Contract negotiations refer to the process of two or more parties trying to reach an agreement on legally binding terms. However, even if both parties have the best intentions from the start, they will try to obtain the most favorable contract terms for themselves and their company, which can lead to conflict of interest in the process. Negotiations can quickly become lengthy, cause problems in workflows, and lead to inefficient contract management processes and wasted time.
That’s not to say that every contract negotiation plays out like this. With the right strategy in place, you’ll be ready to handle whatever comes up in contract discussions. This post will show you how the contract negotiation process typically works and highlight ways to streamline discussions using proven contract negotiation strategies.
What are the main stages of contract negotiation?
Negotiations come into play when two or more businesses are creating a legally binding agreement. The parties negotiate because they want to obtain favorable terms and minimize the risks to their organization in this agreement, including legal, financial, and reputation risks.
Typically, one party drafts the document or term sheet and sends it to the other for review. Internal legal departments then comment, ask clarifying questions, request to remove terms or clauses through redlining, or revise language for the other party to accept or negotiate. Legal professionals aim to ensure that nothing in the contract will lead to problems for the business down the road. The back-and-forth can result in multiple versions of an agreement before all parties are satisfied and ready to sign.
Traditionally, negotiations happened in person, over the phone, or via express mail. However, today’s contract managers commonly utilize email or software to send documents, manage versions, get signatures, and file the final documents. As digital solutions (such as contract lifecycle management software or CLMs) can streamline tasks like redlining, collaboration, and signature coordination, they tend to ease the entire contract negotiation process.
The new ways of negotiations are not without drawbacks, though. The workflow from contract creation to signature coordination can still weigh down a legal department. Fortunately, there are proven ways to simplify and speed up contract negotiation.
Simplifying your contract negotiation process
Negotiating any deal can feel daunting, even if you're using the latest technology to improve timeline efficiency and organize contract versions.
Nevertheless, the right strategy can help you simplify the process for everyone involved. Here's what you can do:
Know your objectives
Before you even approach negotiations, determine your objectives for the agreement and the relationship in advance. Do you know what protections you need in place to proceed, and which terms or clauses are non-negotiable for your business? Having clear goals in front of you will help to guide your strategy and make it easier to identify red flags during prime contracts review.
Research contract laws, standard agreements, and standard provisions
If you want to approach the contract negotiation process the right way, perform thorough research about the standard terms and provisions. Learn all there is to know about the current contract laws and trends for legal professionals in your industry. This knowledge will help you negotiate business contracts without missing out on anything.
Legal tips, contract templates, and detailed legislation information are available online and in research libraries, so you can easily stay up to date on the latest legislation and standards.
Start with a simple draft contract proposal
When composing and later sharing a basic contract proposal, you may want to start by including the key points of the agreement. Outline any terms that have already been agreed upon and continue to build things steadily. Keep the language straightforward and clear.
If you begin collaborative negotiations with a complex contract, the other party may put the defenses up or assume that you’re asking for too much right away. It’s best to start simple and only include special terms you need.
Pay attention to contract terms
Even if you’ve read a particular provision a million times, always carefully read through it once more. It can be easy to miss a small change that could become a major issue later.
Starting negotiations with a simplified term sheet can help you avoid overlooking important information. Break the agreement down to the essential terms. Ensure each one of them has a clear purpose for the business relationship or project at hand. Pay close attention to details in the contract to improve negotiations and minimize risks.
5 contract negotiation strategies to close deals faster
Depending on the nature of the contract and the party/parties you’re collaborating with, some methods work better than others in contract negotiations. Here are a few contract negotiation strategies commonly used by successful businesses that will help you improve your results and close deals faster:
- Start with your key objectives and prioritize them in the contract document and language. Breaking up the contract into separate sections that can be negotiated individually can help to avoid the “all or nothing” vibe that stalls many contract negotiations.
- Be open and willing to ask questions about a change or suggestion made by the other party. Demanding certain changes can lead to arguments, while questioning unexpected requests at least allows for discussion. Remember, there’s a reason you wanted to work with this other party in the first place. How can you collaborate so that both parties get what they need?
- Try to be more positive than negative. Focus on the terms both parties agreed on before jumping to conclusions about disagreements or bad motives. Both businesses have pain points they’re trying to address, and keeping the conversation positive helps to establish a supportive environment where everyone feels that their needs are valid.
- Keep emotions out of negotiations. Remember that it’s all just part of doing business. Focusing on facts makes it easier to take emotion out of the discussion and ultimately allows both parties to focus their attention on what actually matters.
- Be prepared for every meeting and discussion. This means showing up with facts and reasons behind your comments,changes, and terms and conditions. If it’s helpful to have industry standards on hand to justify your ask, then come prepared with those figures. It’s easier to negotiate from a place of fairness when you can easily show what standard terms exist in the space.
- Create contract templates to refer back to if you contract similar services regularly. You can automate much of the contracting process through clause libraries and no-code workflows.
Being patient, prepared, open, and honest can only help you in negotiations. When you negotiate business contracts, stay firm on your must-haves, like critical timelines or fees, but balance the process with a willingness to keep the process moving. Know your non-negotiables and make a list of concessions to refer to if needed. After a successful negotiation, create contract templates to refer back to if you contract similar services regularly. (Store them in a searchable contract repository for easy access in the future!)
When you should change your approach
Sometimes, a contract negotiation process that showed excellent results in the past can stop working. The signs of a no-longer effective approach may include:
- Issues continually arise after an agreement gets set
- Your negotiation process is taking longer than expected
- Your negotiations often include heated arguments
- Your process utilizes outdated technologies with cumbersome workflows
- You frequently see unsuccessful contract performance
If you notice some or all of these red flags, it may be time to bring in new negotiation tactics for your business. But where do you even start?
Consider bringing in additional stakeholders to resume the process. It’s possible that negotiations are stalled due to miscommunication and knowing who is allowed to authorize what. Maybe one party has questions that those currently negotiating simply can’t answer to their satisfaction, so you need additional expertise.
Incorporating contract management software can be the first and most efficient step in improving your strategy and moving toward better business outcomes. For example, certain contract management solutions allow you to set approval workflows to help ensure that the right people are signing off on changes or agreements at the right time. This feature alone can help to cut down on miscommunication or confusion and move the contract smoothly through each negotiation stage.
Use contract management software to simplify negotiation
Even when contract negotiations are going well, you’ll still want to move through the process as efficiently as possible. Contract management software can be the game-changing solution you need for better business contract negotiations. The right CLM helps you improve collaboration and streamline every stage of the contracting process, from redlining to reviewing.
With an intuitive contract lifecycle management platform like Lexion, you can gain more control of your contract negotiation process. Track the status of contracts to see where bottlenecks occur and and easily coordinate with non-legal departments in the platforms they already work in, such as Salesforce, Slack, and Teams—all from the same place.
To really sharpen your contract negotiation strategies, check out our Rumble in the Redlines webinar, where two legal experts show you how to negotiate and redline a DPA. Or, if you’re curious about our CLM, schedule a demo today.