Everything You Need to Know About the Contract Negotiation Process

Contract negotiations can be the “make or break” of what could be the start of a strong, mutually beneficial partnership. Figuring out exactly what you want, and what the other party wants from a contract is integral to its success. That’s why the contract negotiation process is so important. 

As the contract negotiation process is made up of multiple steps, full of both parties making notes, suggestions, and changes, it’s integral your company has a streamlined process in place. Implementing digital contract management software, like SignHouse, will help streamline the contract negotiation stage. And minimize the possibility of your contract falling through before it’s even on the proverbial table.

In this article, we’ll discuss why this process is so important, give you some contract negotiation tips, and run you through our step-by-step guide to help you approach your next big contract!

What is Contract Negotiation?

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A contract is a legally binding document that represents the relationship, and everything it entails, between two parties — most commonly, two companies. The contents of a contract are made up of the terms and conditions of this relationship and must be agreed upon by both parties to become legally binding. 

Contract negotiation is the process of defining and agreeing to these terms and conditions. Both parties will attempt to ensure the contract favors their company’s best interests while minimizing any financial, legal, or operational risks. Through effective discussion, the final contract should be a compromise that both parties are sufficiently satisfied with. 

Ultimately, the contract that is drawn up and finalized after the contract negotiation process should be symbolic of the new, conflict-free relationship that was built during this step of contract management. 

Why is Contract Negotiation Important?

The contract negotiation process is an integral part of contract management. It’s the step that allows you to bring everything to the table and figure out what your non-negotiables are and what you’re willing to bend on.

Some important benefits of contract negotiation include:

It Ensures Mutuality 

If you’re entering contract negotiations with another company, it means there’s something mutually beneficial that you both want to achieve. The contract negotiation process is the time to clear up any confusion or possible points of conflict.

It Provides Certainty

The details you and the other party iron out during the negotiation process, will make up the contents of the final contract you will both sign. Factors such as financial obligations, rights, duties, and expectations will be ironed out and made clear during these negotiations. 

Diving into this amount of detail in collaboration with the other party minimizes misunderstandings and possible legal or relational ramifications. When done respectfully, contract negotiations can help foster strong, positive partnerships between two companies. 

It Helps Avoiding Conflict

Conflict costs time and money. To avoid this unnecessary expense, your company should choose to invest in proper (and sometimes lengthy) negotiation processes. In other words, the short-term pain of negotiations is worth the long-term gain 

Effective contract negotiations will minimize the possibility of any long-term conflict, and the risk 

of requiring further contracts to smooth over said conflict. 

How to Negotiate Contracts

Step #1: Preparation Stage

Knowledge is power, so you must do your research before approaching the contract negotiations: 

• Who is the other party?
• Where do they sit within your industry?
• What are their objectives? 
• What are their strengths and possible weaknesses?

Understanding the other party and their possible leverage on the deal will help you better predict their tactics during the negotiation process. With this information, you’ll be able to strategically prepare your approach and have a better chance at landing your organization’s objectives.  

Step #2: Define Your Objective and Prioritize Your Goals

Now, you need to clearly and realistically identify your organization’s objectives. 

• What are your key needs?
• What are your non-negotiables?
• What are you willing to compromise on? 

Once you’ve identified your ideal overall outcome, you’ll need to break down each objective into smaller steps. What details need to be agreed upon to ensure your overall outcome is achieved within an optimal time frame and budget? Be realistic here and define three ranges of outcomes for each objective:

Your optimum goal

This is the number or term you start your negotiations with for each contract objective — it is your organization’s optimum outcome. You must always have wiggle room around this target goal, as you will most likely always have to negotiate away from it. 

Your target range

This is the number range or term conditions that your organization has identified as an ideal outcome. Accepting certain objective outcomes within this range can help your organization negotiate an optimum outcome for a more important objective.

The minimum goal

At this point, your organization has agreed to walk away from the negotiations if the other party doesn’t agree to comply and meet within your target range.

You have to be able to clearly articulate your organization’s objectives, their priority and the goal ranges you’ve set for each one before entering negotiations. This will minimize the chances of you being persuaded into agreeing to unfavorable objectives by other parties.

Step #3: Be Professional

Entering negotiations well-researched and realistic with your terms shows professionality and respect to the other party/s. You all have objectives you want to achieve and you’re entering this negotiation to make the situation more mutually beneficial. Keep this in mind, and you’ll build a more genuine (and fruitful) rapport.

Step #4: The "Offer-Concession" Strategy

This strategy revolves around the idea of “meeting people halfway”. You never reveal your bottom line to the other party, but you always start with a figure that you’re willing to provide wiggle room around (AKA your optimum-target goal range). Showing compromise will make the other party feel that they’ve won something, and often makes them more agreeable to concede on other terms. 

Step #5: Take Your Time

Don’t rush any part of the contract negotiation process. This is your time to ensure every detail, objective and outcome is to your satisfaction. Because once signed, you’re legally bound to meet its terms and conditions. 

Before each negotiation meeting, review your notes and be clear on what deliverables you plan to present. You don’t want to miss anything here, so make sure you get everything in writing as proof of agreement.

A great way to track changes, suggestions, and notes to the contract during the negotiation process is through digital contract management software. Software like SignHouse minimizes confusion by allowing you to keep track of your documents and signees with ease. You’ll be able to see edits in real time and manage each document securely.   

Step #6: Use a Professional

As contracts are legally binding documents, you want to be sure that what you’re signing is fair and clear. Using a professional, like a contract lawyer, to moderate the contract will make sure each party is signing an agreement that protects everyone's rights and interests. This step should also be followed if you’re signing documents online.

Step #7: Finalization

Once everyone is satisfied, it’s time to present the final draft of the contract. When this final draft has been approved by all parties, the contract is ready to move on to the next step of contract management — the signing. You can use your own digital signature, which can be made on SignHouse.

Are You Ready to Nail Your Contract Negotiations?

Achieving a clear, concise, and mutually beneficial agreement through a contraction negotiation process is possible if you implement the right steps and tools. Be prepared and clear in your objectives, and take your time to maximize the possibility of reaching the best outcome for your company.

Digitizing your contract negotiation process through contract management software like SignHouse is a great way to approach negotiations. Alongside their contract editing tools, you can also opt to use one of their contract templates. Furthermore, your documents will stay secure while allowing both parties to view changes in real-time, saving you time, money, and the headache of confusing back and forths! Sign up today and see how we can streamline your future contract negotiations.

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