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What to Look For In Contract Negotiations

Posted on September 24, 2010 by Zach

Being involved in marketing at Gordian Project I see a lot of contracts. Add that to the fact that we have a lawyer on staff, and you get to learn about the finer points of contract negotiation; such as what certain things mean in contracts, what’s important to look for and when the right time is to push for a better deal or compromise. You also learn a fair amount of lawyer speak and legalese which can help wading through these types of things. Being a small company it’s always important that we save money when we can and spend wisely so we always push for better deals, less restrictive terms and shorter contract lengths. Our motto when it comes to contracts and agreements are, “You don’t get what you deserve, you get what you negotiate.” This rings true in life and in business. When a contract slides across my desk or enters my inbox here are some of the things I care about, they also tend to be my first points of negotiation.

Pricing

Of course pricing is always going to be the main negotiating point. Many times that can be represented as a one time or monthly flat payment, a percentage of sales or a combination of the two. Don’t forget to run the numbers for the different options, especially if you are working on a combination of flat payments and a percentage. In the short term a higher percentage and lower flat payment may look good, but in the long run you might be paying more than a lower percentage and higher flat rate would have you pay. Don’t forget to shop around and do your research, if you know someone is getting a good deal then you have an idea of the concessions that are available.

Contract Length

Contract or agreement length is one of the next items I usually look at. I normally look out for the red flags and ask the following questions. Is the contract trying to lock you into a two or more year term? What is a term you are comfortable with concerning this contract? How does the renewal work? Is it automatic or are there more negotiations? When thinking about these questions you want to make sure that you are looking at the costs for the entirety of the term in order to understand the costs structure and what you are getting for those costs.

Terms

Terms are another point I always look for. Some of the key questions I ask are: How do they want you to pay? Do you need to keep a minimum budget? Are there payment terms? If there are when will you be receiving the invoice and when you get the invoice how long until payment is due? Most often I push for invoiced payment terms, with the industry standard 30 days from the date of the invoice. These payment terms give us plenty of time to receive and process the invoice and typically we are able to hold onto the dollars longer than other options with these terms.

Contract Termination

Contract or agreement termination is like an opt out and if good termination language is in place the length of the actual term becomes a bit less important. This enables one of the parties to end the contract, usually with a written notice and a certain length of time. For example, the agreement may include language that lets either party terminate the agreement for any reason within thirty days of written notice. I almost always try to get this included if it’s not already. This is important because if the service or product is not working out the way you wanted or priorities have changed, you are able to get out of the agreement without staying for and paying for the entire term of the agreement. Beware of people who will not even think about adding this for you, sometimes they are just trying to lock you into an agreement without caring about your goals or priorities.

If I can’t get some kind of contract or agreement termination I certainly make sure that if it makes sense there are performance metrics that need to be achieved. Doing this at least holds the other party to some kind of performance levels with which you are aware of beforehand. Sometimes this means completing projects, increasing sales, reducing cost, etc. That way, especially if you can’t get out of the contract via termination, you both understand what kinds of things are expected during the term of the contract or agreement. If these are not achieved typically the contract or agreement is terminated. A common mistake here is not putting in a timeline; make sure that if there are performance goals, both parties understand when and how those are to be achieved, as well as when they will be evaluated during the term of the contract or agreement.

Amendments

Amendments are simply something you need to keep in mind. Sometimes there may be a need to make an amendment to the agreement such as adding or removing an additional service. Just watch the language in the amendment to make sure you are not agreeing to anything you are not aware of, or that it’s not increasing or extending the term of the original agreement unless that's what you want.

Goodwill

I include goodwill as a caveat, sometimes people push so hard for a good deal or better terms that they forget about other opportunities and values. If you use up all of your goodwill getting a great deal there may be none left for co-marketing, press releases, white papers, blogs, social media promotion or other items that might be more valuable than a better deal.

I hope that helps, I would be interested in what others look for in contracts or agreements as well! Happy negotiating!

 


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