Contract Negotiation Tips

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.  

About the Author - Contract Negotiation Tips

Dan - Mediate2go Editor and Blogger

Dan Lawlor is a Mediate to Go Blogger focused on estates and commercial dispute resolution. Dan is a graduate of McGill University's Faculty of Law with interests in conflict resolution, business law and writing. He played an important role as a director with Mediation at McGill, building connections with the community to improve outreach. Currently he is a student-at-law with Campbell Mihailovich Uggenti LLP in Hamilton, Ontario. Dan loves team sports, reading, and traveling.
 

Negotiation Defined

Negotiation Defined

"Negotiation is a fact of life… Negotiation is a basic means of getting what you want from others..." See full quote below by Roger Fisher, William Ury and Bruce Patton, Getting to Yes, page 70 and 71

Mediate2go: Negotiation Defined

An Orange Illustration

Two chefs are fighting over a single orange. They both insist that each of them requires the whole orange. They finally agree to cut the orange in half, so they each get an equal share, and then they go their separate ways. The first chef squeezes out all the juice of his half orange into a sauce he is cooking, but it’s not quite enough. The second chef peels the rind into a cake he is baking, but it’s not quite enough either.

The chefs reached a fair compromise but what would have been a better resolution?

What is Negotiation?

When two or more parties encounter a problem in which they have differing goals and interests, they must enter into negotiation to agree on a resolution that is better than what they can achieve unilaterally. Although their interests are different, they may not necessarily be incompatible.

Examples of Negotiations

Negotiation is both a formal process in Alternative Dispute Resolution (ADR) or conflict resolution, and also an informal discussion for parties to reconcile their interests.

Formal Negotiations:

1. Countries coordinate an international effort to find and recover the remains of a missing plan
2. A buyer and seller of a house each want to get the best price
3. Lawyers try to settle a civil lawsuit or agree on a sentence for the accused
4. Labour union and management representatives negotiate over seniority rights or go to arbitration over a grievance
5. A married couple seeks the assistance of a mediator to help them deal with their divorce.

Informal Negotiations:

1. A couple decide on where to go for vacation or who will take out the garbage
2. An employee negotiates with her boss about when she can take vacation
3. A child negotiates for more TV time or a later bedtime 

Definitions from Negotiation Experts

[The art and science of negotiation] ... is concerned with situations in which two or more parties recognize that differences of interest and values exist among them and in which they want (or in which one or more are compelled) to seek a compromise agreement through negotiation.

Howard Raiffa, The Art and Science of Negotiation (Cambridge, MA: Harvard University Press, 1982 at 7).

For most people bargaining and negotiation mean the same thing: however, we will be quite distinctive in the way we use the two words. We will use the term bargaining to describe the competitive win-lose situations such as haggling over price that happens at a yard sale, flea market or used car lot; we will use the term negotiation to refer to win-win situations such as those that occur when parties are trying to find a mutually acceptable solution to a complex conflict

RJ Lewicki, B Barry and DM Saunders, Negotiation, 6^th ed, (New York:McGraw-Hill/Irwin, 2010) at 3.

Negotiation is a fact of life… Negotiation is a basic means of getting what you want from others. It is a back and forth communication designed to reach an agreement when you and the other side have some interests that are shared and others that are opposed.

Roger Fisher, William Ury and Bruce Patton, Getting to Yes, page 70 and 71.

Perspectives of Negotiation

Two main schools of thought exist:

1.  Negotiation is a competitive, zero-sum game where each party seeks to get a larger piece of pie at the expense of the other party. It is a distributive, or win-lose process.
2.  Negotiation is a cooperative process where each party seeks to expand the pie. It is an integrative, win-win process.

In the Orange Illustration, the chefs reached a fair compromise but a better resolution would have been if the first chef got all the flesh of the orange, and the second chef got the entire peel. Although the quantity and size of the orange remains the same, the gains would have been greater for both parties.

The primer on negotiation, Getting to Yes, champions the idea of focusing on interests, not positions. A position is a demand put forward or a desired outcome, while an interest is an underlying concern, or desire. In the Orange Illustration, both chefs insisted they needed the entire orange – that was both their respective and irreconcilable positions. Any larger slice of the orange for one chef automatically meant less for the other. This is a typical distributive, or win-lose situation. However, one chef’s interest is to use the orange to make a sauce, while the other chef’s interest is to use the orange to flavour a cake. Unpacking their interests uncovers the need for the juice and the peel rather than as much of the orange as possible. Different, but not incompatible interests. By focusing on interests, rather than positions, they could have expanded the pie, with a win-win result.  

Read more about negotiation tactics and strategies on the Mediate2go Blog.

Mediate2go: Negotiation Defined

About the Author - Negotiation Defined

Rhema - Legal Dispute Blogger

Rhema Kang is a litigation lawyer. She graduated with an Honours Bachelor of Arts from the University of Toronto in International Relations, and Juris Doctor from the University of Ottawa. She first became excited about mediation while working for the Honourable George W. Adams, a prominent Canadian mediator who handles legal disputes worth up to several hundred million dollars. Rhema was the researcher behind the book, Mediating Justice: Legal Dispute Negotiations, and won second prize in the FMC Negotiation Competition. Rhema enjoys dark chocolate with sea salt and finds it awkward to write about herself in the third person.

Mediate2go: Negotiation Defined