How to Negotiate Contracts

How to Negotiate Contracts

By DeAnn Chase October 12, 2018    Category: Business Law    

How to Negotiate Contracts

As a small business owner, you’re probably going to see a lot of contracts. Contracts are vital to any business, since they’re used to buy and sell goods and services, hire people, protect secrets, establish partnerships, and much more. These contracts can protect you, protect your business, set your salary, and guide business relationships in a positive direction. Because a well-drafted contract can be so central to business success, before entering into an agreement, you should be sure to take the time to properly review and negotiate the details.

Read the Contract: Before signing anything, take the time to actually read what the contract says. Always note the key terms of the contract, which include not just the services and the amount of money involved, but also when payments are due and what happens if (and when) a problem arises.

Set Your Limits: Before entering any negotiation, privately (or with your business partners) decide on what your limits are on certain key terms. These depend on the contract, and could be anything from the lowest price you’re willing to accept for your work to the greatest number of hours you can provide your services, or even something as simple as your target profit margin.

Know Your “BATNA”: Your “Best Alternative to Negotiated Agreement,” or BATNA, is your backup plan if the negotiation can’t reach a resolution. In some cases, your BATNA will be obvious, such as reaching out to another company or individual for goods or services. In other cases, your BATNA will be a little less clear. However, having a backup plan (and knowing how difficult it will be to accomplish this backup plan) will give you a much stronger position to negotiate from, since you’ll know exactly how free you are to simply walk away.

Pick Your Strategy: There are a number of different negotiation strategies you can employ. Your choice in strategy is likely to depend on your personality and the situation at hand. An example of a highly effective strategy is an “integrative negotiation,” where you collaborate with the other party, with each of you focusing on mutually desirable goals, to eventually find a “win-win” solution. Before entering into a negotiation, you should research various strategies to figure out which one most suits your needs.

Stay Professional: Remember, especially when negotiating business contracts, to always act like a professional. After all, having a negotiation end in success means that you’re going to keep working with that business or individual on the other side of the table for at least some time. You want to make sure you start that ongoing relationship on the right note.

Look for Creative Solutions: Often, the most successful contract negotiations involve creative solutions. Perhaps you can’t cut your prices any more, but you can throw in other incentives that cost your team little time but offer high value to the other side. Especially in employment contracts, perks like flex time, additional vacation, or alternative benefits can often create a mutually beneficial situation.
Just because you’re a small business or an individual doesn’t mean you don’t have the power to negotiate. You’d be surprised what happens when you (or your lawyer) call up a big company and ask for slightly different, but very reasonable, terms.

With all this said, it isn’t always possible to negotiate contracts. Many times you will sign a form contract, also known as a “contract of adhesion,” where if you want the product or service, you’ll have to agree to the terms offered. Even when negotiation is not an option, it’s important to read any contract before you sign to make sure you’re comfortable with the terms. This is because even if a contract is a contract of adhesion, as long as the terms are reasonable, you’re going to be bound to those terms once you sign. If you have any questions about whether the terms of a contract are reasonable, or if you need help negotiating an agreement, the business attorneys at Chase Law Group, P.C. can help. Give us a call at (310) 545-7700 to schedule a free consultation.