Contract negotiations can be tricky and stressful, especially for the legal department.
If it takes too long, it’ll delay the growth of your company. Along with that delay comes the pressure from colleagues. The sales team doesn’t want to see their efforts go to waste. HR leads are waiting on you so they can onboard the new hires. The CEO is unhappy when he hears about this feedback.
So why do contract negotiations often take so long?
Here’s the unfortunate truth ― some companies often still rely on outdated manual contractual processes.
29% of Aberdeen survey respondents see opportunities for improvement in the contract negotiation process.
To address the problem, let’s help you through this article. We’ll start from the basics of successful contract negotiations, and move on to the skills and strategies to master negotiating process. Also, we’ll share contract lifecycle management software that will help you speed up the process.
What is contract negotiation?
Contract negotiation is the process by which signing parties discuss the terms of a contract so it ends in a mutual agreement.
It involves exchanges of proposals since parties typically have different goals and interests. So, the bottom line is, that negotiating helps contracting parties find a way to compromise.
The process generally entails several back-and-forths. If negotiations fail, the result could be serious. Business opportunities can be lost. Trust can be broken. Worse, lawsuits can be filed.
These are the reasons why negotiators should aim to reach a long-term agreement at the end of negotiations.
Why is contract negotiation important?
When you’re entering into a contract, the terms are spelled out. However, not every party will agree to it. Ensuring clarity on what is expected from each party helps you avoid future disputes and confusion.
To better understand its importance, let’s consider these 3 contract negotiation examples.
- Negotiating employment contracts
- Negotiating sales contracts
- Negotiating SaaS contracts
Negotiating employment contracts
Employment contract negotiation is a must. HR wants to get the best possible terms for the company, but they must also consider the employees’ needs.
Two of the most important aspects of this negotiation are salaries and employee options.
- HR will have to negotiate salaries with an employee to keep them within the company’s budget. The range is usually based on the spending limit for the position, as well as the going rate for similar positions in the market.
- HR also needs to negotiate employee options which means taking into account the employee’s experience, skills, and qualifications.
Negotiating sales contracts
Is your business involved in the purchase or sale of goods? Usually, you’d need order forms and NDAs. You will likely include the following:
- descriptions of goods and services
- payment plan
- inspection period
- miscellaneous provisions like confidentiality, amendments, and governing law.
Negotiate a sales contract keeping these things in mind:
- As the seller, you should be clear and concise in your offer.
- As the buyer, be reasonable with your expectations.
- Always consider the other party’s needs to ensure that both parties are satisfied with the agreement
Negotiating SaaS contracts
If you’re negotiating SaaS contracts, you’re about to enter an agreement to use a service or tool at a cost. The legal can assess the content of the contract but can leave negotiation to the procurement team. There are a few things to clarify in the SaaS contract negotiation.
- SaaS services included
- License grant & scope of the license
- Payment terms
- Warranties and Limitations of Liability
- Term & termination
- Indemnification & confidentiality
What are the top contract negotiation strategies?
There’s no single formula for negotiating contracts. However, some strategies can help to ensure a successful outcome.
Here are 7 of them:
Know what’s important to you
Upon entering a contract negotiation, take note of your deal breakers and the areas where you are willing to make concessions. By getting clear on this from the beginning, you’ll be in the best position to negotiate.
Be fully knowledgeable of the agreement you’re entering
Being wary of the agreement you’re about to enter is good. Gain more than enough knowledge of the contract before signing on. That’s negotiating to your full extent.
Stay calm and confident
How can you stay calm when the stakes are high and the other side is trying to lowball you? Take a deep breath and relax. The tenser you are, the more likely you are to make mistakes. Stay confident and collected so you avoid costly slip-ups when negotiating a fair contract.
Here’s a trick: start with a higher offer than you’re expecting. That way, you have a big margin for negotiation. Hold firm on your position, but be flexible. When you do, always leave room for yourself to negotiate. If you give in too soon, you’ll have little leverage later on.
Keep an open mind but resist the urge to accept things too quickly
Let’s face it. Sometimes we are tempted to simply agree to the other party’s demands. However, doing so could end up costing dearly in the long run. So take the time to consider your options. If the other party is willing to make reasonable concessions, it may be in your best interest to agree to them.
Prepare for counteroffers
A counteroffer is when the other party makes a new offer in response to your initial offer. Anticipate what the other side might say and have a plan for how you will respond. This way, you will be less likely to be caught off guard by their tactics.
Be prepared to walk away
Be aware of your alternatives. If you feel that the agreement is not in your best interests, don’t be afraid to walk away from the negotiation. Remember, you are under no obligation to sign anything you’re not comfortable with.
We’re done with some smart strategies so now make sure you’re armed with the right skills before you enter into negotiations.
What are 9 good negotiation skills?
BATNA stands for “Best Alternative To a Negotiated Agreement.” Meaning, it’s your option if you’re unable to reach an agreement during negotiations. Defining your BATNA before beginning any negotiation will help you clarify your position. Just be realistic about your BATNA ― if it is not truly viable, then it will not serve as an effective negotiating tool.
Sometimes, it’s best to be silent and listen. During contract negotiation, this will let you learn about the other party’s interests and objectives. Active listening involves not only hearing what the other person is saying, but also taking time to process and understand the information.
Smart use of emotional triggers
Emotions can often influence the outcome of negotiations. Using emotional triggers wisely can impact the negotiation process. Imagine, if the other party is angry or frustrated, they might agree to terms that aren’t in their best interest, just to get the event over with. So yes, this may be a cheeky negotiation skill.
The ability to find and use relevant data can be the difference between a fair agreement and a bad deal. Good negotiators know how to find the information they need and how to evaluate them. This gives them the power to identify opportunities and make informed decisions.
Strong communication skills mean being able to effectively articulate your needs and desires, as well as listening carefully to the other side. Even if the negotiation gets heated, you’ve got to stay respectful and professional at all times. Through effective communication, you can help to create an atmosphere of cooperation.
Try a contingent contract
Negotiators examine all possible outcomes of a proposed term. Here’s where a contingent contract works best. A contingent contract is an agreement where the terms aren’t in full effect until a predetermined event takes place. An example is setting objective criteria for the other party before moving forward with the contract. These are common in business because they let both parties negotiate while not fully committing.
Another good skill to have is the ability to quickly and accurately assess the terms of a contract. Good analytical skills also allow negotiators to spot potential areas of disagreement or misunderstanding, so that they can address them before they become roadblocks.
Contracts are a necessary part of doing business, but they can also be a source of conflict. When negotiating, it’s important to be able to identify and solve problems fast. It’s good to be well-versed with the industry standards so your solutions are always legal.
Negotiations end. Now it’s time to make sure your business partnership is a success. By staying connected with all the parties involved and regularly checking in on the status of the contract, you can avoid any last-minute surprises or delays.
How to negotiate a contract
There are 3 of the common medium to negotiate a contract:
Using MS Word
If you’re comfortable using this program, negotiating a contract can be as easy as opening up a document and typing in your terms. You can collaborate and view earlier versions of documents in the edit history.
However, before you start putting fingers on the keyboard, read this article on why MS Word isn’t enough for contract drafting.
Using Google docs
Google docs is another option when negotiating a contract. It’s a document collaboration tool that lets you edit in real-time. With it, you can easily keep track of all the changes and see who made them. It’s easy to know which terms you agree with and disagrees with the other party.
Though this is a cloud-based tool, you can’t easily add automated contracting workflows. Automating workflows requires custom programming and Google Apps Scripts.
Using contract automation tool
Contract automation tools can help streamline the contracting process. They can be used to generate contracts based on pre-defined templates and set up automated contract approvals.
Avokaado CLM is an example of contract automation tool with the possibility to automate the contract negotiation stage.
Why use Avokaado as your contract negotiation software?
Avokaado is a contract lifecycle management platform that can take care of the excruciating tasks of contract negotiations. Not only that part though because it can help you with the entire phases of contract management ― pre-execution, execution to post-execution.
Let’s see the benefits of using the contract lifecycle management software during the negotiation process.
It sets you up for efficient contract negotiations
Avokaado cuts down the time until the first contract draft is ready so the other signing party can edit a contract or suggest new terms during contract negotiation.
So how will you do it with Avokaado?
Avokaado lets you get your initial draft done fast. You can use it to create contracts from pre-lawyered templates so you’re sure to draft them in the appropriate contract language. It has 100+ templates you can use for free ― also you can keep what you’ll use in your very own template library.
Then when you’re ready for external collaboration, you can share the contract via a public link. All the commenting and negotiation happens on the most recent version of the document and on a single platform.
It automates the processes thus helping the company grow faster /h3>
A contract negotiation process is lengthy. Automating the contract negotiation process can help companies to save time and grow faster.
Avokaado can automate the steps needed before, during, and after the negotiation process. Some of this is sending automated alerts to contract-related individuals and getting eSignature using one tool. As a result, companies can streamline the contract negotiation process and make it more efficient.
- The Head of Sales is pleased with how fast you release sales contracts so they close deals fast.
- HR praises you for optimal employment contracts.
- The CTO and procurement teams can finally reduce the costs of expensive SaaS software that’s driving the company’s technology.
It makes contract negotiation more collaborative
If you’re working with your colleagues during internal collaboration, Avokaado lets you collaborate before you finalize the contract draft. So if you need to modify the content, you can do it internally first.
You can add them with viewing or editing rights. That also makes the entire approval workflow a lot more efficient since your collaborators already reviewed it. Now it’s easy to collect approvals and even signatures by having seamless integration with international electronic signatures providers such as Dokobit and SignNow. No need to jump at another tool.
The platform has an activity log so you can track if your collaborators have opened the document or who/when made changes to it.
It lets you store data in one place
When two businesses start contract negotiation, the goal should be to have a secure contract partnership. That’s only possible when there’s transparent and handy contract management.
Avokaado has a centralized repository that the entire team can access 24/7. It means all your documents are saved, searchable, and controlled in one location.
Mastering contract negotiation
All business transactions involve some form of contract and they’re often reviewed and negotiated by lawyers. Negotiating a contract may seem like a complicated process, but with a little preparation, you can be sure to get the best possible deal.
There are strategies, technologies, and skills during a contract negotiation that even you can apply. By using them, you can put your company in a much stronger position and hopefully come away with the best possible deal for your business.
If you or your legal team wanting to master the game of contract negotiations and speed up the process ― give Avokaado a try today. Our CLM software makes negotiation easier so you can focus on what’s important and that’s reviewing higher-value documents.