12 Steps to Contract Negotiations


Negotiating contracts is a skill that every organization and business owner will need at one time or another.

Whether it is the decision to outsource a service, or negotiate the price for new office equipment, business leaders will need to fine tune this skill.

The trick is to use a systematic and unbiased approach to contract negotiations.

12 Steps to Contract Negotiations

1.  Identify a Need

Whether you are looking for help cleaning your building, repairing an HVAC unit or an IT company to help with some strategic initiatives, you need to understand what your need is before you can look for a vendor to help you.  Take some time to educate yourself and be able to define the problem with a vendor.

2. Identify Team

Identify a team of employees to help identify the need, research and interview the vendor.  This will be your think tank to make sure every aspect of the agreement is thought through.  You only need a few people for this but it is always beneficial to have other eyes and brains on this type of project.

3.  Research Vendors

Once you know what the need is, have your team help research vendors that specialize in the particular area you need help with.  Talk to friends and others in your field for referrals.  The internet is a great resource and many organizations have ratings on their services.  Use these resources and read customer comments.  You can learn a lot from just doing a little research and listening to their customers.

4.  Use BBB as a Resource

Check with the BBB on the vendors you pick and see if they have any prior unresolved customer issues.  This can also be done online and is a great resource not only for finding a good vendor but also if you make Charity Donations.  You want to do this checking before you ask for a proposal so you won’t be wasting your time negotiating a bid only to find out the vendor has unresolved customer issues.

5.  Identify Three Vendors

Identify three vendors that look the best to you.  Think about the big name vendors that do a lot of advertising. You can expect to pay a little more for them so make sure you list at least one vendor that does not have the big name recognition.  Smaller vendors that have not been around as long are hungry and might be able to do a really good job for you at a lower cost.

6.  Request for Proposal

contract negotiationsOnce you have your three vendors chosen, contact them, describe what your needs are and ask for a formal proposal or otherwise called a request for proposal (RFP). Ask the vendor to include a list of customer references with their proposal.

7.  Vendor Interview

Have the vendor come in and present the proposal to the team.  Allow the team to ask questions and clarify any uncertainties.  This is when you make sure the proposal is written to meet all of your needs.

8.  Review Terms of Agreement

Once you have all three proposals, review each of them side by side to make sure they are comparable.  Call the vendor and get clarification on anything that does not make sense or may need further clarification.  Things to look at are duration of agreement, payment cycle, termination clause, liability for both sides, scope of services, what they will and will not do, etc.  Look at what their approach is to cost control, quality of product or service and their customer service commitments.

9.  Negotiate Differences

Once you have a good understanding of the proposed agreements, go back and negotiate any sticking points that might hold you back.  Everything is negotiable so don’t hesitate to ask if you think it is something important to the agreement.

10.  Check References

Once you are settled on an agreement, start calling the list of references and ask questions like:

  • How long have you used this vendor?
  • Have there been any issues?
  • If yes, how did the vendor address the issues?
  • How is the customer service of the vendor?
  • How would you rate the vendor employees?
  • If there was anything you could improve with the vendor, what would it be?

11.  Second Opinion on Agreement

Once you feel comfortable with an agreement, have another set of eyes look at it to see if there are any outstanding things that may be missing.  This should be another person who is familiar with looking at contracts.

12.  Sign

Ok, now is when you sign the agreement and agree on a start date. Take the agreement and tickle your calendar or the appropriate person’s calendar with anything you may be responsible for in the agreement ie; payment schedule, auditing process, inspections, etc.

Lastly, negotiating is a skill that can be learned.  The trick is to find a good balance for what your needs are and what the vendor can provide.  Remember, vendors are always looking for new business so make sure you give them the opportunity to give you their best offer.  Also, remember that cheaper is not always better so be sure you can evaluate the product/service differences so you don’t mistakenly sacrifice quality for cost.

photo by:  NobMouse