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Contract Negotiation 101

Contract negotiation is the process through which two or more parties deliberate over the contents of a contract to reach a legally binding agreement. The goal of contract negotiation is to come to an agreement that meets the needs of both parties. In order to achieve this, both parties must be willing to compromise and be open to discussing different options. Contract negotiation can be a difficult process, but it is important for both parties to remember that the goal is to reach an agreement.

The contract negotiation process can also be an opportunity to achieve more speed and effectiveness, get quicker turnaround times with better collaboration processes, and use automated tracking and contextual insights for smarter contract negotiations.

The contract negotiation process also allows you to add to the economic value of the relationship, shore up supply chain vulnerabilities, and shield your organization against risk.

What Is Contract Negotiation?

Contract negotiation is the process of coming to an agreement on a matter between two or more parties, with the aim of forming a binding contract. Contract negotiation takes that further by involving set terms and conditions which both parties have agreed upon in advance. This makes the process smoother, as both sides know what is expected of them and can focus on reaching an agreement.

Why Is Contract Negotiation Important?

Contract negotiation is a critical part of the contracting process. By negotiating a contract, both parties can ensure that the agreement is mutually beneficial and reflects the true nature of the business relationship. Contract negotiation also helps to avoid future conflicts by clarifying the expectations and responsibilities of each party. In addition, contract negotiation can help to establish a strong business relationship by demonstrating that both parties are willing to work together.

Contract Negotiation Best Practices

Negotiating contracts doesn't have to be a stressful battle. By following some essential practices, your organization can approach the table with confidence.

Preparation is Key

In the high-stakes world of contract negotiations, preparation is the difference between a winning deal and a lopsided agreement that puts your organization at a disadvantage. Entering the room with a clear understanding of your desired outcomes, along with a strategic plan for concessions, empowers you to navigate the back-and-forth with focus. Anticipating the other party's priorities and potential sticking points allows for a more nuanced approach, where unexpected roadblocks become opportunities to find creative solutions. Ultimately, thorough preparation is the key to securing a contract that reflects your value and advances your organization's interests.

Know your "why":

Be clear on your goals and what a successful outcome looks like for you.

Prioritize your objectives:

Not all clauses hold equal weight. Identify the most important terms you absolutely need and those on which you have more flexibility.

Research and gather intel:

Understand market rates, industry standards, and the other party's typical terms.

Draft first:

Starting with a draft contract sets the tone and gives you a baseline for negotiation.

Negotiation Strategies

For many businesses, the ability to navigate a contract negotiation is no longer a nicety, but a necessity. Just as a well-trained athlete wouldn't enter a competition unprepared, approaching the bargaining table without a strategic plan can leave you vulnerable. Negotiation strategies provide a framework for both securing the best possible outcome for your organization and building long-term relationships. By employing tactics like active listening, calibrated concessions, and a focus on mutual benefit, negotiators can navigate the give-and-take inherent in any deal, transforming potential conflict into a collaborative process.

Be an active listener:

Pay close attention to what the other party is saying and putting in writing. They reveal what their priorities might be.

Focus on win-win solutions:

Aim for mutually beneficial outcomes that address both parties' needs. Whether in person or in writing, when both parties feel heard and respected and have a meaningful stake in a negotiation, the result is more likely to be successful.

Make strategic concessions:

Offer more minor concessions in exchange for what matters most to you. The best concessions are ones where what is offered is meaningful to the other party but less of a priority for you. 

Control the conversation:

Guide the discussion, and the redlines, towards your key objectives.

Maintain a professional demeanor:

Maintaining a respectful and calm demeanor ensures the communication lanes stay open with all negotiating parties.

The Contract Negotiation Process

The contract negotiation process can be tedious and time-consuming, but tracking every revision request and comment is critical. Before the modern era, negotiators would write revision requests and comments in red ink on paper. This allowed both parties to easily track changes and ensure that each revision was agreed upon.

Today, contract negotiations can be done electronically, which can make tracking revisions more difficult. Therefore, it's essential to have a contract management system in place that allows you to keep track of each change made during the negotiation process. This will help ensure that every change is made with agreement from both parties. Here are four pieces of a successful contract negotiation process:

Third-Party Contract Collaboration

Achieve faster cycle times and reduce communication overhead with a secure online collaboration portal that enables third parties to self-service contracts within parameters set by your company.

With the portal, vendors and third parties can register to get online access to their contracts, submit contract redlines, review contracts, and upload compliance documentation. This access is especially valuable when time zones are barriers, or continuous updates and contract maintenance are required. The Icertis Contract Intelligence platform also supports email-based collaboration with the ability to automatically upload emails and attachments to the system.

Redlines and Version Management

Significantly improve negotiation governance with redlining and version management. Every redline is saved as a new version and evaluated for impact on approval workflow, with exceptions routed through the correct review process.

The Microsoft Word Add-in lets users review any version, compare or combine versions, and access the clause library and related agreement clauses.

Contract Negotiation Intelligence

Equip business stakeholders with the right insights during negotiations. While reviewing negotiated clauses, users can access library content and related agreements, such as looking up master agreement clauses while reviewing a statement of work. This allows users to understand the full history with the third party, so they can quickly decide on positions and accelerate closure. For example, a company may surface that a supplier had provided a better price to another division of the company, providing real-time leverage during negotiations, or identify risks associated with a customer’s payment history that could influence a position.

Collaborative Contract Administration

Leverage the platform’s online collaboration portal to enable third parties to perform self-service maintenance of profile and contract compliance. Third parties can receive obligation task assignments on the portal for completion, submit SLA or deliverable information against contracts, and receive proactive alerts on any contract administration or obligation tasks.

This improves visibility for all contract parties, accelerates contracting actions, and protects against important contract commitments or milestones from being missed. It also reinforces the contract platform as the single source of truth for all contract-related actions and documentation.

AI: Your New Secret Weapon At the Negotiating Table

Contract negotiations can be a tedious dance of legalese and revisions. But what if you had a powerful AI assistant in your corner? AI contract management tools like the Icertis Copilots are revolutionizing how businesses negotiate.

These tools use natural language processing (NLP) to dissect complex contracts and pinpoint key terms, clauses, and potential risks. This frees up negotiators to focus on strategic aspects of the deal rather than getting bogged down in the minutiae. Imagine having a tireless analyst highlighting critical clauses and concessions you might miss. Additionally, AI can analyze past contracts and industry benchmarks, suggesting optimal concessions and highlighting potential risks. With this data-driven approach, businesses can approach negotiations with a stronger hand, securing better deals and avoiding hidden pitfalls.

Want to learn more about how an AI contract management system can help you negotiate better contracts? Request a demo of Icertis Copilots.

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Report

The world is changing. Are your negotiation tactics changing with it?

For 20 years, World Commerce & Contracting has taken the pulse of contract managers to learn how they are adapting their negotiation tactics to fit the evolving demands of the business. The Most Negotiated Terms report provides an opportunity to help business leaders better understand and prepare for contract negotiations.

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Icertis Contract Intelligence

Standardize, streamline, and automate every contract – everywhere

Transforming contracts into structured, connected, and on-demand data is just the beginning. Discover the power of intelligent contract creation, automation, and insights to realize the full intent and maximize the value of every contract, clause, and obligation across the enterprise.

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