Healthcare IT & Transformation

Contract Negotiation Tips

Many skilled and experienced negotiators are still out-negotiated and leave important value on the table. What factors affect the outcome of a negotiation? Is it the negotiator’s experience, skill, preparation, knowledge, body language, reputation, or decision-making? While these are all clearly factors in a negotiation, the most significant factor in determining the outcome of a negotiation is the effective use of power.

 

Mastering the effective use of power is an art.

 

Actual vs. Perceived Power

Power only matters if one party in the negotiation realizes it exists. You, as a negotiator, have a perception of your power and that of the vendor. Additionally, the vendor has a perception of his power and your power. Power that isn’t exploited might as well not exist.

 

Your goal as a negotiator should be to know the real power dynamics and then create the perception in the mind of the vendor that you have all the power. One way to do this is to explore the factors that determine power in a negotiation.

 

Here are my top five:

1. Time
2. Competitive Pressure
3. Size of the Deal
4. Information
5. Corporate Policy

 

1. Time is on your side

Don’t rush! Time pressure can power the outcome of a negotiation. A negotiator who is in a hurry is forced to concede or accept their rival’s terms in order to bring the negotiation to a close.

 

When a negotiator is faced with time pressure, the rival gains power in the negotiation.

 

Don’t disclose any deadlines you are subjected to. Your rival could use your project deadlines or budget pressures to gain the upper hand.

 

Vendors have quotas and are often striving to make a sale in time for a fiscal period end. This creates power for the client.

 

Vendors are almost always under pressure to perform. Salespeople don’t last very long without continuing to make sales. This pressure creates power for the client.

 

Wear them out. Sometimes delayed meetings, changes in negotiating direction and never-ending attention to detail can leave the vendor weak and ready to give big discounts and freebies! Every additional meeting gets the vendor more and more committed to the deal.

 

Don’t be afraid to ask for something for free.

 

2. Competitive Pressure

Competition is a powerful factor in determining who has power in a negotiation. It usually exists in some form or another for both the client and the vendor. A good negotiator will research the market conditions to determine how they can use it to their advantage in a negotiation.

 

Dueling contract negotiations between 2 or more vendors can keep the competitive advantage in play.

 

Lack of vendor competition has strong advantages for the vendor so if you find yourself in this position; create a viable alternative… even if that alternative is to walk away with no solution.

 

3. Size/marketability of the Deal

How big is this deal for the vendor? How big financially based on their average deal size, financial condition and fiscal period end timing? How big for marketing? Are you a new market segment for your vendor? Do you have a uniqueness that the winning vendor could market based on?

 

The marketability of a deal is most valuable when it enables a company to win credibility with potential future customers, ultimately leading to additional business.

 

If you look beyond the current negotiations are there opportunities for additional business in the future.

 

These opportunities can and should be exploited to generate power.

 

Is this a one-time deal or one that will grow over time? The possibility for significant growth over time gives the power advantage to the client.

 

4. Corporate Policy

Company policies can become a difficult barrier for a negotiator to overcome. Policies are rules that are not broken in any situation. Companies set policies in order to govern effectively and ensure a certain level of standards are met. Policies are set at every level of the company. Typically, the higher the level of the policy, the more difficult it is to overcome.

 

Corporate policies can be difficult to overcome and therefore can be an effective tool for creating power in a negotiation.

 

5. Information

The information game is a double-edge sword. It is critical to learn as much as you can about your vendor while trying to prevent them from learning as much about you.

 

Controlling information flow is critical in gaining and maintaining power in a negotiation.

 

Don’t let vendors have free access to a wide range of your staff or your facilities. They’ll be looking for information to use to their advantage. Make compliance with your policy one of the criteria for selecting a vendor.

 

Keep a tight control on budget information as well. Loose lips definitely can sink ships!

 

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