Avoid the 10 Worst Contract Negotiation Mistakes
When negotiating a contract with a vendor, some negotiators feel there is “always another vendor—so don’t give an inch.” But this can generate long-term problems and higher costs to the company. The most effective approach is to partner with your potential vendor to achieve a win-win agreement (You organization wins the most, the vendor wins an acceptable amount).
When discussing contract terms, steer clear of these common mistakes:
- Failure to know your vendor: Research their company and industry by checking their Web site and other business Web sites that can tell you where they’re strong and where they’re not (e.g., scottrade.com, vanguard.com, finance.yahoo.com, etc.)
- Focus is too narrow: Consider a wide range of items and issues to negotiate, not just those specified in the RFQ/RFP, if they will help you achieve your contract objectives
- Being overly aggressive: This is taking a win-lose approach, which inevitably results in losses to the company in the long term
- Focusing only on price: Everyone wants the lowest price, but if that’s not possible or it jeopardizes your vendor’s business, look for alternative values in terms, conditions, etc.
- Failure to “flinch”: Whatever the vendor’s offer is, show concern that it’s not enough, then counteroffer. Look for alternatives that are high on your priority list but low on your vendor’s.
- Failure to preserve the vendor’s self-esteem: Your words, voice tone and facial expressions should always be friendly and professional. Avoid condescension, gloating, power plays and other negative tactics.
- Poorly defined terminology: Ensure all acronyms, abbreviations or internal jargon are either avoided or well defined so that there’s no room for misunderstanding now or later
- Overlooking inconsistencies: Review and proofread the contract (and have others do so too) to ensure there are no inconsistencies that can be the basis for future disputes and problems in arbitration
- Thinking that strengths offset weaknesses: If one part of the contract is weak in ways that can cause future problems, the fact that other parts of the contract are very advantageous is not relevant. All parts of the contract must stand solidly on their own.
- Unnecessary language: Things like redundancies, overly long phrases and poor grammar can cause problems in the initial negotiation and in the future