Tips to Keep in Mind when Negotiating a Contract
Contracts are one of the most elementary components of our legal system. They can be long, short, written, verbal, and contain a single sentence or a novel-worthy page count. In essence, they are any type of agreement that describes a “this-for-that” exchange of rights, obligations, money or services. Many contracts, like simple purchases or contracts for quick services or utilities, are non-negotiable. However, even in those situations, there may be more room for negotiation than you think. If you find yourself in the position of being able to discuss what your contract might entail, here are some basic tips to keep in mind when preparing for a negotiation.
Contract Negotiation Prep Work
You need to know what rights and obligations you’re actually talking about in order to have a hope of successful negotiation. This stage is crucial. Contractual terms and desired outcomes can change during the course of negotiation, but it will almost always be easier if you have the fundamentals laid out. Ask yourself questions like the following:
What is the current state of affairs, and how will it change?
This is a very important step, and, depending on the nature of the contract at hand, it can be easy to get ahead of yourself. A careful period of self-reflection can be useful before proceeding. Think about whether you have an ongoing relationship with the other party already, and whether you stand to gain or lose anything from negotiations or from entering a contract. Think about the other party’s relationship with other persons (both before and after you come to an agreement), and think about how entering into the contract will affect your own relationship with the other party (and third parties!).
What must I receive from the other party?
This is the bare minimum that you need to get out of forming the contract. Is it clear and obvious to both parties that this is what you need?
What is the most I am willing to give/pay/agree to perform?
This is something you can keep to yourself, but it’s still a good self-reflective tool to prepare yourself. Think about your budget, time constraints, or the amount of time you may be willing to perform an obligation.
What specific objects/rights/obligations do I truly intend to form the basis of the contract?
Try not to assume things will just work themselves out. Be clear about your position, ask questions from the other side, and know what the scope of the rights and obligations might be.
Is my (or the other party’s) intended result even possible?
Sometimes, negotiations can carry on for some time before one side realizes a key piece of information that makes them realize that the intended effect just won’t work. Clearly, in the interests of time, money, and efficiency, it pays to think about this question in advance.
“What-if...?” Questions:
Hypothesize! For the sake of argument and analysis, ask yourself some “what-if” questions and see how the proposed contract follows through with the hypothetical. Try to imagine what might happen if something fundamentally changes. If it’s a lease, what if you want to move? If it’s a job contract, what if you get sick? This type of thinking leaves you better prepared to use hypothetical arguments as leverage, and can help you prepare answers for when the other party insists or asks for something.
At the Bargaining Table...
Once you have a handle on the issues from the first step, you may want to consider the following principles:
Don’t Overcomplicate
This can be particularly insidious with boilerplate contracts. If the other party asks you to agree to something that doesn’t seem to apply to you, ask about it. If a term, clause or section serves only to confuse, consider removing it.
Don’t Oversimplify
The counterpoint to the above is to make sure that your (and the other party’s) concerns are addressed adequately. This is especially important as it relates to the hypotheticals that you have considered.
Know the Definitions
Many contract documents begin with an “interpretation” or “definitions” section. It is typically crucial to understand what exactly various words in the document actually mean. One of the implications of these sections is that you should probably not assume that a term that appears in the contract has the same meaning it might have outside the contract!
Consider the Context
The context of your negotiations can be critical in ensuring that you obtain your desired outcome, or in protecting yourself from giving up too much for the sake of coming to an agreement. Some of your “context” will undoubtedly come from your prep work (e.g. - knowing what a reasonable salary to expect might be, or what sort of common area expenses might be included in your lease). Some of it may come from circumstance, such as a deadline or relationship with a third party. Having a good grasp of the bigger picture will help a lot with timing your requests, demands, or refusals in negotiation.
Know When to Pause
Putting negotiations on hold can be a difficult judgment call, especially in time-sensitive scenarios. But there are ample reasons when it may simply be better to wait. More research may be required, the consent of a third party or client may be worth looking into.
Clarity is Key
Make sure the words on the page can only be read in the way the parties intend it to read! Ask yourself if there is a different possible interpretation. Consider making new defined terms rather than using a stock or official-sounding word. Confirm with the other party that they get the same result when they try to interpret the meaning of specific terms.
Ask!
Communication is crucial in any negotiation setting. Especially if one side has less bargaining power than the other, it is almost always helpful to ask questions, if only to confirm that what you think the contract means is correct. If something seems to be missing, be explicit and ask for it! If it looks like the contract requires more of you than you were expecting, bring this up, too. This is especially important when there is vagueness or ambiguity of terms.
Conclusions of Contract Negotiation
Contract negotiation can occur in a huge variety of settings, and knowing how to discuss and confirm terms is a worthwhile skill to be developed. Remember that even if the other party suggests there is "no room" for negotiation, you still do not have to sign, and you can still ask questions. After you have read through these tips, then read about Negotiation Strategies and Tactics to better prepare.
These tips are intended to give some general tips for negotiation situations. If you feel overwhelmed, lost, or just in need of a bit of guidance for a specific situation, a great start is to seek out a lawyer, mediator or other counsellor who can give you professional help.
