How to Negotiate a Contract
Many books have been written, and many seminars have been given about negotiation. Personally, I like to keep it simple. Negotiation is horse-trading; it is about power. If you are the only supplier of a product that a buyer needs, then you have the power and the ability to get most all of what you want inserted into the contract. The reverse is true, as well. If there are many suppliers of the product, the buyer has the power. When there are many suppliers and many buyers, negotiation is an art form.
For the purpose of this blog post, I will assume the last circumstance in which there are many suppliers and many buyers. In this circumstance, each side may get some of what they want, but no one will receive all of what they want. There may be agreement on many of the terms of the contract. However, the other terms where there is a polite conflict of goals, you must evaluate which terms can be traded, and which cannot be traded.
Draft the Contract
While you may want to determine the elements of business contract — the who, what, when, and why (see my previous blog post for more information) — on your own, many terms will not be negotiated until a written contract is submitted. Whichever party drafts the contract will likely include many terms which are favorable to their own party.
Identify the Terms Which are Worth Negotiating
At this point, in review of this contract, your attorney should identify the terms which are worth negotiating, hopefully evaluating the terms with you. After all, you are the client and the boss. Plus, you understand the buyer/seller on a personal basis, and therefore you understand what decisions the buyer/seller may make. Your attorney has no working knowledge (expect based upon considerable experience) about what objections the opposing attorney may make, separate and apart from his or her client.
Discuss Areas of Conflict and Come to an Agreement
Now, you receive a draft. By and large, your changes to the terms will be made by a revision of the contract, which is returned to the other party’s attorney. There may be a few exchanges of drafts. Often, three exchanges are made before all of the terms, and the wording of each term, is agreed upon. It is common, after the first exchange, for both of the parties’ attorneys to discuss the terms which are the subject of conflict. The second exchange should result in an agreement of terms, but sometimes it does not. Words can be important, as there are many aspects to a term of the contract. You attorney should iron out any differences in wording in order to protect you. This is a mini-horse trade. Wording, and the consideration of mini-terms, may be the difference between a successful suit on a breach of contract, or a failing one.
Examples of Negotiating a Contract
Now, to give a few examples. I encourage you to read my preceding blog post on the elements of business contract, so that you can understand more precisely the alternative terms for the basic elements of a contract.
A seller will want the buyer to include its principal, personally, to be listed as a buyer. Of course, the buyer will want the opposite. As mentioned before, this negotiation is all about power. You may succeed in getting the principal to guarantee a terms of the contract, such as payment. But, this is not certain. It all depends on the power.
Payment is a major term. Hopefully, both parties have agreed upon price before turning the matter over to an attorney for advice and negotiation strategy. Frequently, a major term is whether you will be paid before, or paid after the product is delivered and inspected. As a seller, you will want to negotiate for the “paid before”, and hope that you can get a compromise, such as half up-front, half after inspection.
If the product takes some time to manufacturer, but the buyer needs it quickly, you should negotiate for a compromise on delivery time. Insist on your time period, and when the other party counters with its time period, counter with a compromise, which itself may come to be negotiated. If you cannot get a compromise, the buyer may go to someone else to make the purchase.
In my next blog post, I will discuss “boilerplate” and why its content may make a difference in your contract.