8 Common Contract Negotiation Pitfalls and How Contract Management Software Helps
Most businesses today engage in a significant amount of contract negotiations. Sometimes these negotiations go well and go quickly, but sometimes the negotiations stretch out interminably and end up in disappointing results. What are the most common negotiation pitfalls you may encounter – and how can using contract management software help lead to better results?
Key Takeaways
- Contract negotiations are often slowed down by lack of preparation, ignorance of company standards, and not learning from past negotiations
- Negotiations are further hindered when one or both parties focus solely on price, don’t build relationships, and make costly mistakes
- The best way to avoid negotiation pitfalls is to employ a robust contract management software solution that automates many parts of the process
8 Common Contract Negotiation Pitfalls
Not every contract negotiation goes according to plan. Here are eight of the most common pitfalls you may encounter if you don’t follow negotiation best practices.
SOURCE: WatershedAssociates.com
1. Lack of Preparation
You need to enter into any negotiation with a fair amount of preparation. You need to know what it is you’re negotiating, what terms are most desirable for your business, and what the other party needs or expects to achieve. The more prepared you are, the more confident you’ll be and the faster negotiations will go. The less you know about what you’re negotiating, the more likely you’ll end up with a contract that doesn’t meet your needs.
2. Not Learning from the Past
Your company’s contract history is important. When you’re negotiating a new contract, you don’t want to unnecessarily reinvent any wheels. You need to be aware of and learn from contracts your company has negotiated in the past. Learning from past successes and mistakes will guide you to faster and more acceptable resolutions for the new contracts you negotiate.
3. Not Knowing Your Company’s Standards
If the person negotiating a contract is relatively new to the business, he or she might not be aware of what practices, terms, and language are and are not acceptable to your company. Nothing slows down the contract process more than having to rework clauses and conditions because they don’t match what your company has previously agreed to or your standard language.
4. Focusing Solely on Price
Most business contracts are about purchasing products or services at a given price. As such, it’s important to focus on negotiating the best price for your company. That said, price isn’t the only item on the table. You also need to focus on delivery terms, warranties, additional services, exclusivity clauses, and the like. Sometimes it might be better to give a little on the price if you can get more from the other terms.
5. Trying Too Hard to “Win”
Yes, you want to negotiate the most favorable terms for your company. But contract negotiation is not a zero-sum game. One side doesn’t have to be the winner and the other doesn’t have to be the loser. The best negotiations result in win-win situations where both parties benefit – they might not get everything they wanted, but they get a good deal nonetheless.
6. Taking Too Long
Negotiations that stretch on for weeks, or even months, can jeopardize the successful execution of a contract. The longer negotiations last, the more likely that one or both parties will walk away from the table. Even if a contract is eventually signed, the value of the contract is likely to have deteriorated since the beginning of negotiations – KPMG estimates that companies lose between 17% and 40% of the contract’s value because of process inefficiencies.
7. Taking Ethical Shortcuts
Contracts need to adhere to legal and industry standards. They also have to be ethical – as do your negotiations. Cheating and lying are not good ways to conduct negotiations. You need to negotiate fairly and ethically, and in total good faith. Doing otherwise can jeopardize your company’s reputation and damage your relationship with the other party.
8. Not Minding the Details
Contracts are legal documents. Any mistakes that make it into the final contract could cost you dearly. You need to pay strict attention to all the details to ensure the viability of the contract. You can’t afford to make any errors.
Check out this video from the Kellogg School of Management with a variety of negotiating tips.
SOURCE: Kellogg School of Management via YouTube
How to Avoid Contract Negotiation Pitfalls with Contract Management Software
Many of these contract negotiation pitfalls can be avoided by using contract lifecycle management (CLM) software, such as Contract Logix and its Collaboration Room technology. With it, you can automate much of the negotiation process, reducing the possibility of human error, and assuring that both sides get an equitable deal.
Here are some of the ways Contract Logix’s contract management software and its Collaboration Room technology can help avoid contract negotiation pitfalls and deliver a superior negotiation experience for all parties involved.
Reducing Errors
Software doesn’t make errors like human beings do. Using contract management software ensures that all the i’s will be dotted and all the t’s crossed and that nothing important will be forgotten or incorrect.
With clause and template libraries, you can assemble contracts using already-approved language and formats that leverage merge fields to populate important information like names, addresses, contacts, and more. This avoids a big contract negotiation pitfall. With Request and Intake forms, you will ensure that all of the correct and complete information is captured upfront and early in the contract process.
One of the biggest advantages of using Contract Logix during negotiations is our Collaboration Room technology. This plays a big role in reducing errors because it automatically tracks all comments, edits, and messages related to the contract, making version control easy and accurate. And, these changes and comments are captured for both internal and third parties involved in the negotiation.
Ensuring Compliance
CLM software ensures that all contracts comply with your company’s business rules and also helps you comply with applicable industry and legal regulations. This significantly helps mitigate risk in the negotiation and overall contract management process.
Using automated workflows, you can ensure contract reviews, approvals, and signatures follow the appropriate process. For example, perhaps a contract value over a certain amount must go to the CFO for approval. Automated workflows ensure that happens every time.
And with automated alerts, you will never miss an important date or obligation which again, is a big risk mitigation feature. And since everything is negotiated right in the contract management software using Collaboration Room, you will have a complete history of all activities for internal and external auditing.
Providing Complete Visibility
It’s not uncommon for contracts to be negotiated over email and back and forth exchanges with attachments. You never know who’s really involved in the process and whether or not they’ve reviewed the contract.
Using Contract Logix’s Collaboration Room, you simply create a Collaboration Room, invite all parties to join, and concurrent contract negotiation begins. It’s a completely seamless and frictionless process to collaborate on and negotiate agreements. You will know who is involved, what they want changed, and when they reviewed the contract.
Speeding Up the Process to Close Business Faster
Contract management platforms like Contract Logix and its Collaboration Room technology speed up the entire contract process, including negotiations and approvals. All contract reviews can be done concurrently, instead of emailing contracts back and forth. You no longer have to try and chase down people to look at an agreement. In addition, all signatures can be done electronically due to integrated e-signature technology from anywhere and on any device.
Let Contract Logix Help You Avoid Negotiation Pitfalls
When you want speedier, more accurate, and more beneficial negotiations, turn to Contract Logix. We have been helping businesses improve their contract negotiations since 2006. We offer robust CLM solutions that can automate your entire contract management process, from start to finish.
Contact Contract Logix today to learn more about improving your contract negotiation process.
