.g. Emily and Jake. Emily suggests that Jake should take on this task, but you feel that she would do a better job.
You then mention that Jake has a lot of work already and that you aren’t sure he would be able to complete everything. After some consideration, the group concludes it’s better to choose Emily.
You’ve got what you wanted. We suggest you visit this page to learn how you can develop this skill.
5. Adaptability
Being quick on your feet can change a lose-win to a win-win proposition. Before the negotiation starts, do your research and try to come up with different arguments and sides of the story.
Explore different areas of the contract and try to come up with potential questions and topics of conversation. This way, you’ll be ready to respond to everything in a clear and efficient manner.
Each negotiation round is unique and the situation may change depending on the day. This is where your adaptive skills kick in, telling you how to navigate the newly changed situation.
Check out this article to find out how you can improve your adaptive skills.
Improving these skills will make you a stronger negotiator and lead to more successful negotiations. You can find a wide variety of great courses, like this Harvard Negotiation Mastery Course, that will help you master the negotiation process.
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 is 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.
There are different kinds of negotiators, some of which are shady and employ questionable negotiation tactics. Knowing the law, especially the legal codes that are involved in the process will help you distinguish a good deal from a potentially devastating one.
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:
- Dress in a business casual outfit that makes you feel powerful and self-confident.
- Sit up straight with your shoulders squared.
- Keep your hands and feet still.
- Make eye contact with who you’re speaking to.
- 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
Templates let you create a legally binding contract in minutes. Contracts, in general, are very comprehensive and full of legal information.
If you’re someone who’s not really familiar with all the peculiarities, you’ll have a hard time drafting a contract on your own.
Of course, you can always enlist the help of lawyers to draft contracts for you. However, lawyers are extremely expensive and it usually takes a while before you receive your final draft.
Alternatively, you can use ready-made contract templates that are customizable to fit the needs of your business.
At PandaDoc, we offer a wide variety of contract templates suitable for different industries. We’ve already enlisted the help of lawyers who have drafted and approved these contracts.
So, you can rest assured that they’re legally binding and of the utmost quality.
We have over 200 contract templates in our gallery, some of which include:
- Outsourcing services contract template
- Interior design contract template
- Accounting contract template
- Performance contract templates
- Freelance graphic design contract template
You can use software to draft complex contracts that look professional and streamline the negotiation process. Just fill out the gaps with your business and service information, and you’re good to go.
Here, we’ll show you how to use Word, PandaDoc, and Google Docs to make a contract.
1. 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:
- 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:
- 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.
- Not great for complex issues: Every industry has unique business negotiation needs that usually aren’t accounted for in a Word template.
- 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!
- 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.
2. 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.
The app also enables you to negotiate better contracts without ever leaving PandaDoc.
Our feature Contract Negotiations speeds up the contract signing process, eliminating the need for countless emails and phone calls. It also allows you to view, comment and accept changes in one place.
Check out other great features you’ll get with PandaDoc:
- 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.
- Removes bottlenecking: You can streamline your sales operations by following our approval process. With PandaDoc’s integrated workflow, you become free of burdensome tasks.
- Instant collaboration: Communication is important for business success. PandaDoc makes sure you and your team keep the conversation flowing with chat functionality.
- Instant access: Our digital contract solution removes the need for binders and paper. Contract management has never been easier.
Although you’ll have an initial learning curve with PandaDoc, we help you every step of the way.
3. Google Docs
Similar to Word, Google Docs contains its own batch of templates. While this isn’t exactly a contract management software, it’s still a useful way to deal with contracts.
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 up your sleeve.
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.
For example, let’s say your company and the other party can’t agree on whether or not to collaborate with an influencer on a product launch. This part is blocking the whole negotiation process from moving forward. Find common grounds and say you will revisit this part later.
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. In other words, you should control the location and timing of the meeting.
You should also choose the topics you discuss. This will give you an advantage over your counterpart. The party that outlines what will be discussed ultimately has more control over how issues are resolved.
The Harvard Business Review gives great tips on how to control the negotiation before it even begins. This can prepare you for the process.
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.
Another thing you can do is show you are not personally invested in the negotiation, i.e. you’re there to do business. How can you do that? A lot of it has to do with the language you use.
For instance, instead of saying “I believe” or “I think,” you should use impersonal language phrases that state facts. Don’t say that you think the two companies will be at risk, but say: “If we agree to these two terms, both companies will be at risk.”
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.
If you show the other party that you know what you want, they will respect you more. Let’s say that your company and the other party disagree on which company to source certain materials from.
You are confident that your solution is better than theirs and you have a proof for your statement. No matter how much they try, they can’t convince you otherwise. You’re only asking what’s fair and their only option is to agree with you.
Final thoughts
We hope that our guide has helped you learn how to prepare and negotiate a contract quickly and efficiently, while not compromising on quality.
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.
