5 success factors for contract negotiation

This seventh blog in the series of nine blogs on the sourcing lifecycle identifies 5 success factors for contract negotiation.

After down-selecting preferred suppliers in response to RFP submission, the customer should prepare a draft contract with a full set of schedules. This should be designed according to the customer’s requirements, rather than being based on suppliers’ terms and conditions. Prior to releasing the draft contract to the supplier(s) it should be thoroughly reviewed and finalised through consultation with key stakeholders.

The preferred suppliers should be instructed to review the draft contract and to supply a marked-up version highlighting any proposed changes. Upon receipt of the marked-up drafts, the customer should compare the submissions in detail and develop a clear contract negotiation strategy for each supplier.

There is significant benefit to be had by adopting a ‘time-box’ approach to the contract negotiation process whereby firm deadlines are set for completion of the negotiation process. Not only does this force all the parties to reach a conclusion at a known time, but it also allows the parties to communicate a clear timetable to achieve the necessary internal approvals for the final deal.

In order to maintain competitive tension throughout the sourcing process it is important to negotiate in parallel with the down-selected suppliers. This phase of the process requires a significant change in the structure of the customer project team in terms of the number of people required and the experience they have of contract negotiation. To achieve the ‘time-box’ deadlines the negotiation of the contract must take place in parallel workstreams and the project teams of both the supplier and customer need adequate resources to achieve this. It is not unusual for teams of up to twenty on both sides to be involved in this process and ideally each team member needs experience of this type of activity.

Throughout the process the appropriate stakeholders must be kept fully informed on progress of the contract negotiations and the suppliers’ performance against the key success criteria of the sourcing phase. This is particularly relevant in the case of the commercial offers of the suppliers.