What is Contract Negotiation and
How to Negotiate a Contract

By PracticeLeague, Decemeber 28, 2021   |   8 Min Read

What is Contract Negotiation?

One of the most vital, important and time-consuming phases in a contract process is the contract negotiation stage, wherein the precise terms, clauses and deliverables of the contract are decided and agreed upon by the various parties and stakeholders. This is the stage when the various parties to a contract decide upon a common set of deliverables & obligations, as well as their specific governing terms, regulations etc. This, handled and documented smoothly serves in minimizing the contractual risk involved. These are some of the key reasons why contract negotiation is important

A misunderstood or improperly worded obligation or deliverable can seriously hamper the organization in business, and may have ramifications extending to loss of business, regulatory problems, or major loss of revenue – or even a heavy financial penalty. A vaguely or inaccurately stated commercial segment can give rise to disputes between the two parties; absent protections or indemnity clauses can be the harbinger of losses and damages. Hence, the negotiation process of any contract needs to be handled with care with precise processes, proper contract negotiation strategies, documentation and properly formulated legal contracts.

Challenges in Contract Negotiation

The process of coming to a common ground in deliverables & contractual obligations, including primarily finding a commonplace between two divergent opinions and reality-perceptions is itself an exercise fraught with inherent risks. If you add to this the tactical issues of common meeting times, lengthy negotiation proceedings, and multi-stage approvals across many business entities – this poses big challenges to the execution of contracts, affecting contract drafting and

  • Difficulty in common meeting times
  • Divergent opinions of the negotiating positions
  • Time consumed in back-and-forth negotiations
  • Time consumed in approvals
  • Ambiguity in terms & clauses be used
  • Alterations, technical errors and omissions in the draft
  • Agreement on indemnities, and other peripherals
  • Multiplicity of versions leading to a risk of incorrect drafts being finalized

CLM and Contract Negotiation: How do Automated Contract Negotiations Work?

A contract is, in simple language, an agreement towards certain objectives and deliverables to be achieved by two or more parties. Given the diversity of views, internal objectives, plans, ground realities – there will always be some differences in understanding, as well as divergence in the target objectives of each party to the contract. Thus, there is a need for a negotiated approach such that common ground can be reached. This is where an automated CLM system comes into its own, offering as it does a range of features that facilitate and enhance the contract negotiation experience.

This negotiation process can be subdivided into segments – first, the targeted deliverables/objectives plus the specifics in terms of obligations on each party, commercials, timelines etc. This has ramifications on the specific structure of the contract and its various clauses. Secondly, there is the real-world problem of negotiating these terms, obligations and clauses over widespread geography and in the current hybrid work atmosphere spanning WFH and Office work. These two combine to produce inordinate delays; but now, thanks to the CLM Software, both of these challenges can be successfully dealt with.

Contract Negotiation in an Automated CLM System

In Razor365, for example, we have the Collab365 module which facilitates direct in-draft editing of clauses by multiple stakeholders/parties to the contract, and in real-time. This clause-level editing in an online collaborative process clearly solves the 2nd segment of the negotiation process – getting the various parties together. The real-time approach further enhances the process over the old, as it enables fast responses to the suggested edits and additions etc, buttressing teamwork and collaborative spirit.

At a deeper level of the contract negotiation process, a modern CLM system like Razor365 from PracticeLeague facilitates clause-level discussions, and in real time. This enables quick and rapid discussions over the specific deliverables, accountable and obligations under the contract. But this is just one part of the story; the real story starts at the clause-level, where a modern CLM reduces contract risk by ensuring proper wording of the clauses; it can also provide approved clauses from previous contracts and from the clause list in the contract repository.

Moving on, a CLM system also provides a check on the terms of the contract, and ensures standardization across the organization, as well as identifies potential conflict areas, for example differential procurement rates across vendors, which can become a flashpoint for the procurement function, to quote an example. Similarly, going deeper into the procurement case, a CLM gives the organization-specific control over the obligations like sourcing time, which is a key flashpoint for the supply chain – a CLM gives transparency and focus during negotiations on these obligations, making sure each party to the contract is cued into the requirements.

A Modern Contract Negotiation Platform

Thus, from the above we can see that a proper functioning CLM ensures and facilitates a conducive transparent atmosphere for contract negotiation; it enhances and adds value to the process as well. This means that all parties to a contract can enjoy a smooth mutual working and experience. That is why, real-time automated CLMs that can enable this experience are so vital for an organization. Thus, when choosing a CLM for your organization, one must ensure that the negotiation and collaboration facilities are on the ball, and meet your requirements!