What is contract negotiation? How to negotiate a contract effectively (2023)

Contract negotiation is much more than reaching an agreement. Negotiating contracts is an opportunity to increase the economic value of the relationship, reinforce supply chain vulnerabilities and protect your organization from risk.

Unfortunately, companies often still rely on outdated manual contract negotiation processes that undermine these goals.

This article explores how companies can simplify and speed up the contract negotiation process. It also explains how the legal department can enable commercial teams to confidently negotiate contracts without losing control over the most important clauses.

Find out how browser-based contract negotiation capabilities can help business and legal teams save time and identify more opportunities to create shared value.

If you would like to learn more about these in-browser trading features, please click the button below. If not, keep reading.

What is contract negotiation?

What is contract negotiation? How to negotiate a contract effectively (1)

Contract negotiation is the process by which two or more parties deliberate on the content of a contract in order to reach an agreement.legally binding agreementregarding their relationship.

The main objective of contractual negotiations is that each party is satisfied with the rights and obligations assigned to it. Business negotiations also help to ensure that the terms established are as favorable as possible for both parties, with as little risk as possible.

If you're negotiating a contract with a vendor, you'll probably want to promote your company's interests by trying to negotiate more lenient termination rights. However, it is likely that the seller wants to get the opposite.

However, when they meet to negotiate the terms of the contract, both parties can compromise and agree to terms that are mutually beneficial.

Why is contract negotiation important?

Contract negotiation is important as it ensures that a contract is mutually beneficial to both parties and that new business relationships are free of conflicts and confusion.

Negotiation also gives all parties the opportunity to set terms that work for them, rather than one party retaining all bargaining power and setting unfair terms in an agreement.Commercial contract.

The negotiation phase is a critical phase ofcontract life cycle, because effective negotiation can be the difference between a contract being signed or not. It is also an opportunity for each business to demonstrate its priorities and describe what it expects from the other party.

When to negotiate a contract

Persondrafting a contractis responsible for ensuring that relevant internal stakeholdersrevisionand approve a contract before sending it to negotiation.

If contracts are created using templates, this text can be locked, minimizing the risk of error.

During the initial drafting and review stages, each party works toward its own goals around issues such as risks, responsibilities, and possible outcomes. The contract moves to the negotiation phase when one of the parties is not satisfied with the terms offered, or if the language does not meet all its objectives. Errors, conflicting terms, and outdated clauses also stimulate negotiations.

What is contract negotiation? How to negotiate a contract effectively (2)

Who is responsible for negotiating the contracts?

Lawyers review and negotiate contracts frequently. However, other departments handle business negotiations on their own or get involved when requested revisions require their input.

For example, sales teams use order forms andNDAswhen closing deals. Teams of people and talent sendemployment contractsfor new hires and salary negotiation. Finance teams monitor contracts to track expenses and forecast revenue.

For more complex and high-value contracts, companies may even consider using abusiness tableInvolve various departments in negotiations.

When business teams need help interpreting acontract language, turn to the company's legal counsel for guidance. This often happens when they want to approve terms that change risk (like compensation and liability limits) or reject unfavorable language in a draft contract.

This means that the negotiation can involve many different stakeholders. without a centralizationdigital contractsplatform, in the browser, this can further complicate an already confusing contract negotiation process.

The contract negotiation process.

in word

Revision tracking is critical during contract negotiation. Before the modern era, negotiators wrote requests for review and comments on paper in red ink. In the 1990s, MS Word and email allowed merchants to trade in their red pens for digital "red lines."

In a process that continues to this day, the contract author emails a draft contract to a counterparty as a Word document. The counterparty usually saves the document to your local drive and activates Word's "track changes" feature. Suggested reviews appear in red on the screen, and comments appear in boxes next to them.

After indicating their concerns and suggestions, the counterparty sends an email to the"red line" documentback to the contract owner. There are now two versions of the same contract: one saved on the creator's disk and a redline contract stored on the counterpart's disk.

The contract creator then responds to counterparty comments and revision requests and makes suggested revisions to a third version of the contract. That copy is returned to the counterparty, which creates the fourth version in response. This back and forth negotiation process can drag on for months, especially when dealing with complex contracts.

What is contract negotiation? How to negotiate a contract effectively (3)

Unsurprisingly, it becomes almost impossible to track down the various versions and determine who made which revisions and why. It's easy to lose track of essential attachments, and negotiators often lose track of contract progress.

This lack of control and visibility can lead companies to unbalanced and unfavorable deals that then cost thousands of dollars in leaked contracts and missed opportunities.

In Google Docs

Fortunately, Google Docs offers some improvements. However, the platform allows counterparties to see their team's internal dialogue live in the comments. This makes it impossible to discuss certain proposals in private without moving to a different platform.

You must also share access to your company's cloud storage, and just like with MS Word and email, you'll need aElectronic companytool to obtain signed contracts.

The more software tools you use to negotiate contracts, the more friction and security risks you add.

Why isn't it easy to integrate MS Word, Google or PDF documents with yourCRM software, all contract details such as names, addresses, dollar amounts, and dates must be manually extracted, entered, and tracked. This makes it difficult to efficiently capture the data contained in your contracts.

How to negotiate a contract

By comparison, an all-in-one contract automation platform like Juro allows parties to negotiate contracts, in the browser, in a unified workspace. To see how:

  • Parties mark up a single document using an intuitive in-browser editor
  • They can designate feedback as "internal" or "external" to ensureconfidentiality
  • Comments can be linked to specific parts of the contract, making it easy to see what's in dispute
  • A clear view helps traders immediately focus on critical issues, while the software tracks each review, adds comments, and emails them to counterparties.
  • This digital audit trail is securely captured, so you can learn from each trade and develop better models.

There is also no need to worry about losing track of trading rounds. Juro's contract timeline offers an on-demand audit trail that provides a one-click view of previous drafts at any time.

What is contract negotiation? How to negotiate a contract effectively (4)

By providing a more collaborative and transparent trading experience for counterparties, you can better understand each other's relative positions. A clearer view of everyone's needs helps negotiators determine what to concede and when to stand their ground. This is likely to result in shared gains and help you increase the economic value of the contract for both parties.

Another benefit is that the data is captured at the time of contract creation instead of being manually collected after the fact. analyzing thiscontract datait can provide information that helps guide future negotiations toward more favorable results.

Your legal team can develop contract templates and company manuals to guide business colleagues through more strategic contract negotiations.

A manual identifies negotiable items and provides the company's preferred alternative positions, including new language for automatic replacement. Their attorneys maintain manuals and templates to ensure that new contracts always contain the most up-to-date, risk-adjusted language that aligns with your company's overall business goals.

Juro users can useconditional logicto build these reserve positions incontract models. This allows business users to serve themselves in the negotiation instead of needing legal assistance every time.

Essential contract negotiation skills‍

Strong contract negotiation skills support efforts to build long-lasting, mutually beneficial relationships. Here are five of the top skills that help negotiators:

Solid legal knowledge 👩‍⚖️

Contract negotiation used to be reserved exclusively for lawyers. But automated contract negotiation processes, contract templates, and company manuals are designed by lawyers to codify and share sound legal knowledge, making it available to all your business teams.

Risk Appetite Awareness 📈

The same self-service processes, including company playbooks that offer alternative arrangements, guide co-workers to stay within established risk limits and allow them to close deals independently. Easy collaboration supports compliance with guidelines that are critical in light of today's regulatory uncertainties and data privacy challenges.

Clear and concise communications 💬

Write and edit contract drafts using simple, easy-to-understand language. Parties must make accurate assessments to fully understand all possible consequences. The less time the parties spend trying to figure out the meaning of a sentence, the faster they will reach an agreement.

Business knowledge 💼

Whether you're in legal, human resources, sales, or purchasing, you need to know which provisions are negotiable and which are not. You also need to know how to offer concessions that still result in favorable results for your business.

A non-adversarial approach 👍

“In more than 50 percent of negotiations today, one or both parties engage in positional tactics, seeking to impose their predetermined terms on the counterparty, often regardless of their suitability,” according to a World Commerce & Contracting report on theMost Traded Terms 2020.

Contract negotiation is an opportunity to collaborate and add value, not to “beat the other side”. This is especially important considering that counterparties are strategic business partners whose services and products will help your company maintain competitive advantages.

Contract negotiation strategies 📊

Sometimes an imbalance of power affects negotiations. For example, when larger providers force smaller customers to agree to terms that are more favorable to the provider. Or, one of the parties could say “I agree or I withdraw” with a hard-line approach. Learning useful trading strategies can help you create win-win results in any situation. Helpful tactics include:

  • Look beyond the individual negotiator and consider the core interests of the other party in the relationship.
  • Ask why?" to open the dialog.
  • Identify ways to create options to resolve disagreements.

A recent survey found that88 percentof those in the contract and trade community expect higher levels of collaboration and a more 'fair and reasonable' approach to negotiations, and 74 per cent believe this can happen. With a non-adversarial business approach, you can be part of that change for the better.

For more information and tips, check out our guide toTop 12 Contract Trading Strategies.

How to prepare for negotiations

knowledgeHow to prepare for a contract negotiationis essential.

What is contract negotiation? How to negotiate a contract effectively (5)

One of the best ways to prepare for contract negotiations is to reflect on how previous contracts have worked. What was agreed in similar cases? Where do sticking points most often occur?

Contracts generally vary in content, but most legal teams will be drawn to the same terms and clauses and are more likely to negotiate them.

if you have onecontract automationtool like Juro, which offers a rich databaserepositoryand a complete audit trail, this information can be extracted quickly and easily. This helps you make informed decisions about which terms to soften and which terms to stay firm.

Having this information before you start a negotiation can allow you to prepare stronger arguments and alternative positions, which is essential to ensure your company gets the best possible deal.

This type of information can also be recorded incontractual brochuresor automated using conditional logic. Automating it this way also allows business teams to self-service contracts without requiring constant assistance from the legal team.

tips for negotiating contracts

Here are some tips to get you started with effective contract negotiation:

  • When you are tempted to review, ask yourself, “Do I really need to bother? Am I adding unnecessary friction? Don't do revisions without a clear strategic objective in mind.
  • On the other hand, if the counterpart's language doesn't make sense, say so. Sometimes contracts are poorly written or based on hand-held templates that have been so vetted that they contain errors.
  • Focus on the terms that really matter. Ironically, the terms that parties negotiate most frequently are not the same terms that negotiators consider most important, according to The Most Negotiated Terms 2020 report. importance.

What is contract negotiation? How to negotiate a contract effectively (6)

Image source: Global Trade and Contracting Report on theMost Traded Terms 2020.

  • Simplify negotiation by emailing a list of top concerns to a counterparty to discuss over the phone. Be sure to incorporate reviews digitally, with comments in the sidebar of your contract automation platform, and add notes about the conversation to ensure an accurate and informative audit trail.
  • Enterprise Playbooks benefits organizations of all sizes. Some contracts will always require close scrutiny by the legal and leadership teams. But with a contract automation tool like Juro, business users can generate and negotiate many standard agreements independently, guided by a company manual.

Contract Negotiation FAQ

Is the negotiation binding on the parties?

The terms agreed upon during negotiations are not legally binding on the parties, as contract negotiation is an informal process. Only when the contract is signed and complies with thecontract requirementsthe terms agreed during a negotiation will be binding.

How do I follow up on a contract negotiation?

The best way to track the progress of a contract negotiation is to implement a contract management solution that provides a detailed audit trail and dashboard forcontract monitoring.

What is a contingency contract in a negotiation?

A contingency contract is an agreement created when the parties cannot reach a final and definitive agreement on the negotiated terms.

Unlike regular contracts, the terms of a contingent contract will only become enforceable if certain events occur or specific conditions are met.

What is the difference between contract negotiation and contract management?

The main difference between contract negotiation and contract management is that contract management involves overseeing the entire contract life cycle. By comparison, contract negotiation is just one phase of the contract life cycle.

Learn about effective contract negotiation

Here are resources to help you learn more about contract negotiation:

With Juro you can negotiate commercial contracts quickly and efficiently, without losing control. As a result, it turns contract negotiation into an ongoing process and an opportunity for income and savings. If you're ready to save time and experience collaborative contract negotiation in the browser, fill out the form below to get in touch now.

Top Articles
Latest Posts
Article information

Author: Carmelo Roob

Last Updated: 03/25/2023

Views: 6529

Rating: 4.4 / 5 (65 voted)

Reviews: 88% of readers found this page helpful

Author information

Name: Carmelo Roob

Birthday: 1995-01-09

Address: Apt. 915 481 Sipes Cliff, New Gonzalobury, CO 80176

Phone: +6773780339780

Job: Sales Executive

Hobby: Gaming, Jogging, Rugby, Video gaming, Handball, Ice skating, Web surfing

Introduction: My name is Carmelo Roob, I am a modern, handsome, delightful, comfortable, attractive, vast, good person who loves writing and wants to share my knowledge and understanding with you.