Is it time to RE-negotiate your contracts?

In this economic climate, what do you think about re-negotiating your contract terms? Have you been asked to do this or have you approached those you're in contract with? If so, what types of issues are being re-negotiated, with what outcome? What impact, if any, has the re-negotiation process had on your relationships?

Finally, what advice would you give others who are about to embark on the re-negotiation process?

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Stephen Frenkel
Collaborative Negotiation Instructor & Coach
www.mwi.org/negotiation

I have been renegotiating all of our contracts with sellers to adjust for the drop in market prices and it is making an obvious difference.

I think a person needs to have the confidence in the business relationships that has been formed contractually, that they can at least have a genuine, candid discussion with the other side about: (1) current economic climate (2) objective of potentially reworking the agreement.

It's not the issue of anticipating having to hold renegotiation discussions that seems to frighten people (although they do)... it's a larger issue at play psychologically of having the confidence that the business relationship is strong enough to withstand such discussions, and that you won't damage the relationship.

Go for it.

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Generate More Client Referrals For Yourself
World-class referral marketing advice
http://www.maximumreferrals.com/sp

Thanks to you both for your comments.

MaxReferrals, I agree with you that people often feel stressed about the conversation and only raise the issue if they feel the relationship is strong enough.

In my view, that's unfortunate. The skills and the ability to raise these types of issues are exactly the tools that will lead to a stronger relationship. Avoiding these essential conversations because the relationship isn't "strong enough" will lead to the follow through of an agreement that one side (or both!) are no longer happy with and, therefore, a relationship that suffers and a failed partnership.

It's precisely the goal of having a strong relationship that should drive these conversations if they need to be had. Something simple as stating "the economic climate has changed significantly since we came to our original agreement. I'd still like you to maintain your expected margins, but not see greater winfalls at my expense. I realize we're still under contract, but can we revisit those terms in the hopes of maintaining a stable, long-term relationship with one another?"

Of course, some of this language may change - if neither of you can maintain your margins (which is highly likely), discuss that you want to share the burden in an effort to maintain your long-term partnership with a commitment to returning to status quo as soon as possible.

Let's keep the conversation going!
Stephen

This is a great topic you brought up, Stephen, and I agree with your thoughts. I want to offer my view, and it is based on recent personal experience as well as some deep discussions with others I am close to.

The question asks "Is it time..?" and is referenced in your opening post as related to "this economic climate." which, strategically could be called a Dynamic Inferiority. However, the very nature of business is dynamic, not static. That said, in my view it is ALWAYS time to assess and consider CHANGING the arrangements, contractual or otherwise, of a business relationship.

When the commissions on many products decreased in recent years, many of the best financial planners went to fee-based arrangements with their clients, to supplement the profit on the products.

When you said "It's precisely the goal of having a strong relationship that should drive these conversations if they need to be had.", it was referring to exactly what these people had that enabled them to stay profitable and reduce the risk of losing many clients.

In my own work, I recently renegotiated a contract with an increase of 22% to ensure my ability to perform at a profitable level. I had to sell that to an entire board in a parliamentary procedure setting, and I won approval on the spot. It was because of the relationships I had with key members of that board. The contract has been drawn and is being signed this afternoon.

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www.acecoldiron.com

Ace,

Thanks for chiming in. Congratulations on your successful re-negotiation!

I agree with you that the dynamic business world calls for constant evaluation of business terms and relationships. I brought the topic up now simply due to collective circumstance.

It's also important to mention that, though "smaller" shifts occur regularly (in good times and in bad), one may not want to engage in the re-negotiation process as a habit. Along with our interests in profitable business deals, we also want strong reputations (that we stick to our word, follow through with agreements and come to well thought out terms). Often, the cost of absorbing a "micro" hit is worth it for the sake of the relationship and your reputation. It should also be noted that the process of regularly evaluating business terms is a good one, even if you choose not to re-negotiate, so that you'll make better deals next time.

However, in times like these - when everyone feels the strain and that strain is greater than usual, it's important to be able to have these challenging conversations, and have them well.

It's also important to note that not having these conversations for "micro" shifts probably makes your claim that much more credible should you choose to raise the subject at this time (e.g. "I've never done this before and I don't like to revisit my commitments, but in this instance I have no choice and I hope you understand...).

Thanks,
Stephen
www.mwi.org/negotiation