Businesses in the market for products or services often engage in contract negotiations with vendors. Effective negotiation can establish a strong, ongoing relationship between buyers and vendors. However, not all negotiations are successful, and sometimes a vendor might not be open to negotiation. There are critical issues to consider in any contract negotiation.
When Does Negotiation Happen?
Buyers usually research vendors and make selections based on various factors, including reputation. Negotiation takes place after vendor selection but before a contract is signed. Indeed, negotiation invariably involves the terms of the contract.
Sometimes negotiation happens over the phone, but it’s also common for the vendor to send their standard contract and the buyer to revise it. This is a back-and-forth process. Sometimes, negotiation is unsuccessful, and the buyer selects a different vendor.
What Terms are Negotiated in Contracts?
It is up to both parties to define what points are open to negotiation. This is a voluntary process. A vendor is not obligated to negotiate and, in fact, many buyers purchase goods or services without any negotiation.
Commonly negotiated terms include:
- Contract duration
- Contract volume
- Cost
- Delivery considerations
- Performance metrics
- Payment terms or method
An increasingly common item in negotiation is conflict resolution. Some agreements break down, but litigation is enormously expensive. Negotiating the inclusion of an arbitration clause can be beneficial.
How Buyers Prepare for Procurement Negotiation
In a sense, a vendor has a greater advantage in negotiation. They have negotiated procurement contracts for their services with countless buyers. By contrast, the buyer might never have negotiated for these specific services. The vendor knows their industry quite well—probably better than the buyer. So it’s up to the buyer to be well prepared for negotiation.
The following steps are helpful:
- Research the vendor: Study their market position and their competitors. Also, try to understand their goals.
- Identify your objectives ahead of time: What items are you most concerned with? What is your ideal price point or contract length?
- Draft questions ahead of time: Keeping the negotiation on track is crucial.
- Practice active listening: Negotiation is a skill, and the most important soft skills are the ability to listen and express disagreement in a non-confrontational manner.
- Find legal help: Not every business should negotiate their own procurement contracts. You might benefit from an experienced contracts lawyer.
Effective Negotiation Techniques
Negotiation is not a one-size-fits-all approach. You will learn a lot about the vendor as you engage in negotiation, and you might adjust your negotiation strategy accordingly. These techniques have proven successful over the years:
- Leverage competitors against each other: Having multiple bids from vendors gives you flexibility. A vendor should have an incentive to win your business if they know they are competing with market competitors.
- Be creative and open to innovative solutions: Avoid a “take it or leave it” mindset.
- Share risks: For example, a vendor might worry about locking into a contract when market conditions shift. You can help them hedge against risk with appropriate contingencies.
- Be patient: Negotiation takes time. If you’re too eager, you also lose any advantage.
Need Contract Negotiation Help? Call Us
The Law Offices of Usmaan Sleemi can represent your business in procurement negotiation. Call us at 973-866-9415 to learn more or fill out our online form to schedule a consultation. We are here to help you navigate the complexities of contract negotiation and secure favorable terms for your business.
