Parties seeking to transact business with each other create contracts. Contracts are a set of promises or obligations made by each party. These promises and obligations are legally binding. This means if a party fails to keep a promise or obligation, the other party may be able to file a lawsuit to recover damages.

Contract negotiation is the process in which the parties iron out the details of the contract before committing the terms to writing. Parties attempt to negotiate terms that are favorable to themselves. When negotiating, each party assesses the risk or benefit of including a particular term.

What Does Negotiation Consist Of?

There is no uniform set of principles that answer the question, “How Do I Negotiate a Contract?” that apply to contract negotiation. However, there are measures parties can take before and during negotiations to ensure negotiations are successful. The first of these measures is preparing for negotiations. Preparation has several aspects, both legal and business-related.

What are the Legal Aspects of Negotiation Preparation?

As part of preparation, parties should familiarize themselves with the laws of their state. These laws include the laws of what the contract covers. For example, a party should review the intellectual property laws of its state before negotiating a licensing agreement involving copyrights.

Parties should also research their state’s contract laws. State contract laws indicate what terms, if any, may not be included in an agreement. State laws also indicate what kind of remedies are available to a party when the other party breaches the agreement.

What are the Business Aspects of Negotiation Preparation?

During preparation, a party should consider practical business concerns. This includes having a clear understanding of what the objective of the contract is. The party should then consider what they are willing to compromise over, to reach that objective. If parties have negotiated contracts with the other in the past, knowledge of the prior dealings can prove useful in terms of negotiation strategy.

During preparation, a party should prepare for how to answer concerns or arguments the party may encounter when it makes a demand. For example, a party may state in a negotiation that it intends to charge a higher sum than the industry average for a good or service. As justification, the party may assert that its brand name is valuable.

The party must be able to back up this assertion if questioned about it. They may do so by bringing with it a brand value report. A brand value report is a report prepared by experts that analyze the worth of a company. If a document backs up or supports a demand a party intends to make, the party should bring that document to the negotiation.

What are Examples of Negotiation Strategy?

Before a party starts to negotiate, the party should understand the concept of negotiation strategy. Strategy involves using a series of tools or acting in a certain, pre-planned way in response to a development in negotiation. Important negotiation tactics include:

  • Acting credibly and in good faith at all times. This means being honest with the other party. A party damages its credibility when it makes a representation that is untrue. A party damages its credibility when it deliberately conceals an important fact from the other side. A party also does not act credibly when it makes an offer that it has reason to know the other will never accept (perhaps, because, in prior negotiations, that offer was rejected “on sight.”).
  • Recognizing when the other party is not acting credibly. When another party misrepresents what specific terms have been agreed to, that party is not acting credibly. If a party states that the parties agreed to a term that they in fact had not yet discussed, or had disputed, and the party does this repeatedly, the party is not acting in a trustworthy fashion. A party who is on the “receiving end” of untrustworthiness should consider whether continuing to negotiate is in that party’s best interests.
  • Not losing sight of the overall objective. A party should enter into a negotiation with a clear objective, and a clear idea of what circumstances would cause the party to “walk away” from the negotiation. That party should be mindful of the overall objective at each stage of the negotiation. This mindfulness will diminish the chance that the party will unreasonably argue a point just to “win” one argument or to exact a minor concession.
  • Dotting all of the I’s and crossing all of the T’s: Before concluding negotiations, a party should evaluate its notes and conversations, to determine whether the parties failed to address or resolve an ambiguous point or important term. This will pay off in the event of a dispute in court. Courts do not want to rewrite parties’ agreements to include terms the parties themselves failed to include. The role of a court is to interpret a contract, not to impose its own terms.

Do I Need the Help of a Lawyer With Contract Negotiation?

If you are negotiating or wish to negotiate a contract, you should contact a contract attorney. An experienced contract lawyer near you can ensure the negotiations result in a contract that is valid, that protects your rights, and that is beneficial for business.