Contract risk management is an essential part of what in-house lawyers do. Great contract negotiation strategies reduce contract risk and create win-wins to prevent deals from falling through.
Three contract negotiation strategies to reduce contract risk
Effective contract negotiation always requires careful contract risk management. The three strategies outlined here will help protect your deals, make sure both parties leave the negotiating table happy, and de-risk the entire process.
The contract negotiation tactics we’re going to look at are:
The creation of a digital issues list, using this to power issue-based management
Top issues “trading” (i.e. ensuring a win-win situation whenever possible)
Effective collaboration with your internal team
1. The creation of a digital issues list (leading to issue-based negotiation)
Creating, managing, and negotiating around an issues list has long been considered a must-follow contract negotiation best practice. Issues lists distil the contract mnegotiation process down into its most important constituent elements—in other words, the key issues that need to be agreed upon before the deal can be signed off.
However, the process of manually creating, updating, sharing, and collaborating on an issues list has typically been painfully slow and labour-intensive. Without effective issue-based management, however, lawyers risk the negotiation becoming disjointed and held together by email threads and pen and paper to do lists. It is not efficient.
Fortunately, a contract acceleration platform like ThoughtRiver provides attorneys with the ability to prioritise issue-based negotiation at all times, no matter how large or small the deal in question.
Such a platform can rapidly read lengthy contracts using AI technology to assign meaning to the language, before pulling out all the key issues based on the users own contracting policies and also their contracting history. ThoughtRiver then automatically creates a digital issues list, around which lawyers from both parties can negotiate, and which can be used to collaborate with the business on commercial issues.
Contract acceleration also provides an easy-to-understand visual tracker of how contract negotiations are going: the issues that need to be resolved, which issues are important for each side, and where issues could potentially be traded.
2. Top issues trading—looking for win-win scenarios
The creation of a digital issues list—and issue-based management more generally—directly enables the second key contract negotiation strategy to reduce contract risk: top issues trading.
In short, issue-based management reveals which key issues matter to which party, and therefore highlights opportunities for tactical concessions. Effective contract negotiation relies upon starting an ongoing, collaborative dialogue—not simply on imposing terms.
With a digital issues list, however, you can pinpoint a few key issues that appear to significantly matter to the other party but that you don’t mind conceding on. Likewise, the other party will be able to identify potential issues that might be open for negotiation and which are set in stone.
This allows both parties to effectively trade issues, enabling a win-win scenario. Issue-based negotiation (or interest-based negotiation as they term it) is the key to successful contract negotiation, according to Roger Fisher, William Ury, and Bruce Patton’s seminal negotiation text, Getting to Yes: Negotiating Agreement Without Giving In.
An issue-based approach is backed up by Syracuse University’s Dr Neil Katz and Kevin McNulty, who state: “The primary principle of interest-based negotiations is to emerge or get a good understanding of your and the other party’s interests and to develop or invent creative options that will meet those interests. This approach increases the chance of establishing a good relationship with the other party and achieving outcomes that are mutually beneficial.”
3. Effective collaboration
Effective collaboration between internal teams and external stakeholders underpins all successful contract negotiations. In fact, you might even go as far as saying that it’s the single most important contract risk management tactic.
This is especially important when you consider that lawyers today are often working on colossal volumes of documents. Staying on top of who said what, about which clause, in which specific contract can be a nightmare.
It’s therefore crucial that they find a way to ensure effective collaboration throughout all stages of the contract negotiation process. That’s where contract acceleration comes in.
A contract acceleration platform like ThoughtRiver provides inside counsel with a single hub where they can review, comment, and collaborate on the contracts being negotiated. They can share an issue with a colleague, or delegate an issue to their boss to resolve, for example. By sharing and collaborating around the key issues, you can ensure that all parties are informed and working together towards the common goal, getting the deal signed.
Reduce risk and negotiate with confidence
Contract risk management is a tricky business. However, by following the three key contract negotiation strategies outlined above, you can effectively de-risk the process and ensure you swiftly move through the contract negotiation process as seamlessly as possible.
Prioritise the creation of a digital issues list and make sure you’re always focusing on issue-based management. Use this issues list to unearth key areas where you, or the other party, might consider conceding—trading issues and creating a win-win scenario for both parties. Use an all-in-one hub, like a contract acceleration platform, for all communication on a particular contract. This enables swifter, easier-to-manage, more effective collaboration.
Digital issues lists enable effective issue-based management.
They also facilitate issues trading, creating a win-win scenario for both parties.
By leveraging a contract acceleration platform like ThoughtRiver, you can keep all communication within one centralised hub for seamless collaboration on every single contract.
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