Step Five of the Vendor Selection Process: Contract Negotiation Strategies

The purpose of negotiating an agreement is to find a win-win solution that benefits both parties, and sets the stage for a long-term relationship. Negotiating the lowest price possible, especially if it is not sustainable for the vendor is to be avoided.

It's important to establish the following objectives in contract negotiation:

• Terms and conditions 
• Definition of goods/services 
• Compensation including total cost (shipping, taxes, fees, etc.) 
• Financing or payment terms 
• Dates such as contract start and end dates, renewal dates, etc.

Contract Negotiation Strategies

1. Rank your priorities and their alternatives It's not only important to know what your priorities are but also which ones are very important and not flexible, and which ones are lowest in importance and could be "given up" to achieve your top goals.  Higher priority goals should be discussed first.
2. Know the difference between needs and wants Political pressure can elevate "nice to haves" to "must have" status. allowing this to happen
3. Know your BATNA (Best Alternative to a Negotiated Agreement) It's important to know which of your requirements are non-negotiables so that you will know when it is better to walk away from the negotiation table rather than continue. This would also include upper price limits, or the iron-clad necessity for certain 
4. Define any time constraints and/or benchmarks or milestones This includes performance measurement standards such as start, delivery, completion dates or lead times, Associated penalties for non-compliance should also be established.
5. Assess potential liabilities and risks Responsibility and liability need to be established - whose insurance covers the project? Which party is responsible for ensuring government compliance?
6. Clarify confidentiality, non-compete, dispute resolution, and changes in requirements needs This needs to take place before any harm can result.
7. Repeat the above steps from the perspective of your vendor It's important to the relationship that both parties benefit from the contract. Signing a contract with a naive vendor that is damaging to them will be harmful to both parties, and could have a long-lasting negative impact on future contract negotiations with that or other vendors.

Adapted from Contract Negotiation Strategies: Step #5 in The Vendor Selection Process, about.com: http://bit.ly/d4F9Ip