Commercial contracts that run smoothly throughout their lifespan are a rarity. So much can go wrong: uncontrolled price escalations, delivery problems or equipment failures. Many of the issues that arise have their roots in poor negotiation practices.
What does a successful contract look like?
A contract can be regarded as a success where these conditions are met:
- both organisations understand their contract rights and obligations and adhere to them
- the expected business benefits, both financial and operational, are being realised
- internal stakeholders are satisfied with the deal
- the performance monitoring process is efficient and fit for purpose
- the supplier is responsive and committed to resolving issues
What is being negotiated?
Negotiation of the terms of a contract must take into account all of the above. Depending on the commodity or service, the basic elements of price, delivery, quality, service, payment terms and other operational issues need to be agreed. Next, are those potential sticking points which can determine how well the contract will work in practice. These include defining:
- Key performance indicators (KPIs) which are what we use to monitor supplier performance.
- Reporting requirements – content, frequency and review meetings.
- Key contacts at both parties for dispute resolution, disaster management and continuity
- Training and skills transfer requirements
Both parties to the negotiation have their own objectives and the aim is to satisfy at least most of them and reach an amicable, or at least acceptable, solution. Entire books have been written on negotiation skills and techniques but here are our top 5 tips to get to the best solution and ensure a working relationship that delivers the results.
- Nothing beats preparation
Select and brief your team well beforehand. It includes setting objectives, defining roles, deciding on tactics and planning the meetings. Decide on the team leader, elect a scribe. Always have a fall-back position in case negotiations fail.
- Who is the supplier, really?
Endeavour to find out the supplier’s objectives. This information allows you to prepare to address their issues and explore creative solutions ahead of time. Find out who will be at the meetings, their exact influence in the process and their preferred outcome. More than that, there is a huge benefit in understanding the personalities, their preferences and any known biases.
- Manage your team and their emotions
Some of the problems in negotiation meetings may occur because of issues on your own team. Choose participants wisely. Identify any conflicts of interest and eliminate them. For each person, know their priorities, preferences and loyalties. Everyone has their “hot buttons”. Many well-planned negotiations fail due to personality conflicts rather than big differences in commercial position or desired outcome.
- Listen and be open to alternatives
Listening is a learned skill. Hear their ideas, acknowledge them and think about them positively before launching into your solution. It is easy to become impatient with those people whose ideas are radically opposed to yours. Develop the ability to shut up at the right time and let others talk. There’s almost always more than one solution. Try to look at the problem, not just from your own position, but also from the other side. By doing this you not only acknowledge their viewpoint, but you have a better opportunity to find a solution that suits both sides.
5. Don’t lose your cool
Discussions may get extremely heated, you have to stay in control even if you are being insulted or yelled at. One way to cool off is to ask for “time out”, taking a break can permit the discussion to get back on track. Being able to diffuse such situations is a talent that is worth developing, allowing arguments to escalate will lead to failure of negotiations. In a recent study, reported in Harvard Business Review (HBS), 45 negotiating teams in the US were studied and one of the main lessons learned was that some of the biggest challenges come from one’s own side of the table!
An aspect often overlooked is the typing up of the loose ends and the contract signing is the necessity for a debriefing. It’s important to schedule a “lessons learnt” session so that the same mistakes are not repeated. Going back to point 1: how much better prepared could you have been?
According to HBS professor James K. Sebenius, there are six common blunders. Do not:
- Neglect the other side’s problems.
- Let price bulldoze other interests.
- Let positions drive out interests.
- Search too hard for common ground.
- Neglect BATNAs (the acronym for “best alternative to negotiated agreement”).
- Fail to correct for skewed vision.
It’s easy to find published guidelines about how to manage the commercial and technical content of supplier negotiations but little focus is given to how to handle the behaviour of the participants, on both sides of the table. Erratic behaviour and emotional outbursts can undermine even the best thought-out negotiation strategy. Result: no contract.
This article was first published on sievo.com