As a CFO I’ve been involved in many contract negotiations. Over the years I’ve seen what works and what does not. Want to increase the chances of a positive outcome in your next contract negotiation? Here is my advice:
• Start the process early – It always takes longer than you anticipate.
• Be clear about your goals – Before the negotiations begin, be sure your own team has reached a consensus regarding what your goals are, and where your drop-dead point is. Your overriding goal should be to have a contract that leaves everyone feeling good about the relationship while giving you the profit or ROI that you need.
• Do your homework – If you make a claim you must be able to support it. If, for example, you’re saying that the direct cost of operating a warehouse is $X, then you’d better have a cost build-up that you can refer to when challenged (and you will be challenged!) to prove that this figure is real.
• Negotiate in good faith – And be honest. Honesty is always the best policy.
• Be willing to compromise a little – It must be a win/win, or at least a “face saving outcome,” for everyone involved. I recently negotiated a cost-plus contract. When the representative of the other company realized he would have to go along with our proposal, he asked for something he “could take back to his people to show that he had won something.” I said, “of course.” Our long-term goal was to be able to renegotiate another contract with these people, and we had to leave the door open to that.
• Consider including escalations – You’ll have to live with this agreement for the length of the contract. How will this affect you as costs change? Something doable now might not be doable three years from now if you have not worked in some escalations.
• Keep your emotions out of it – Always remember that this is a business deal. Don’t make it personal.
• Take detailed notes – Type up your meeting minutes—including the details of any agreed-upon commitments—within 24 hours of the meeting, and then have all parties sign off on them. You’d be surprised how often people come away from a meeting with completely different understandings of exactly what was said.
• Be careful what you put up on the board – Never put anything up that you don’t want someone taking a picture of. I’ve been in situations where the other side tried to claim they never suggested something…only to discover that we had photographic proof that they did.
• Have all contracts reviewed by your attorney – Never assume that the wording means what you think it means.Need help with your next contract negotiation? Give me a call! As your part-time CFO, I’m here for you.
Need help with your next contract negotiation? Give me a
call! As your part-time CFO, I’m here for you.