How to Negotiate a Contract: Top 10 Essential Contract Negotiation Strategies

Contracts are a necessary part of life, an integral part of many transactions and most deals—whether they are business-to-business or business-to-consumer contracts, employment agreements, car leases, real estate transactions, prenuptial agreements, and on and on. There is no doubt that at some point in your life you are going to be negotiating a contract. It is, therefore, critical that you understand the most common negotiating mistakes and most successful negotiation strategies.
[Source material: In Business As in Life You Don't Get What You Deserve, You Get What You Negotiate written by Dr. Chester Karrass (Karrass 1996)]

How to Choose the Right Contract Negotiating Strategy for the Moment

What’s the correct negotiating strategy for you?

There is no single answer because every scenario is different. Negotiation requires you to deploy the right contract negotiation tactics for the right situation. Those who rely on the same tried-and-tested methods are likely to succeed in a few select situations.

Before negotiating any contract or learning different strategies, you need to know the process to help you settle your starting point.

What Type of Negotiator Are You?

The first step is to assess which type of negotiator you are. Only some people know the answer to this, especially if they are inexperienced. With KARRASS’s seminars and practical workshops, this is one of the questions you’ll answer.

Whether you are an accommodator, avoider, or competitor, each negotiating style has pros and cons. For example, accommodators tend to struggle against highly aggressive competitors but may excel with another accommodator.

Knowing your natural negotiation style will enable you to understand where your weaknesses lie and how to counter them.

Assess the Situation

Every negotiation scenario presents its obstacles. Before opening your mouth, the first thing to do is assess the situation. Ask questions like,

• What are the interests of the other party?
• Are there timing aspects influencing the negotiation?
• What are the communication methods being employed?
• Is there a clear power dynamic?
• Which resources are being used within the negotiation?
• Are these negotiations public or private?

Situation matters because they will drag you toward some tactics while telling you to avoid others.

For example, if there is a team of two and one of them has substantially more authority than the other, it makes little sense to try a divide-and-conquer approach. On the other hand, if the negotiation involves a significant issue, and the meeting was called at short notice, the chances are high that you can employ delaying tactics to shift the pressure to the other side’s direction.

It can be challenging to scan situations, but this is a skill that comes easy with time and experience.

Assess the Person with Whom You’re Negotiating

Every company will choose its lead negotiating team carefully. Why? Because some people are better at getting results than others.

Mastering a negotiation means mastering the person sitting opposite you. If you struggle with confrontation, delegating to someone capable of handling those types of personalities makes sense.

In contrast, if you are up against someone with a massive ego, massaging that ego can win you a lot of points and credibility.

Analyzing the person is just as fundamental as analyzing the situation when developing the right contract negotiating strategy.

Anticipate their Leverage

Leverage is what will either win or lose the negotiation. Unfortunately, it can be tricky to anticipate the leverage another company may have on you.

There may be some obvious leverage, but negotiations can produce curve balls that catch you off-guard

For example, if you are trying to get a lower price on your next contract, a piece of leverage could be that you are a supplier’s biggest customer and, therefore, essential to their operations.

Another type of leverage could be that a vendor doesn’t want to pay as much, but you have given them a sweetheart deal for two years, and they already pay less than your other customers. A vendor in this situation will find it hard to argue against that type of leverage without looking greedy or unreasonable.

Trying to deal with a difficult client? Your business has recently seen a custom surge, meaning you no longer have to bend over backward for that client. Again, you have a piece of leverage, and this leverage demonstrates that you are only partially reliant on them

Consider Your Advantages and Disadvantages

Where do your strengths and weaknesses lie?

Before entering into a landmark contract negotiation, take the time to sit down with your team and analyze the strengths and weaknesses of your proposal. Concentrate on the latter because the other side will likely throw these weaknesses at you.

How do your strengths counteract those weaknesses? And how do those strengths hit the weaknesses in their position?

Deciphering the correct contract negotiation techniques will help you to emphasize your strengths while mitigating the impact of your weaknesses.

Here Are The 10 Contract Negotiation Tactics You Can Start Using Today

1. Don’t make the first major concession.

Although one can make the first minor concession, when it comes to major issues it is best that you not be the first to give in. Making a major concession too quickly sends an early message to the other party that they ought to raise their expectations. At the very least, hold back and find out just how strong their position is.

2. If you are a buyer don’t give the seller a quick counter-offer to the asking price.

Whether you are a buyer or seller, my advice is that you make the other party work for every counter-offer they get, including the first one. They will appreciate your counter-offer more if they have to wait for it. The difference between getting a counter-offer and not getting one is vast, from a psychological standpoint. To the person waiting, it represents the difference between a negotiator who might be willing to deal and one who probably won’t.

3. Be stingy with your concessions and leave room to negotiate.

Whether you are selling, buying, or negotiating anything, this rule should be carefully considered: leave room to bargain when you open talks, and give in grudgingly as you move towards agreement. Your opening offer should be higher than what you expect to get and concessions should be made in smaller increments. Concessions, carefully controlled, lead the other party toward closure and provide them with a higher level of satisfaction with the final outcome.

4. Buyers should always try to get cost breakdowns. Sellers should not give them.

Getting good cost breakdowns from competing sellers can, with relatively little work, provide a buyer leverage to ask for large savings. For example, if you are looking for an electrician, knowing the breakdown of material vs. labor cost from the total price can save you money. Perhaps the material the electrician uses is overly expensive, or perhaps the electrician is charging you for an apprentice’s time as well as their own. Knowing the true cost of any product or service will put you in a much stronger position. The US government’s procurement regulations have long required sellers to provide a detailed cost breakdown with proposals on negotiated contracts. They would find it much harder to negotiate a fair price and terms without it.

5. Don’t say “yes” too quickly.

The other party will always appreciate the settlement price more if they believe they have worked for it and gotten closer to the bottom line. If not, their self-esteem will be bruised. They may be angry at you and themselves, perhaps for a long time. Instead of saying “yes” right away, use phrases like, “I’ll have to take it to my partner and get back to you,” or “We’ll have to run the numbers to see if this makes sense for us.”

6. Plead to a higher authority.

While it may seem like having more authority during a negotiation is better, this is often not the case. In fact, having limited authority is a source of negotiating power. Having a higher authority to plead to allows you to say “no” gracefully, since really someone else is saying no for you. It also puts pressure on the other party to negotiate around your limits. And if you threaten to take the issue being negotiated to your higher authority (be it your boss, the legal department, etc.), this creates even more pressure on the other party—as the higher authority creates a new unknown factor. There is sometimes greater strength in not having authority than in having it.

7. Shut up

The less the other person knows about you, the better off you are. The more you know about them, the stronger your bargaining power. Of course, some information must be exchanged in the give and take of negotiating. The problem is that what you say and what you show may be used against you if it reveals your weaknesses. How much you choose to reveal is a matter of business judgment. Less is better than more in most cases.

8. Be skeptical. Things are not what they appear to be.

The information provided by the other party may not be complete. Their expert may not be an expert at all. What you are not told may be more important than what you are told. The product or service you receive after an agreement is reached may not be what you bargained and fought so hard for. If this harsh view of business negotiation offends you, it is not meant to—but it is realistic. Be smart and do your due diligence on the party you are negotiating with, as well as the terms that are proposed.

9. Watch your concessions as the deadline approaches.

In a formal experiment with 120 professional negotiators, both parties controlled their concession behavior for most of the hour-long session. Towards the end of the hour is when most of the concessions were made and deals were reached. The next time you are in a negotiation, recognize that your tendency will be to give away too much as a deadline comes close. Discipline yourself to make smaller concessions and spread them out a bit longer. Also remember that most deadlines are themselves subject to negotiation. There is usually time enough to make another concession if you must.

10. What is our next choice if this negotiation breaks down?

Good negotiators will always ask themselves these questions before going to the table: “What will I do if this deal fails? What is my next best alternative?” The willingness to walk away and start over gives you more flexibility and lets you negotiate from a stronger position. Put in a more commonly, “Don’t put all your eggs in one basket.”

Closing

Like any skill, the more you practice the better you get. Negotiation is no different. Comprehend these strategies and play out different scenarios before you enter into any contract negotiation. And remember, before you sign a complex contract it is a good idea to have a qualified attorney or professional look it over.

For a better understanding of how to become a master negotiator check out Effective Consensus (Karrass 2012) and Give and Take (Karrass 1974). Both books were written by Dr. Chester Karrass, founder of KARRASS, the world leader in negotiation training programs—having trained more than 1,000,000 people over the last 50 years.

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