8 Critical and Creative Contract Negotiation Techniques You Must Use With Your Suppliers
The number one thing that separates great contract negotiators and good negotiators is creativity. Creativity is an often overlooked aspect in contract negotiations - the creativity to get your negotiation opponent to accept your demands whilst offering very few to no concessions. Creativity is especially required in negotiating with suppliers, as suppliers may come across as uncompromising, in particular larger ones. Based on my years of experience negotiating with contractors however, many suppliers actually need, or are desperate for business. It is the negotiator's responsibility to pick up on cues that can indicate weakness from suppliers during negotiations, so that the negotiator can take advantage of the situation.
Creative contract negotiators are able to see beyond the standard negotiating processes and find opportunities for both parties to benefit. They are also able to think outside the box and come up with creative solutions to problems that may arise during the negotiation process.
Being creative in your contract negotiations can give you a big advantage over your opponents. If you can find ways to get what you want without giving up too much, you'll be in a much better position to succeed in your negotiations.
This blog post will go over 8 of the most important and creative contract negotiation techniques you can employ to enhance your chances of getting a great deal.
1. Get the right people in the room.
There’s a reason why contract negotiation teams have lawyers and other experienced negotiators on them. The team should not just be the managers who are responsible for the contract—they need to be decision-makers, too. This ensures that you have someone on your side who can handle any legal challenges that might arise. It also allows for fair give-and-take; if you can show that you’re being reasonable, it’s more likely that your supplier will compromise on their side, too. This is why nimble negotiation comes into play as well. To be nimble, you must spin out the negotiation and bring more bystanders into it. Bystanders would justify your requests and were likely to provide emotional and positive responses that could eventually lead to contractors accepting your terms.
You and your negotiating team should also consider bringing in risk, operation and finance managers who have a clear understanding of corporate risk tolerance, in-depth understanding of the company's finances and figures, as well as the company’s guidelines for accepting or rejecting contract terms before sitting down with your supplier. This will help you determine if your preferred terms are likely to be accepted by senior management, so that you can act accordingly while staying within acceptable parameters.
Having this knowledge beforehand will help you immensely during the negotiation process, as you'll be able to make informed decisions that are in line with your company's goals. So before you sit down with your supplier, be sure to do your research and understand your company's stance on risk, and especially on the desired profit margins.
2. Do your homework before negotiation begins.
You should never go into a negotiation blind. That means doing your research on what the other party wants and needs from the deal—and what their walk-away position is. (That’s the point at which they’d say “no deal” and walk away from the table.) Based on our years of negotiation experience, it requires creative methods to come up with a good, educated guess about a negotiation opponent's walk-away point. No good negotiator will simply tell you what their bottom line, which means you must find indirect ways around this to reach a good estimate. There are a few methods I often use to gain this valuable piece of information, such as trying to understand the financial state of the negotiator's company by interacting with their employees, and talking about hypotheticals seemingly unrelated to the negotiation to test the negotiator's state of mind (e.g. I once tried testing a supplier to find out if he is an aggressive negotiator or not by talking about how he approaches clients who backtrack).
Here is my golden rule for negotiations: The more questions asked about your negotiation opponent, whether these are directly or indirectly related to the negotiation at hand or not, the more useful knowledge and data you will receive concerning about your opponent's state of mind.
We have to remember that humans do not think rationally - we all act on emotions and justify our actions using logic. Negotiations are never only about facts and figures. In fact, the state of mind of the negotiators, such as how negotiators subjectively interpret data they receive, is the major factor affecting how a deal is negotiated. Many negotiators I work with fall into the trap of only analyzing available data based on their own perspective, which leads to misjudgements and errors during negotiations, where other parties may feel and react differently towards the same set of data. That is why when I talk about homework before negotiations, I am not only talking about available data and figures from the internet, but in-depth research into your negotiation opponent's state of mind.
It is essential, then, that we take into account the emotional state of the other party when entering into negotiations. If we can understand how they are feeling, we can better anticipate their actions and negotiate accordingly. This then allows us to find areas of common ground more easily and build trust.
However, good negotiators must also be careful not to fall into the trap of being overly emotional. We must be grounded in logic and reason, or we risk acting too irrationally, which can scare off other parties at a negotiation.
To sum up, make an educated guess about your negotiation opponent's bottom line by doing extensive amounts of research, so that you can anchor high and increase your chances of getting a better deal.
And keep this in mind: When someone negotiates a deal, they seldom present you with their first and best offer. Unless you understand where they’re coming from, your chances of getting the most out of the deal are slim.
3. Put everything in writing.
This may seem like common sense, but it's important to get all the details of your agreement in writing. This way, there can be no misunderstanding about what was agreed upon. Get all the key points of your agreement in an email or document so that everyone is on the same page.
Again, even if all the details were already discussed, you need to have a written agreement between all parties. This is the only way to get something legally binding to secure your deal.
4. Know your worth.
When it comes to contract negotiation, one of the most important things you can do is to know your worth. This means being clear on what you bring to the table and what you are willing to provide in return. It also means being aware of your competitive market value so that you can be sure you are getting a fair deal. This relates back to point number two - the importance of research ahead of negotiations.
Unfortunately, many negotiators do not know their worth. For example, a study from Carnegie Mellon University found that women are not always good at negotiating their own salaries and benefits. Women tend to ask for less money than men do when they are offered a new job and are more likely to accept the first offer they receive. This is partly because women are socially expected to be polite and deferential, and partly because they don’t want to be seen as difficult or demanding.
In order to know your worth and to fully convince yourself of your worth, a certain amount of creativity is needed. Being stubbornly fixated on a viewpoint is unwise - good negotiators can always find creative reasons about why they are making a certain offer, even including offers that may initially come across as ludicrous to the other party. For example, in the Art of the Deal, Donald Trump indicated that one of his most successful negotiations in his career was his Boeing deal. He explained his reasoning for initially proposing a ridiculously low offer, which is due to the poor financial situation that he realized Boeing was facing. Had he not done his homework, he would not have found out that Boeing was suffering financially. He was able to justify his initial offer despite sounding ridiculous, and although this initial offer was rejected, he was still able to strike a deal hugely beneficial to his business empire.
The worst thing that a negotiator can do is to be rigid. Umpteen amounts of negotiation practice is needed to help negotiators think creatively and act creatively. People might think that knowing your worth is straightforward, but it is not, especially in negotiations. It is an art form to be able to influence yourself, and your negotiation opponents to assign you higher values of worth than you would originally, which requires a great deal of creativity.
5. Have a clear understanding of your objectives.
An important step in effective contract negotiation is to have a clear understanding of your objectives. What are you trying to achieve with this negotiation? What are your top priorities? Once you know your objectives, you can develop a negotiation strategy that will help you achieve them.
Some common objectives in contract negotiation include getting the best possible price, minimizing risk, or maximizing the value of the contract. Other objectives might be to forge a good relationship with the other party or to ensure that the contract is fair and equitable.
Knowing your objectives is the key to developing a successful negotiation strategy. Without clear objectives, it will be difficult to measure success or determine whether or not the negotiation was successful. So take some time to think about your objectives before beginning any contract negotiation.
It is also important to warn negotiators not to sacrifice long term value in return for great short term value. For example, even if you know deep down that you may be able to successfully demand a higher price from your supplier, refrain from doing so if you know that this may hurt your long term relationship with your supplier, unless you are absolutely certain about your possible long term sacrifices.
Creative negotiators understand how to set negotiation goals that will lead to a maximum extraction in both long term and short term value.
6. Be prepared to walk away.
One of the most important aspects of any negotiation is knowing when to walk away. If you're not getting what you want, or if the other party isn't budging, it may be time to walk away from the negotiation table. This doesn't mean that you can't come back to the negotiation at a later time, but it does show that you're not afraid to stand up for what you want.
In fact, there are many creative ways in which you can implicitly let your negotiation opponent know about your intentions of walking away. Sometimes, the threat of walking away will cause your opponent to budge, handing you a great deal, but the key here is how you can creatively convey your threat in a way that your opponent can understand and will value enough to take it seriously.
Walking away may sometimes not be the best option for yourself, and you must not feel that walking away causes you nothing because this is simply not true. At the very least, you would have cost yourself valuable time by agreeing to negotiate and not getting anything out of the negotiation in the end.
To cause the other party to fret about your possible retreat, you can use a variety of creative ways to do so, such as setting arbitrary deadlines for negotiations to end, refusing to reveal invaluable information to the other party unless they agree to certain core conditions you propose, and casually bringing up your views towards the other party's competitors. There are millions of ways that can cause anxiety and worry to your negotiation opponent, but the key is that the other party must clearly understand the value, or the potential value that you can bring to them if they reach a successful deal with you.
7. Be assertive but not aggressive.
When it comes to all negotiations, especially contract negotiations, it's important to be assertive without being aggressive. This is because a positive negotiation outcome can mean a great, long term relationship with quality suppliers, whilst a negative one could mean losing out in the long run. You will want to be firm in your demands and make it clear what you're willing to accept, but you don't want to come across as confrontational or pushy. Being assertive is about getting your point across confidently, politely, and effectively.
8. Listen more than you talk.
You're about to enter into a contract negotiation. And while it's important to be assertive and speak up for yourself, it's also crucial that you listen to the other side. Not only will this help you understand their perspective, but it will also give you clues as to their true wants and needs. You can then use this information to your advantage when it comes time to make a counteroffer.
Without the appropriate information, it doesn't matter how much creativity you may possess - you will most likely end up making sub-par counteroffers, which could wreck your reputation with your suppliers in the worst case.
