Although there are several discrete aspects of the contracting process, each phase ultimately intertwines with the others, and each step in the cycle influences the next. The way in which the contract negotiations unfold will no doubt have a massive effect on managing the contracting relationship and overall contract performance. Unfortunately, things can sour rather easily during the negotiation phase, but the contract often has to move forward, as there may not be time to find a new partner or even another firm available that can provide the same goods or services. Here are five common roadblocks in contract negotiations and how to avoid them:
1. Inappropriate Financial Terms
Contracts clearly involve the exchange of promises, and there is generally one party paying the other for the provision of a specific good or service. Given the importance of containing costs and the need to balance quality and value, pricing and other financial aspects of the contract tend to cause the most problems. Although traditional contracting custom dictates the need for good faith and fair dealing, there are always firms seeking to gain more than they are willing to give.
Granted, everyone wants to ensure that they are getting a good deal and will benefit from a contracting arrangement, but this should not occur at the expense of the contracting relationship. The ultimate goal should bea mutually beneficial agreement and approaching the negotiations with this mindset will no doubt go a long way.
2. Excessive or Unfair Waivers
In some cases, the parties may not be able to agree upon the price or other financial terms that they are seeking. When this occurs, they will often try to negotiate other types of conditions that will benefit them financially, albeit frequently in indirect ways. A common example of this involves the inclusion of various types of waivers. For instance, a party may try to include a provision in which the other side waives their right to bring a lawsuit and must instead submit to arbitration to solve a dispute.
In some cases, the waivers are fairly common and/or perfectly reasonable, but there are certainly situations in which including particular waivers can prove incredibly damaging. This once again highlights the importance of focusing on the bigger picture throughout the negotiations, especially the importance of ensuring that all involved stand to gain in a fairly equal manner.
3. Incompatible Timelines
Contracting lifecycles can occur in as little as one day, whereas others may take place over the course of many years. There has to be a mutual understanding of the requisite timeline prior to embarking on contract negotiations, as the economic climate, business circumstances, or other factors at play will influence each side’s timeline. Timing expectations must be clearly established from the outset to provide the parties with an opportunity to continue, reconsider, or bail, rather than waste time and money only to find out later about the incompatibility.
4. Steadfast Inflexibility
There is no way for contract negotiations to result in an actual written agreement if one or both sides maintains steadfast inflexibility with respect to particular terms and conditions. Each side will obviously sit down at the negotiation table with the goal of obtaining certain items. However, the whole point of the negotiation process is to discuss how each side can give and take certain things so that a balance is struck. A complete unwillingness to bend will almost certainly stall the negotiations and may preclude completion of the process altogether. It is often said that true compromise results in both sides being equally satisfied yet dissatisfied with how things ended up, so compromise must be kept at the center of the negotiations.
5. An Acrimonious Approach
For some inexplicable reason, there are people in the business world who continue to believe that a firm, even aggressive approach will take them far. This mindset has likely benefitted entrepreneurs here and there, but those examples are surely few and far between. Nowadays, successful companies tend to emphasize a genial corporate culture. This mindset should also be extended to relationships with external vendors and professionals. Going into the negotiations with an open mind and kind heart will get things rolling positively, making obstacles and conflict at least a bit less likely.