7 Tips for Preparing for Contract Negotiations
Running a business involves managing risk in many forms, from economic downturns to severe weather. One risk has more influence over a company’s success than any other: how well its leaders manage contract negotiations.
Without skilled, experienced leaders at the table, businesses may suffer financially in employee contract negotiations. They also may settle for less in deals with business partners, or pay too much when buying or renting property.
Many companies minimize risk by engaging an attorney for contract negotiations. Attorneys help businesses with large and small deals, from vendor agreements to merger contracts. When companies follow their attorney’s advice on how to prepare for contract negotiations, they are in a much better position to achieve their goals.
Advice from a St. Louis Attorney for Contract Negotiations
Tennis great Arthur Ashe said, “One important key to success is self-confidence. An important key to self-confidence is preparation.” Business leaders who spend time preparing for contract negotiations are more confident at the negotiating table.
Our firm helps clients gain confidence before negotiations. Here are the steps we recommend for maximizing returns and minimizing risk in contract negotiations:
- Research the other party. Read the company’s website and news articles about it. Search for news of earlier deals and try to glean the terms of the deal. You want to understand the company’s financial position or time constraints on reaching an agreement. This information will help you negotiate from a place of power—one in which you are confident and able to predict how the other party will react to your actions.
- Create and share a draft contract. If your business is making the proposal, develop a baseline draft of the contract, then share it with the other party. The baseline draft includes the most important terms of the agreement, what your company is willing to accept, and room for writing in changes. Present the draft to everyone who will be at the negotiating table in plenty of time for them to review it.
- Break up complicated negotiations. Large companies often face contract negotiations that go on for days. If you expect a long, tedious, process, think about breaking up the negotiations into several components, then agree upon the terms of each part separately. This will reduce stress and fatigue for both parties, resulting in better decision-making and ultimately, better results.
- Prioritize objectives. Decide on which objectives to focus on before contract negotiations begin, using the SMART goal format to put parameters on the goals. Objectives may include your bargaining range with an optimum number, as well as minimum and target goals. The optimum number is where you want to start negotiations. The minimum is the least you will accept, and if the other party does not offer it, your company will walk away. Hitting the target goal is the objective of the contract negotiations.
- Decide which terms are non-negotiable. Meet with your team and agree upon what must be in the contract. Then, when you arrive at the negotiating table, firmly tell the other party about your non-negotiables.
- Determine concessions. Contract negotiations usually include one party offering the other a concession, or trade-off. Negotiators need to know beforehand how to proceed when the other party offers a concession and what trade-offs their own party will offer. Concessions must be managed carefully during the negotiation. By deciding the concessions to offer and accept beforehand, you are decreasing the likelihood of a hasty decision that hurts your position.
- Set your intention for a win-win outcome. There are several styles of negotiating. We recommend the style focused on win-win results because they get better results and lay the foundation for more productive conversations in the future. Set the stage for win-win negotiations by arriving at the negotiating table with your mind set on treating the other party as a valued business partner. When you are respective, cooperative and collaborative, not combative, the other party most likely will respond in kind.
Take your time while working through these seven steps and do not put off preparation. You do not want to feel rushed at any point in the contract negotiations to avoid hasty decision-making.
Preparing for Mergers and Employee Contract Negotiations
Preparation for contract negotiations varies based on the type of contract. Two of the most consequential types of business contracts are merger contracts and contracts with unionized workers.
Details to Include in a Merger Contract
I draw on decades of merger contract experience to guide business owners through preparation of a merger contract. The contract spells out the terms and conditions of the two or more businesses that are merging. The owners will agree to sell all stock and assets to the new company at the price stated in the merger contract. The newly created business will be a single new legal entity.
Follow these steps to prepare for signing a merger contract:
- Determine the value of the other business(es) and your own. You can do this yourself with extensive research or hire a business appraiser.
- Compare the values and decide whether you will need additional resources to invest in the business.
- Make a list of assets and liabilities of both businesses.
- Prepare a contract for the purchase of assets or stock or a corporation.
- Plan how to transfer ownership.
- Create an operating plan.
Ask a contract lawyer to review the merger contract before you transfer ownership.
Minimizing Risk During Employee Contract Negotiations
Attorneys for contract negotiations advise organizations on two types of employment contracts: individual employee contracts and contracts with employees represented by labor unions.
Companies with unionized employees have many layers of rules to work through that are explained in the National Labor Relations Board’s guidelines on collective bargaining rights. Organizations have a legal duty to negotiate in good faith, but the law does not require reaching an agreement with the union. The consequence of a breakdown in negotiations may be a strike which may disrupt the economy and delay delivery of essential services for weeks.
Organizations minimize conflict with their employees’ unions when they begin preparing for employee contract negotiations months or weeks in advance. Steps to take include:
- Form a negotiating team. Most negotiating teams include one or more labor professionals, a human resources professional, an operations executive, a senior finance executive, and a frontline supervisor.
- Assess organizational and employee needs, then develop objectives for the contract negotiations.
- Draft a new contract. If questions surfaced about certain aspects of the current contract, clarify the matter in the new contract. The same goes for adding solutions to problems that arose with the current contract. Adjust the current contract for anything new such as facilities, more gig workers, or employee training.
- Prepare for information requests. Negotiators may ask for data and other information about the organization to support their requests. Be prepared by anticipating their needs.
Preparation for union contract negotiations also must include creating a robust strategic communications plan. Organizations must take steps to control the narrative and minimize conflict.
If your organization uses contracts for individual employment, preparation can be handled internally with on caveat. Ask an attorney to review all contracts to ensure nothing has been overlooked or misconstrued.
When it Comes to Contract Negotiations, Experience Matters
Every contract includes unwritten rules attorneys understand.
Christopher Swiecicki ensures his clients know what they are agreeing to and that they must abide by them. If they do not understand the contract they sign, they risk a battle in court. Chris’s experience ranks him in the top contract and mergers and acquisitions attorneys in St. Louis. Contact him online or by phone at 636-778-0209 for a consultation on contract negotiations.
Cover photo by Rido by Canva.com