Contract negotiation: a basic introduction

Negotiation skills are useful in a personal and a business context. This guide provides helpful tips on what to think and prepare for before and during a negotiation.

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To some extent, the practice of negotiation is intuitive: people start negotiating with each other at a young age. What differentiates negotiation in a professional context from everyday negotiation is that the consequences of negotiating a business arrangement may directly affect your bottom line. The following are some negotiation skills that may help you come out on top:

Before the Negotiation Begins: Prepare and Strategize

Before any negotiation starts, research who you will be negotiating with and what your position should be. You can get to know the person you’ll be negotiating with by talking to business associates who have worked with the person or company before. And you can prepare for your negotiating position by understanding their product or service and having a price in mind that is appropriate to your budget, management directives, sales goals and other business factors.

The modern approach to contract negotiation was pioneered at Harvard University by Roger Fisher and William Ury, authors of the book Getting to Yes, which states that a collaborative negotiation without big emotional displays is most likely to achieve the optimum results. Anger and similar emotions tend to cloud judgment, discourage mutually beneficial outcomes, and sometimes result in a retaliatory approach to problem-solving.

Your first offer will usually set the tone for the rest of the negotiations. Focus on your strengths. If you are the only source with your product, you have great leverage. Consider the economic conditions and supply and demand. Use your bargaining power effectively. Steer the negotiations in the direction you hope the process goes.

While you want to make an aggressive initial offer, don't be insulting. The final goal is to arrive at some type of agreement. Know that you can bring to the table things that are not necessarily monetary, such as delivery, availability, service or another intangible. Remind yourself to be cautious when discussing budget limitations, to pay attention to nonverbal cues from yourself and others, and to not be pressured into making a deal you will not be happy with later.

To prevent your negotiation from disintegrating into hard-bargaining tactics, you first need to make a commitment not to engage in these tactics yourself. Remember that there are typically better ways of meeting your goals, such as building trust, asking lots of questions, and exploring differences.

When Negotiating

Make an offer that includes all the specifics, including not just financial compensation but how much work is involved, clarification regarding type of product, any incentives, warranties and service and paperwork.

Assess the most important thing to both counterparts. You might care about price or delivery date, while your counterpart might be concerned about product quality or follow-up service. Look at their priorities so you can give the other party what they need without compromising your own position. Know what your bottom line is in each area. You can trade a lower price for less service and use any points listed as bargaining chips, and negotiate any terms you have difficulty working with. Get everything in writing with all pertinent elements. Take notes on why you made each offer.

How to Deal with Hard Bargaining Tactics

But while you may prefer collaborative negotiation, you need to be prepared for possible hard-bargaining tactics on your counterpart in order to defuse them. To do so, you first will have to be able to identify them. Here are some hardball tactics to watch out for and how to deal with them:

  • Extreme demands followed up by small, slow concessions. This tactic is designed to protect the dealmaker from making concessions too quickly, but can  unnecessarily drag out the negotiation process. To deal with this tactic, have a clear sense of your own goals, best alternative to a negotiated agreement, and bottom line. Do not be rattled by any aggression you may feel coming from your counterpart.
  • Commitment tactics. Your counterpart may state that their hands are tied or they have limited power to negotiate. If you find that this is true, see if you can negotiate with someone with greater authority.
  • Take-it-or-leave-it strategy. Offers are rarely nonnegotiable. If you are presented with this strategy, try ignoring it and focus on the content of the offer instead, and make counter-offers that meet both parties’ needs.
  • Inviting unreciprocated offers. After you make an offer, if your counterpart asks for a concession rather making a counteroffer, don’t immediately reduce your demands and insist on hearing their counteroffer.
  • Trying to make you flinch. If your opponent keeps making greater demands in order to push you to your breaking point to get your to concede, point out what your counterpart is doing, and insist that you will only engage in a reciprocal exchange of offers.

As a final note, if you will work with this business in the future, take this into consideration. Maintain your professional demeanor, and always help the other party believe they got the best possible deal.

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