A Guide to Negotiating a Contract Effectively (With Tips)
By Indeed Editorial Team
Published June 9, 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
As a professional, there may be times when it's necessary to negotiate an employment contract. These times can serve as opportunities to work with relevant parties to reach agreements that maximize the economic value of relationships and help ensure the protection of the individual and organization from risk. Understanding what it takes to negotiate contracts successfully can help you benefit from your business relationships and prepare you for various job opportunities in multiple industries.
In this article, we define contract negotiation, review how to negotiate a contract, explore 10 tips for negotiating a contract, and outline skills you can use to negotiate contracts effectively.
What does negotiating a contract mean?
Negotiating a contract involves discussions between two or more parties to reach a legally binding agreement that outlines the terms of their relationship. This process gives every party the opportunity to present the most favourable terms and make adjustments where necessary to accommodate other parties. The goal of every contract negotiation is often to capitalize on the unique advantages of participating parties to reach an agreement that meets the economic, social, and personal objectives of everyone involved.
Contract negotiations are vital beyond business. They can occur among various groups and in multiple situations, including government to government, business to business, government to business, business to individual, and individual to individual.
How to negotiate a contract
Consider taking the following steps when negotiating a contract:
1. Prepare for the agreement
Preparation is the first stage in the contract negotiation process. It often requires you to investigate all the possible sides of the discussion you are about to have and helps position you for a successful negotiation. This stage can help you garner insights, including the interests and positions of all parties to the process, which you can use to build a solid argument for your side when discussions begin. Consider determining the kind of relationship you want to establish or maintain with the other party as the first step at this stage.
You can also identify likely trade-offs, and determine the best and worst possible outcomes. This stage may also include defining the ground rules that govern the negotiation process, which may clarify details such as location, time, representatives of each party, and duration.
2. Conduct an information exchange
Information exchange follows the preparation stage, and it's where engagement with the other party typically begins. Here, you share your initial position with the other party and receive theirs. The information you gathered in the first stage can be helpful as you explore possible ways to address each other's interests and positions. This stage can also offer you an opportunity to make critical assessments of the other party, including determining their honesty and dependability, credibility, alignment of interests and likeability, and whether to continue the process.
3. Pursue clarification
Clarification is where both parties can explain their positions and provide justification for their claims. It's a continuation of the discussion they began in the previous stage. This stage may also provide the opportunity to discuss areas of disagreement calmly to reach a mutual understanding. Parties to the discussion can also explain their interests and the basis for their positions.
4. Engage in bargaining
The bargaining stage is usually crucial to the success of the entire process. It's when negotiating parties can start giving and receiving concessions according to shared interests. In a negotiation, concessions entail yielding some rights or a position in exchange for a desired term or warranty from the other party. Doing that is often essential to keep discussions progressing.
5. Reach a conclusion
The conclusion stage is often where the parties agree on acceptable terms. It culminates in a comprehensive documentation of the agreement. Parties can also use the opportunity to obtain guarantees on implementation and discuss the next steps. If parties can't reach an agreement, showing gratitude for the other party's willingness to negotiate can help ensure the relationship continues despite failed negotiations.
6. Execute the agreement
Execution is the final stage of the process. It typically involves the implementation of the terms of the negotiated contract. Performing the obligations stipulated by the agreement is often critical to building credibility and can position you for more success in subsequent negotiations with involved parties.
10 tips for negotiating a contract
Consider using the following tips when negotiating your next contract:
1. Conduct extensive research
Conducting extensive research can give you a deeper understanding of the contract and help position you for a successful negotiation. From your research, you can collect relevant data, which you can use to support your claims during the negotiation process. You can also get an overview of what to expect from the other party to the negotiation through investigation and become familiar with industry standards.
2. Start simple and go step by step
The negotiation process can be complex and tedious. Dividing the process into simple sections and addressing the easier ones first can help you begin and gather momentum to complete the more challenging aspects. You can also ensure that you present the initial terms of the contract in simple terms for everyone's understanding.
3. Take your time and be meticulous
Because many people find the negotiation process tedious, they are often in a hurry to get it done. This creates a risk of entering into a contract agreement that you don't fully understand or that doesn't benefit you. Taking your time while preparing your agreement can help you carefully assess all the details and increase your chances of creating a contract that meets your objectives.
4. Enlist support
If you're uncomfortable asserting your position, you can consider enlisting a partner. This individual may be a more assertive colleague, a friend, or a legal professional, depending on the situation. Having a partner can also expand the tactics you can use while negotiating and improve your chances of getting want you want.
5. Take note of critical objectives
Remembering your objectives is critical to a successful negotiation. Doing this can help you identify what to prioritize. It can also help you determine your non-negotiable aspects and the concessions you can make without compromising on your best interests.
6. Get professional help
Sometimes, you may require professional support or counsel to help you cover the necessary elements of your contract. This support help can be especially critical when dealing with technical language and interpretation. For example, a lawyer can help you ensure you get the necessary legal protection from the contract.
7. Ask questions
Understanding your counterparty's motive is vital to having successful negotiations with them. You can gain understanding by asking questions and learning as much as possible about them. If you find anything to be unclear, seek clarifications. Try to ensure that your questions are relevant to the negotiation.
8. Keep emotions in control
Uncontrolled emotions may affect your judgment during negotiations. Taking a calm professional approach to the discussion can help you prevent such a situation. Instead of using feelings-based statements, consider presenting arguments based on facts. This can help portray you as a confident professional who is well prepared and makes it difficult for the other party to intimidate you.
9. Maintain a positive attitude
Approaching the discussion with positivity can make the process less daunting for all parties involved. You can do that by showing and expressing appreciation for what the other party offers, regardless of whether you agree with it. Starting your discussion from the points you agree on may also help set a positive tone and makes it easier to discuss matters of disagreement.
10. Be reasonable
Negotiation typically involves being realistic in the demands you make of the other party. While you want to ensure the contract meets all your objectives, consider what you've learned about what's obtainable in the industry from your research. Doing this can help you make better claims that can encourage the other party to continue the discussions and improve your chances of reaching a mutually beneficial agreement.
Important negotiation skills
Developing the following skills can help increase your chances of having successful contract negotiations:
Communication: The ability to communicate ideas clearly and understand nonverbal cues can be crucial to holding successful negotiations.
Active listening: This refers to the ability to listen to a speaker and retain their message, which can also help you engage them meaningfully.
Emotional intelligence: Being able to stay in control of one's emotions and the ability to recognize others' feelings are also valuable skills in the contract negotiation process.
Expectation management: The ability to manage your and your counterparty's expectations can help make reaching agreements more likely, even in situations with non-collaborative negotiators.
Patience: The ability to tolerate opposition without getting angry or upset is vital in the negotiation process, which can take a long time due to offers and counteroffers.
Persuasion: Being able to influence others to change their position is essential as a contract negotiator.
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