All too often, a client will present a contract proposal to me (design services for an improvement project, internet and television bulk services agreement with a national service provider, elevator service and maintenance agreement for a high-rise condominium building, and so many more) from the selected company and ask, “Can you please review this contract and make sure it is okay? We need to start this project yesterday!”
I always cringe when I hear that, because I know my client has potentially lost its negotiation advantage with the other party to the contract. The client is down to only one company/proposal and is under a time crunch. This means the client’s BATNA is basically zero.
BATNA: Best Alternative To a Negotiated Agreement with the party you are presently negotiating against.
Here are my recommendations for two basic ways to improve your BATNA in a contract negotiation.
Improve your BATNA with active negotiations with multiple bidders. You always need an alternative bidder (back-up company) to the instant contract being negotiated. If the company does not agree to the terms the lawyer tries to force at the last second (remember the time crunch), there is no back-up bidder ready and waiting with negotiated terms. If there was a back-up bidder with a similarly favorable proposal, then the client would have a strong BATNA. The first bidder won’t agree to your performance requirements and termination language in the contract negotiations? No problem. Threaten to terminate the negotiations with the first bidder and proceed to using the second bidder. It might sound like an obvious approach, but many times people fall too quickly for just one bidder.
Improve your BATNA by getting your lawyer involved early in the project planning and bidding process. Savvy clients and lawyers will collaborate and communicate early in the project planning process. Specifically, clients should have their legal counsel provide mandatory contract terms and conditions to all the bidders (i.e., in the request for proposal to bidders (RFP)) up front. Many clients engage in competitive bidding, but all too often the RFP and the bids only focus on the contract price and the scope of services (included work and excluded work). Depending on the type of service contract or the project’s scope, the following contract issues, among many others, are just as important as price:
- length and scope of the warranty period;
- clearly defined performance standards and corresponding termination rights; and
- responsibility for damages and indemnification.
Including these contract requirements and conditions in the RFP will improve your BATNA by cutting down the amount of time and negotiations required to get from “proposal/bid” to a properly negotiated “signed contract.” Working with experienced business and contracting attorneys like Haber Slade, will help you put your best foot forward and secure an agreement that is not only well-negotiated, but also addresses all of your needs.
David Podein is a partner with Haber Slade. He concentrates his practice in the areas of real estate and construction law, condominium and community association representation, commercial leasing, secured financing, and business and commercial litigation. A substantial portion of Mr. Podein’s practice involves representation of community associations in the financing, approvals, and contract negotiation for multi-million dollar capital improvement, repair, and/or building upgrade projects.