April 06, 2020

The Keys to Renegotiation

Use this article as a guide to help you think in new ways to renegotiate for better contracts and stronger partnerships, whether in business or in life. Never be afraid of sitting down at the table to set new terms...

Use this article as a guide to help you think in new ways to renegotiate for better contracts and stronger partnerships, whether in business or in life. Never be afraid of sitting down at the table to set new terms. The examples below explain how to avoid getting stuck in the details, how to use strategic tools for renegotiation, and how to make sure you clarify the value of your business to the other side.

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In business, when we negotiate, we are usually negotiating with partners we work with often. As markets and supply chains shift, our interests change and we look for different opportunities in our contracts with partners. At the same time, unless we don’t have a choice, it can be tempting to avoid coming back to the table to set new terms, particularly if things didn’t go so well last time.

We are here to tell you that you can renegotiate a contract in ways that don’t just serve your interests better, but also improve your relationship with your business partner. The problems arise when we don’t look at the big picture to figure out how change brings opportunity. If we avoid renegotiating or if we don’t think about the contract as just one part of a larger partnership, then things can easily go south or, at the very least, we guarantee that we will miss out on new opportunities.

Even when we have work done on the house or the car, we generally work with the same people again and again. But over time our needs change, and the kinds of services and products also change. When we avoid taking the time to rework expectations, we lose out every time. That’s because not only could we be getting more of what we want, we could also be finding new ways to reach a Both-Win® that’s going to make everybody happy and lead to many more years of productive collaboration.

When to Renegotiate (Hint: it’s not only when we have to!)

We clearly need to renegotiate when a contract ends and needs have changed. Even worse, maybe we finalized a negotiation that didn’t meet our organization’s needs -- we might be renegotiating under extra pressure. Or maybe a problem has come up and the terms of the original agreement can’t be met as planned. In those cases, we might not have a choice but to go back to the table.

At other times, there may not be any urgent reason to go back to the table, and we might tend to leave things as they are for the time being. This can be a big mistake. As things evolve in the marketplace -- whether in business or in our own private lives -- we can miss out on big opportunities if we aren’t paying constant attention to what a new contract might offer us.

That means that at all times we should treat renegotiation as an ongoing part of an active and engaged relationship with all buyers and suppliers. When we do this, we build the strength of our relationships as well as the terms of each contract and build ourselves a stronger position for future renegotiations.

Starting from a Positive Position: The Normal Course of Renegotiation

We find ourselves renegotiating most often when a contract just is not working out because needs have changed or a contract period is ending. Usually, this won’t bring added stress to the process as can happen when something is not working. These are the ideal circumstances for an easy renegotiation because we can usually start from a position of finding the common positives for both sides.

Let’s start by considering an example that sets out an ideal situation. You’ve been working with Aces Supplier for years through contracts that last for about one to two years at a time. Their product has consistently met your needs, and renewing the contract has generally been a simple and friendly process. Let’s even assume that the two entities at the table share common values of maintaining good quality and strong business relationships even as circumstances change over time. You find yourself sitting down at the table once again without any major changes to worry about in the supply chain or market demand. This all might feel very easy and straightforward.

There is a danger here, though. The danger doesn’t come from the relationship, but from our own tendency to continue along the same route with the same terms we’ve always set without looking at the big picture. While both sides of the table might be staying relatively constant, in today’s global world we are guaranteed to lose out every time we forget to see the forest for the trees. Before we sit down with Aces, we should be doing almost as much research as for a brand new contract with an unknown supplier.

The first step is to make sure you are always researching your own enterprise. Ask your own organization questions like “How are we responding to these specific new technologies or supply chains?” and “How are we modernizing our apparatus?” More than anything, you want to understand what kinds of needs are emerging or on the horizon that should prompt new negotiating terms with even our most reliable and familiar suppliers or partners, like Aces.

A second crucial step is to look around at the marketplace again. What is changing? Are there new technologies emerging that could improve the product or service you are offering, even if this supplier hasn’t yet caught up?

Once you are at the table, keep two strategies in mind. First, raise your tolerance for going back to zero. Instead of jumping back to the same familiar terms, you can use patient silence as a crucial tool for opening up new possibilities. Second, make the power of silence work for you.

Instead of using your old emails or notes as a guide, treat this as a fresh negotiation and don’t assume that the terms are set in advance. Ask Aces the same kinds of questions you’re asking of your own enterprise about how they are modernizing and adapting to changing circumstances. When you do this, you are notifying Aces that you are not going to remain satisfied by the same terms simply because you’ve built an ongoing relationship. At the same time, you are maintaining the positivity of this ongoing relationship by opening the door for the other side to introduce new possibilities.

Silence is a powerful ally, and it can be most potent when we want to change the terms of an old and familiar contract negotiation process. Instead of jumping in with facts and figures you’ve simply updated for a new contract period, it can be very effective to introduce some neutral but productive tension by refusing to set clear boundaries or expectations. There is no predetermined reason why this year’s numbers should only be altered to keep up with inflation or other outside criteria. Put the power for setting terms back into your own hands and allow a degree of unpredictability to give you the leverage to ask new questions and propose new terms. After all, Aces is more than likely relying on your contract as part of its business plan, and this means that you should scrutinize and re-evaluate terms more than ever.

To recap, the trick here is to avoid complacency and make sure you have your eyes on the big picture. Strategies of going back to zero and harnessing the power of silence can give you grounds for renegotiating a better and more profitable -- and satisfying -- contract that sets terms that will strengthen your current and future positions.

Starting from a Potentially Fraught Position: Getting What You Need When Things Aren’t Working

When things have gone wrong because a supplier’s product is not up to par or no longer fits our needs, or because a buyer isn’t fulfilling the expected ordering schedule or has maybe set new terms that were never agreed to, this creates a more stressful renegotiation process, and the process is different when we start from a less positive position out of the gate.

For this example, let’s say we are negotiating with a foreign, global entity called Market Analysis, which has long supplied your business with crucial data about foreign market demand for your products. This could be particularly important if social media is part of your marketing strategy since social media operate so differently across global business environments. Again in contrast to the Aces example, let’s assume that Market Analysis trades in information that is both vital for your expanding enterprise and difficult to obtain through other channels. If you add to this the potential for cultural differences that might make it difficult to maintain consistent expectations that fit your own business’s outlook, then I think we can assume that you’d be spending some extra time and energy every week or month keeping things moving smoothly.

If you are already always working overtime to keep the boat steady, then you may be unlikely to want to take risks in this relationship. But again, this is a problem of focusing on the immediate and losing sight of the larger landscape. You might be starting from the fear that Market Analysis has you over a barrel in one sense, since their service is highly specialized and highly valued for your business. For this kind of situation, you need to have a strong plan.

With Market Analysis, you would do well to start in the preparation stage by gathering as much information as you can about what makes your business valuable. As above, look at what knowledge and insight you can bring that you are uniquely positioned to gather or analyze. Then, if renegotiation starts to get stuck, make use of foundational negotiating tools to show the other side that you can add value in unexpected ways to strengthen the partnership and reset the terms for the renegotiation.

Research and careful planning are vital in difficult negotiations, and we run the risk of weakening our position over time with long term partners if we don’t constantly evaluate how changing markets and circumstances can be used to our advantage and could be used by the other side to disadvantage us. Be prepared and study the Karrass skill sets to learn the finer points of gaining advantages that broaden the scope and strategically set new terms for powerful renegotiation.

In this case, Market Analysis may have an invaluable product for your needs, but you are doing their work for them if you give in to the fear that you don’t have power in your corner, too. Maybe you have something to offer, here, that would cost you little but would provide something of distinct value to Market Analysis. You might be in a position to offer information or analysis about your regional marketplace that their global positioning leaves them unable to fully understand. Not only would this build stronger grounds for renegotiating terms, this builds your partnership and strengthens your long term relationship with Market Analysis.

You can use these strategies just as well for renegotiating with your household landscaper. Maybe you can offer scheduling flexibility or partner with neighbors to bring in new clients at a lower price, even if your needs limit the competitiveness of the market for you.

Don’t Wait for a Contract to Expire: Build a New Both-Win® Today!

One of the least common situations for renegotiation is when things seem to be going along just fine, but a good negotiator sees a way to improve the terms of a contract and wants to find a way to bring parties back to the table.

The key here is to make sure that you are always watching the big picture of the marketplace and your long term relationship with the service provider or buyer. This means not only looking at what you have to offer, but also at what’s happening with competitors. Are they offering new incentives or advantages that are weakening your negotiating position? If so, over the course of a stable contract you are likely losing ground if you aren’t paying attention.

All business relationships are human relationships, and maintaining that relationship over time is part of building your strength in renegotiation. If you are consistently in touch with a partner, you are in a position to ask exploratory questions at any time. This reduces the tension that might come up if you decide it’s time to renegotiate an existing contract.

At other times, adding some tension might be advantageous and appropriate. Here you might make use of techniques around financial or decision-making authority. Authority tactics require nuance and preparation, but they can be very effective in renegotiation because they provide a logical reason for bringing an existing contract back to the table to set new terms.

For example, you might usefully claim that you are bringing the contract back to the table due to demands from higher up. This adds pressure but also displaces it onto a vague authority, thereby giving you the chance to put pressure on other terms you’d like to renegotiate without adding more tension than necessary. Alternatively, anticipating that there will be difficulties in the process, it can even be advantageous at times to put pressure on the other side by challenging their decision-making authority.

The Upshot

Whatever tools from your negotiation training you choose to bring to the table, renegotiating from a strong position means understanding the nature of your long term business relationships, keeping an eye on the big picture, and adapting your best skills to emphasize the value of what you have to offer over the long term.

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