Since the invention of email, contract negotiations have not altered. But new technology are enabling faster, more informed, and less hazardous contract negotiations. This article will define contract negotiation, explain why conventional methods of contract negotiation are risky for businesses. Describe how emerging technology supports legal teams in large-scale, complicated agreement negotiations.
How does contract negotiation work?
The process of negotiating a set of legally binding conditions for a contract (in this case, we’ll concentrate on negotiations between two businesses) is known as contract negotiation. When two businesses negotiate, both sides aim to get good terms and reduce operational, legal, and financial risk.
For instance, your business can insist on the flexibility to make monthly payments rather than yearly ones when negotiating contracts with vendors (or vice versa). Payments are one of many topics where there isn’t always a “right” answer but rather an answer that works best for your business. In business, we negotiate contracts to make sure that they position our organizations for long-term success.
The persistent difficulties in contract negotiations
Contract management includes contract negotiation as a key component. For instance, delays in contract creation or execution may cause a company to operate more slowly. But they are not likely to significantly affect its bottom line. On the other side, a badly managed negotiation may subject a business to burdensome long-term legal liabilities.
Regular negotiations, like those over software licenses. For example, center on issues including pricing, information security, customer data processing, and governing legislation. When it comes to system uptime, Company A can tell Company B, “We’re happy to buy at this price provided you include our company’s standard commitments. But you’ll have to cut the price if you want to use your company’s wording.”
The dynamics are the same whether the back-and-forth occurs in real time (during a phone conversation or in-person meeting) or through email, which is more typical. In order to reach an agreement, the two parties make compromises and, in the process, add, delete, or amend contract sections, which serve as the foundation of agreements.
Although there are undoubtedly best practices for health insurance contract negotiations, the sheer amount of collaboration needed to complete the process is a logistical difficulty for all teams. Like the challenge of balancing contract comments from several internal stakeholders (consider Finance or Operations) and counterparties across various email threads. Additionally, consider carrying out this task simultaneously for several contracts.
Knowledge management and process management
Knowledge management and process management are the keys to successful contract negotiations. Without knowledge of the background and current state of each of your contract discussions, you can’t be certain that you’re getting the best result for your company.
Without a centralized system for managing and negotiating contracts, legal teams frequently devote the bulk of their time to assembling contract revisions from various business teams and locating the most recent contracts. The problem is much worse for businesses with quarterly sales cycles; according to some general counsel, 50% of contract volume occurs in the last weeks of any quarter.
Contract negotiation is a difficult task for legal teams and contract technology because of the importance of contracts to businesses, their operational complexity, and their unequal volume.
The evolution of technology used in contract negotiations
There hasn’t been much innovation in contract negotiations in recent years. The widespread usage of email in the 1990s was the last significant alteration to contract negotiations.
Inertia is not the only culprit. Email and Microsoft Word are, in addition to being trustworthy and extensively used, in certain aspects particularly well suited for contract negotiation. Legal teams may limit contacts to particular parties, keep a timestamp of each communication. Communicate documents in a largely universal format by using email and Microsoft Word. The fundamental prerequisites for every negotiating tool are those.
What makes contract negotiations crucial?
Contract negotiation is crucial because it guarantees that a contract benefits both parties equally and prevents disagreement and ambiguity in brand-new commercial connections.
Instead of one side controlling all of the negotiating power and establishing unjust conditions in a commercial contract. Negotiation allows all parties to arrive at terms that work for them.
The contract lifecycle’s negotiation stage is crucial because successful negotiation can determine whether a contract is signed or not. Each company has a chance to highlight its goals and specify what the counterparty should anticipate from it.
When to start contract negotiations
Before a contract is sent out for negotiation, the person who is creating it must make sure that the pertinent internal stakeholders have reviewed and approved it.
This text may be locked down if contracts are prepared using templates, lowering the possibility of mistake.
Each party works toward its own goals on topics including risks, liabilities, and potential outcomes throughout the early writing and review stages. When a party is dissatisfied with the conditions proposed. If the wording doesn’t support all of their goals, the contract enters the bargaining stage. Negotiations are also sparked by mistakes, inconsistencies, and out-of-date provisions.
Who is in charge of contract negotiations?
Lawyers frequently negotiate and analyze contracts. Other departments do, however, conduct commercial discussions on their own or participate when required amendments call for their opinion.
For instance, while completing transactions, sales teams employ order forms and NDAs. Teams working with people and talent deliver employment contracts to new recruits and discuss compensation. To keep tabs on spending and project revenue, finance staff review agreements.
Businesses may even think about utilizing a deal desk to include several departments in talks for more complicated and expensive contracts.
Business teams look to the company’s legal counsel for advice when they require assistance comprehending a contract’s terms. This frequently occurs when they wish to approve risk-transferring clauses (such indemnity and liability limitations). Object to unfavorable language in a draft contract.
As a result, many different parties might be involved in negotiations. This can make the already difficult process of contract negotiation much more difficult in the absence of a centralized digital contracting platform, in-browser.
Tips for contract negotiations
Here are a few pointers to help you start a successful contract negotiation:
- Ask yourself, “Do I even need to bother? ” if you are inclined to revise. Am I creating unneeded conflict? Never make changes without a clear strategic objective in mind.
- Conversely, if the counterparty’s wording is illogical, state as much. Contracts can occasionally be drafted incorrectly. Based on manually updated templates that have undergone so many revisions that they now include mistakes.
- Concentrate on the words that are important. Ironically, according to The Most Negotiated Terms 2020 study, the terms that parties negotiate the most frequently are not the ones that negotiators believe to be most crucial. Avoid becoming distracted by unimportant topics or wasting too much time on trivial matters.
- Sending a list of important issues to a counterparty through email for phone discussion can speed up the negotiating process. To guarantee an accurate and detailed audit trail. Be sure to integrate updates digitally, with comments in the sidebar of your contract automation software, and include notes about the interaction.
- Organizations of every size benefit from using company playbooks. Legal and executive teams will always need to review some contracts. However, business users may independently write and negotiate a large number of standard agreements using a playbook provided by a contract automation platform.
