Contract negotiations with suppliers can be tough and complex, as they should be. If they are not, it is often an indication that one side or the other has left a lot on the table.
Procurement professionals will spend a lot of time planning for a negotiation. They will sit with the business to understand requirements. They will conduct an RFx, or some other form of a competitive bid, to short list potential suppliers. They will engage the legal and finance teams to help define the parameters within which to negotiate terms and conditions.
But when the supplier sends them an un-editable boilerplate agreement to get the negotiations started, the talks fall apart before they can even begin.
So whose paper should you use?
The most common response, from both sides, is to use their paper. Unfortunately, contracts cannot be negotiated on two sets of terms, and both the client and the supplier stand to lose in a protracted negotiation.
There are two approaches to this dilemma. The popular approach is to flex your muscles. The bigger party will dictate which boilerplate terms to negotiate off. I have often been told that you cannot negotiate with the big technology suppliers like Microsoft, Oracle and SAP, and to an extent this is true.
You will have an extremely difficult time getting Microsoft, Oracle and SAP to negotiate off your paper. However the question should not be why they won’t, but rather why would you want them to? The technology these suppliers sell is incredibly complex and it is used by tens of thousands of clients around the globe. If you are a large enough organization you may be able to get them to work off your paper, but this will inevitably lead to a long, drawn out negotiation that can take months to finalize and leave the negotiator demonized by the business as a roadblock to progress.
Consider this. When Oracle or SAP license Microsoft product for their own internal use, they work off Microsoft’s standard agreement.
So what’s to be done? Wave the white flag, close your eyes and sign whatever they slide across the table?
An alternative approach to a pointless arm wrestling match with suppliers is to concede negotiating on their paper, with a few up-front conditions:
- The supplier must provide an editable, unlocked version of their agreement for review
- The supplier must identify any sections which are considered non-negotiable
- The supplier must incorporate into their agreement any pricing and other terms that were offered during the competitive bid process
Interestingly, this approach usually elicits one of two responses from the supplier. Either they will concede to these conditions, which will help to identify the pain points up front, or they will not concede.
A concession on these points establishes trust between the two parties and that always bodes well for negotiations.
If the supplier does not concede, it forewarns the client as to the nature of the impending negotiations.
Either way, the ground rules are established and protracted negotiations can be avoided.
If you found this post helpful, or have a story of your own to share on this topic, I would love to hear from you.
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