Recently, I have been negotiating with a giant of industry – massive and powerful, they’re ‘Goliath’ to our client’s ‘David’. This week they trotted out the three most common negotiation bluffs in quick succession. I thought I’d share them with you, so that you don’t take them on face value if you encounter them in your negotiations.
Bluff No. 1: “Nobody has ever queried that before”
One tactic that big organisations use against smaller ones is to belittle the small company’s concerns. Saying that all of their previous counterparties have happily agreed to the provision in question suggests that we’re either (a) misunderstanding it altogether, or (b) completely unreasonable. Even the most hardened business person could be forgiven for wilting under this one. But don’t! Why not? Two very good reasons:
- They could be lying. I don’t want to shock you, but people sometimes say things that are not true, in order to pressure their counterparty to act a certain way, or agree to something unfavourable.
- Even if they’re telling the truth, it doesn’t matter what others have agreed to. What matters is whether it makes sense for you, in your business. While ‘custom and practice’ might be useful yardsticks, following the crowd isn’t always good for you.
What should you do? Assess the provision in question against industry norms as you understand them. Does it fit with your experience? If not, your counterparty may be fibbing to you.
If you believe they’re telling the truth, consider why this provision might be acceptable to others while you find it unpalatable. Are they mitigating their risks in a different way to you? Do they have different insurances? Are they charging more money for similar goods and services, providing them with greater ‘fat’ to insulate them against the effects of unfavourable terms? Or is there an attitude in your industry that you can sign whatever you like, as nobody expects you to comply with the contract anyway? Exploring the reasons behind the discrepancy might reveal opportunities to bring both of you closer together, and find a mutually acceptable resolution to the problem.
Bluff No. 2: “We have to flow that down from our main contract”
This is presented as an absolute, non-negotiable line that cannot be crossed. Because your large client has agreed to certain terms with its even larger one, they believe that you have to accept all the risk they have accepted themselves. This is not true. Generally, you will be delivering a small portion of the overall deal for them, and it is not necessary for them to flow all of those risks straight down to you. You could argue that they should earn their margin by managing some of that risk themselves.
The other difficulty with this argument is that if all contractual risk flows down to those at the bottom of the supply chain, you end up with a reverse-pyramid where the greatest pressure is placed on those least equipped to deal with it.
What should you do if you’re presented with this argument? Imagine what this contract term looks like in the main contract your client has with its customer. Think about the overall context of the deal, and how this provision could translate into their relationship. Some obligations do have to be flowed down in a fairly prescriptive manner – confidentiality and data protection, for example. With these, you may genuinely have to accept the risk if you want to be part of this deal.
Others terms, such as indemnities (see this article for more info about these), represent risks that the main contractor should be addressing in the scope of its relationship with its client. With these provisions, you should explore to what extent it’s reasonable for you to pick up a share of the risk. Are there other ways your client can mitigate it? How much control do you have over the risk in question? Are you being paid enough to be held responsible for such large potential losses?
Assessing each of these on its merits will help you to find a way through, and identify a fair and mutually acceptable solution.
Bluff No. 3: “It’s Company Policy”
This can be one of the trickiest bluffs to deal with – not least, because your counterparty may not realise that it’s a bluff when they say it!
In many large organisations, clear guidelines (policy statements) set out the company’s position on key contracting areas such as intellectual property, indemnities and payment terms. These policies enable less experienced staff to deal with most ‘ordinary’ deals, saving the more expensive resources for complex and higher-value negotiations. This is undoubtedly a sensible move for a big business looking to manage costs and increase contract throughput. By standardising their terms, they negotiate less and have a more predictable risk profile.
The problem is lack of flexibility when ‘company policy’ isn’t necessarily appropriate for every deal. While an experienced, highly qualified commercial manager will understand where they should consider moving off the beaten track, someone less senior may not. If you are negotiating with someone who lacks authority to step outside the standard terms, they will try hard to keep you within them.
How can you persuade them to flex their policies? Identify a good commercial, operational or legal reason for them to do so. Then convince your counterparty to escalate to someone with the authority to make a practical judgement about what’s appropriate in this particular case. This may be easier said than done, but if you have genuine justification for requiring something different to their standard terms, it should be achievable.
To help you get to the right person, consider what’s in it for your counterparty – are you able to frame your requirement in a way that will reflect well on them? Perhaps they are asking for something that makes no sense in the context of your deal and you can educate them on a contracting area that’s new to them, increasing their credibility with seniors in the business. Or maybe you can offer some other benefit that has tangible value to them, in exchange for this concession.
The key is to remember that it’s rare for ‘company policy’ to be truly carved in stone. If your counterparty insists that they will not budge, that simply means that the benefit of working with you (rather than your competitors) does not justify the extra work involved in reconciling your contractual positions.
If you’re facing a big negotiation challenge, give us a call. We’ll be happy to talk through your options, and see if we can identify ways to offer value to your counterparty that make your requested concessions more palatable. You may also be interested in attending our contract negotiation workshop for practical tips.
Founder and Managing Director, Devant