Remember that big sales contract you negotiated last fall, the one that got you a fat year-end bonus? Well, your manufacturing department has just told you that delivery will be two months late. So now it’s your job to persuade your customer to accept a new date without canceling the deal. And that’s not all. That long-term supply contract you worked so hard on a year ago? The supplier is asking for a meeting to revise the pricing due to its increased energy costs.
If you’re like many managers in these uncertain times, you are probably spending as much time redoing old deals as you are negotiating new ones. When handled poorly, renegotiations are likely to exacerbate bad feelings and mistrust, and may be the last step before a lawsuit. Although the risk of a rocky renegotiation is present in any deal, you can reduce this risk during your initial contract negotiation. The following suggestions on how to ensure a smooth renegotiation process are adapted from Jeswald Salacuse’s book The Global Negotiator: Making, Managing, and Mending Deals Around the World in the Twenty-First Century (Palgrave Macmillan, 2003).
1. Foster a relationship with the other side. Whenever one side fails to meet its contractual obligations, renegotiation is more likely to succeed if the parties have a strong relationship. Ideally, the aggrieved party will value long-term relations more than potential gains from a claim for breach of contract. For example, a bank will be more willing to renegotiate a loan with a delinquent debtor when the prospect of future business from the debtor is likely. Bondholders of the same debtor, on the other hand, will generally be more resistant to renegotiation, as they tend to lack opportunities for a profitable future business relationship.
2. Take the necessary time. Experienced negotiators know that building a strong relationship takes time. While speedy dealmaking may seem efficient, remember that any time saved during contract negotiation may be more than offset by the time you’ll spend renegotiating the deal.
3. Provide for a renegotiation process. Traditionally, negotiators have dealt with the risk of change by writing a detailed contract that attempts to foresee all possible eventualities. Rather than viewing a long-term transaction as frozen in the detailed provisions of a lengthy document, try viewing the deal organically, as a continuing negotiation in which you seek to adjust your relationship with the other side to your rapidly changing work environment. Accordingly, your long-term contract might provide that at specified times or upon specified events, you will renegotiate or at least review certain provisions. Through this approach, you confront the problem of contract violations in advance and establish a clear framework for renegotiation.
4. Consider a role for mediation in the deal. Whether they’re called mediators, conciliators, or advisers, third parties can assist in renegotiation by building and preserving business relations and resolving disputes without the need for litigation. Consequently, negotiators should consider stipulating in their contract that parties must try mediation for a period of time before filing a lawsuit.
Discover step-by-step techniques for avoiding common business negotiation pitfalls when you download a copy of the FREE special report, Business Negotiation Strategies: How to Negotiate Better Business Deals, from the Program on Negotiation at Harvard Law School.
Related Article: Mediation in Transactional Negotiation