Negotiating contracts is not all about winning on price, lawyers say.
Contracts and the fine art of talking turkey
Kensington Swan, a New Zealand law firm with an office in Abu Dhabi, recently conducted a contract negotiation workshop for small to medium-sized enterprises. The managing director Quentin Lowcay and special counsel Rob Noakes talk about driving a hard bargain, and why that is sometimes not the right approach.
Why have a workshop on contracts?
Quentin Lowcay: This is still a relatively unsophisticated market when contracting business. People are used to buying and selling, but there's a process behind negotiation where the contract should be used as a strategic tool.
A strategic tool?
QL: Usually people focus on price rather than having a discussion. They say: "I want something from you, but I don't want to pay you very much." Price might be important today but you have to think about the long term. So thinking strategically is about creating enduring relationships.
Can you give a practical example?
QL: Something like putting in place a standing contract where you can buy goods and services, but don't have to go to tender every time. You set up a relationship, you agree on all the pricing and the terms, and when you need something you can just order it. It seems really simple but it's not that common here.
So people should get over the obsession with price?
QL: It depends what you're buying. Maybe your need is sometimes to pay as little as you can. That's fine. You have different relationships with people depending on the category of [goods]you're buying.
How should you treat each?
Rob Noakes: For example, if I'm making jam and I buy sugar in bulk. Sugar is sugar so just get the best price. But when I'm buying the fruit, I want high-quality fruit because if it's bad or doesn't turn up on time, then it could make a huge difference to my product. The relationship with the supplier is more important.
How do small businesses gain leverage when dealing with large companies?
QL: Try to become more of a joint-venture partner to your large supplier so you become more valuable. You can do this by offering to test new products, be a reference or spokesperson. You can also form a collective with other small businesses to become a bigger buyer, look offshore for suppliers or change what you buy from your supplier depending on where your business is adding value.
When does it make sense to back off a sticky point?
RN: Business here seems to be very hard on the point and trying to always score the win in negotiations. In some cases that's right. But you should be uncompromising on some points but not on others. Try to understand the detail of what each person needs.
What if negotiations collapse?
RN:You should always have an alternative in place. But you need have that alternative before you walk in the room for the first negotiation.