Contracts and Negotiations

You will engage in all sorts of formal and informal negotiations and agreements throughout the life of your business.  Here are a few negotiating and contract basics:

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Negotiating in a Nutshell

  • 1.    Know what you really want and need.  (Understand your own greater goals apart from any specific outcome.)  
  • 2.    Find out what the other party really wants and needs.
  • 3.    Always be willing to walk away.

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Negotiating Basics

Step 1.  Know what you really want.
It is easy to become distracted by the parameters of a potential exchange; to become attached to a certain picture, and blind to what else may be possible.  You may imagine your desired results.  You may pin your hopes on an outcome.

If you can step back to maintain a bird’s eye view, you may see that there are many ways to achieve your true aims.  Knowing your greater goals can help you to remain open as to how to achieve them.  Be willing to gain success in unknown ways.  Negotiate from an open and creative position.

Step 2.  Find out what the other party really wants.
Make a genuine effort to learn what the other party wants and needs.  Try to discover the greater goals behind any potential results to which they may have become attached.  If possible, engage in a creative negotiation with the other party.  Find areas of intersecting interest.  Think about the many ways in which you each may be able to help the other.

Step 3.  Negotiate.  Remain alert.  Keep your greater goals in mind.
There are many types of negotiators, from individuals with world views that allow for mutual well-being and success, to individuals who believe that one person must always suffer if the other succeeds.  Some are interested in winning with you; some in wining over you.  Some destructive styles may be subtle.  Remain alert and keen not only to the offers on the table, but to the ways of the individuals with whom you negotiate.  Don’t become distracted by anything unconstructive.  Don’t waste your time.  Ensure that you only offer and agree to positions that are healthy and constructive for you and your business.  Negotiations will differ depending on the parties’ bargaining leverage.  Always keep in mind your greater goals, and let your business’s best interests be your guiding force.

Step 4.  Success may be mutual, or may require walking away.
Be willing to walk away, and know when to do so.  Always know that there are other parties with whom to do business, and other pathways to your success and happiness.  If it is best for you to walk away, do so and move on.  But, if you and the other party are able to work together, the results of a creative and constructive negotiation may surpass what either of you originally imagined or could have achieved alone.

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A Personal Story

Some years ago, when I was still in law school, I listened to a friend describe nearly-complete contract negotiations for the sale of his business.  The deal was full of red flags; the timing of the parties’ obligations, the too-good-to-be-true promises from the other party, the omission of the parties’ assumptions from the text of the contract.

All of the deal’s problems boiled down to my friend’s nervous fear that this deal was his only shot at happiness.  My friend was so desperate for his desired imagined results and so afraid of rocking the boat that he feared asserting his own interests.

My friend’s deal ended badly.  He did not speak up for himself.  Right up front, he gave everything he promised, and the other party never came through.  A few years later, my friend was forced to litigate in another state to try to collect what he was owed.  He was awarded and collected a fraction of the value of his original bargain, and that amount barely covered his legal fees.  He finished off in worse shape than he was when he started.

Successful negotiations rest on your ability to assert and protect your own interests.  Question what does not make sense to you.  Be skeptical of promises that seem too-good-to-be-true.  Ask for what you need.  Think everything through.  Remain clear headed.  Speak up for yourself.  If you are not comfortable doing so, it may be a sign that the relationship is not constructive for you, or simply that you forgot yourself momentarily.  Remember who you are!  Recall your incredible value.  Know your worth and assert it.  Negotiate from the best of yourself, and you will be able to respond appropriately to known and unknown situations.

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Some Contracts Basics

Contract law revolves around the parties’ intentions.  If a conflict arises and is brought to court, a judge will attempt to determine the terms of the agreement.  The best evidence of that agreement is the contract itself.

Generally, everything that is meant to be a part of the agreement must be articulated within the four corners of the contract.  In other words, it is generally best to write everything down and include it in one harmonious document.  If during negotiations the parties come to a mutual understanding but don’t write it into the contract, it may not be part of their agreement.  If the parties think the contract has a certain meaning but that meaning is not spelled out in words, it may not be  part of the contract.

A contract does not have to be fancy.  It does not have to be full of legalese.  It should clearly state every term and describe every obligation relevant to the parties’ interactions.

Depending on subject matter, certain essential terms and provisions should be included to invoke important concepts.  Legal language developed to help the parties identify, simplify, and link ideas together.  But, contract language should make things more clear, not less so.

Contract language that obscures meaning is detrimental.  You may have a tough time using a confusing contract to support your position if after signing the other party claims you have obligations to which you did not realize you agreed.  If you are executing a contract and don't understand what it says, a judge may not either.  Unfortunately, the contract itself is basically all you have to prove your understanding.  Trying to prove in court what a confusing contract means can require considerable time and money.  Without clear written evidence to govern understanding, there is no way to imagine in whose favor a judge might determine meaning.

Contract provisions that may be interpreted in more than one way can be troublesome!  Small things like punctuation can change the meaning of a sentence.  When you read through a contract, try to stand in the shoes of a party with interests that oppose yours.  Looking through these eyes, can you interpret the contract differently?  If so, it should likely be rewritten.  Make sure any contract into which you enter spells out its meaning and underlying assumptions in plain language that any reasonable person would understand.