Negotiating Contracts Uncertainty

Negotiating Contracts In A Volatile Economic Environment

For firms delivering services on long-term contracts, rising inflation has hit like a sledgehammer. The inability to raise rates due to resource rate or fixed price commitments threatens to jeopardize profitability as wages escalate by as much as 15%.

Contracts signed before 2022 are in danger of becoming unprofitable, while competition for new business requires balancing price competition with intelligent contracting.

If a vendor loses money on long-term contracts, this is also dangerous for the client. Failure to charge profitable rates can cause vendors to either lose money or cut the number or quality of resources, both of which jeopardize the quality of service—and potentially the customer’s own business.

So, what can be done when the terms of a contract inhibit or prevent a vendor from operating profitably? This issue often arises within three different scenarios.

  • Existing contracts which limit price changes/increases.
  • The negotiation of new contracts.
  • Renewals.

In all three situations, it is critical to understand who has leverage that would enable or compel the other side to agree to one’s own terms.

Existing Agreements

There are five key factors within existing contracts that determine leverage and enable the vendor to justify price increases.

  1. The Value Of Services

    The more the services impact the client’s business, the more likely it is that the vendor can increase rates by indicating to the client that critical resources may be lost if the vendor cannot afford to pay for them. This argument improves if additional value to what is contracted can be negotiated and delivered as a result of making the contract change.

  2. Performance

    Regardless of the value of the services, if vendor performance is poor, the vendor loses leverage. Still, improving performance is often better than starting over.

  3. Contract Terms

    Understanding the current contract terms is critical. If there is a cost-of-living adjustment (COLA) provision, how is it written? Does it allow for annual or more/less frequent adjustments? What index is used—and is it relevant to the resources most critically affected by inflationary pressures? If most of the resources of the services are in India, using a U.S. cost-of-living index probably will not accurately reflect necessary inflation-based increases. It’s also important to determine what happens if the vendor ceases service delivery; is there a limitation of liability? What are its limitations? In other words, can the vendor walk away and have its liability limited?

  4. Alternatives

    Does a client have viable alternatives? How long would they take to be implemented? The better the client’s alternatives, the more leverage the client has, particularly if the alternatives can be implemented quickly and at a cost that is equal to or lower than the current costs.

  5. Externalities

    Is there another business that the client can leverage against the vendor? Has the client raised their own prices to customers?

    In order to overcome the potentially negative reaction to a price increase, the vendor should remind their client sponsors of the business benefits of their services and the risks associated with changes to those services that may be precipitated by increased labor and product costs.

New Agreements

In a newly negotiated agreement, it’s critical for the vendor that provisions be made for increases based on higher-than-normal inflation. While a certain amount of inflation can be factored into even a fixed-price contract, a vendor may be reluctant to factor in too much in a competitive bid environment. This makes it even more important to have COLA provisions that kick in under certain conditions, such as inflation rates above the level that is factored into any long-term price or rate commitments (e.g., >3% inflation).

COLA may be a misnomer, as many such provisions need to include factors other than the cost of living to be relevant. These include:

  1. The baseline.

    In other words, what do we apply COLA to: Is it all the rates on a rate list (sometimes called a rate card)? Is it fixed-priced projects or some other items?

  2. Which index do we use?

    The relevant index should be related to the country and type of labor at issue. For example, if most of the delivery is from call centers in India, we may want to use the non-farm labor wage survey, as published by Aon Plc Survey for India (“India Index”).

  3. What does it apply to?

    Parties must determine a way in which to split each of these proportionally.

    • The portion of the fees attributable to India resources versus local resources.
    • All of the vendor personnel and the fixed-price services.
    • Onshore resources.
  4. When does it begin?

    Will the initial indicated index recalculation take place on the 1-year, 18-month or 2-year anniversary date following the commencement date?

  5. How frequently is pricing recalculated?

    Will it be annually, bi-annually, every second year or monthly? What will be the impact on compounding?

  6. Limiting clauses?

    Some possibilities may include such language as:

    • “…if less than 3% no COLA shall apply…”
    • “…COLA is limited to 5%; COLA in excess of 5% shall be borne by supplier…”
    • “…should the CPI Index be in excess of 5%, either party shall have the right to explore alternatives…”


Renewals are similar to an existing agreement situation, except that the vendor is not obligated to continue providing services under current contract terms. In that sense, the value of successful current delivery is even more important as a driver of leverage which the client should recognize. With renewals, as well as new contracts, a common-sense approach to applying COLA provisions to ensure relevance and effectiveness.

Preparing To Navigate Your Contract Negotiations

Whether you are negotiating an existing contract, a new contract or a renewal, it is imperative to address the situation early in order to understand your leverage points and your customer’s. Information—plus proactivity and the right negotiation techniques—can help your business remain profitable despite inflation or other unfavorable economic conditions.


Note: this article originally appeared in November, 2022 on You can view the original post here.

Negotiation Danger Zone

Keep Your Cool And Avoid The Negotiation Danger Zone

Negotiations can be exasperating. You believe you are offering the other side a great deal, and they seem offended. You want to create a win-win outcome, and they treat you like the enemy. You thought they were ready after weeks of discussions and now they seem totally cavalier. And now you are frustrated. On some deals, when adversarial tension builds, even if the deal eventually gets done, there can be lingering emotional consequences that will impact the outcome.

This scenario is the “negotiation danger zone,” and it often leads to two types of problems. The first is that an agreement that should be completed for compelling business reasons fails to close because of emotional tensions, or it closes under one-sided terms. The second is that the manner in which the negotiation is conducted clouds the future and leads to problems downstream.

Maurice Schweitzer and Einav Hart of Wharton recently spoke about this in a Knowledge@Wharton interview. These scholars said that more harmonious bargaining, rather than adversarial negotiating, can yield better long-term results. This is especially true if the people involved have to work with each other after the deal is closed.

That is, in fact, the case in many business conversations — for example, those about whether to implement a vendor’s technology solution or hire a key employee. The parties have to work together after the deal is done. This is why I tell my clients that the ability to stay calm in the midst of tense or unpleasant negotiations can generate significant benefits and help them avoid pitfalls. I’ve seen many deals collapse because the seller or buyer — or both parties — lets the emotions of the situation get the better of them and ruin any chance for a long-term, mutually beneficial and profitable relationship.

A couple of years ago, one of my clients entered into an agreement to manage a state’s building operations. The negotiations were extremely tense: The state representatives made frequent condescending remarks and refused to listen to rationale about operational responsibilities. I encouraged our client to stay calm and detail both parties’ responsibilities in the governance provisions of the contract, including a practical operational dispute resolution mechanism. By doing so, they were able to transition to performing on the contract with confidence, and the natural operational tensions that occurred over the subsequent year were addressed cooperatively by the people involved in the project.

Contrast that with a similar situation where on numerous occasions the customer yelled and used foul language to pressure a vendor into using a specific subcontractor. The vendor conceded, and the subcontractor failed to perform; not surprisingly, a year later, the dispute between the vendor and the customer is still ongoing.

Any of us who has been in the negotiation arena for some time knows that negotiation counterparts can appear arrogant, inflexible, condescending and sometimes even mean. Whether this is part of their personality or they are using this behavior as a tactic because they believe a better result will follow doesn’t actually matter. What matters is how you react.

You can be polite and firm and stay true to your intention by refusing to react to a negative negotiation environment. Refrain from being pressured into giving unwarranted or “arbitrary concessions.” Our experience shows that arbitrary concessions routinely cost companies revenue and often lead to a deteriorating negotiation environment. Deals coerced under pressure often become pyrrhic victories, as they can negatively impact all involved.

The opposite of arbitrary concessions is what I refer to as principled concessions – concessions that are only made with a credible business rationale. Principled concessions are not based on emotional pressure. Your job as a cool-headed negotiator is to understand the business rationale of the party asking for a concession and only make the concession to the extent that it is justified. Arbitrary concessions can create an imbalance in your relationships, while principled concessions can add trust and credibility. Most importantly, they can relieve pressure and help you move the deal to fruition more quickly.

Relieving Negotiation Pressure

Another technique to cool overheated negotiations is to find ways to relieve the pressure. Sometimes this means stepping back and not responding — perhaps you can tell the other side that you would like a little time to consider their input or questions. It could also entail going out for a bite or a social activity. Humor can also work, but you don’t want to come across as flippant, and you should be conscious of context and culture.

In all cases, remind yourself that despite any posturing, the people on the other side wouldn’t be there if they didn’t see a potentially positive business outcome.

The right mindset can go a long way toward negotiation success. I recommend acting and being seen as a problem-solver, not an opponent, and as someone who is there to serve, not to sell. It’s generally harder for the person on the other side of the table to react negatively to someone whose primary missions are to serve and solve problems.

In summary, you can relieve adversarial negotiation pressure and master the negotiation danger zone by:

1. Keeping your cool and focusing on what needs to get done for a deal to work for both sides.

2. Avoiding arbitrary behavior and concessions that could jeopardize the success of the relationship after the close.

3. Using mechanisms (e.g., humor) to relieve the negotiation pressure during the process.

I leave you with a quote about keeping your composure from the third U.S. president, Thomas Jefferson: “Nothing gives one person so much advantage over another as to remain always cool and unruffled under all circumstances.” Follow Jefferson’s advice and you can be a more effective manager, sales rep and negotiator.

Note: this article originally appeared in March, 2020 on You can view the original post here.

Properly Manage Internal Expectations

Almost every sales organization and every seller operates under some pressure associated with quantifying and then making their sales numbers. The instincts that cause this are positive – the desire to succeed by meeting or exceeding quota, or perhaps to be seen as a top performer within the sales organization.

There are three related manifestations of this pressure that negatively impact the seller’s ability to deal with complex buy cycles.

  • We may raise expectations of success with internal management on deals where some of the fundamentals are missing or will take more time to develop. Such expectations can be made through forecasting in the CRM system or by what sales reps promise to their managers. Regardless of how this occurs, not taking reality into account affects the seller’s credibility and results.
  • We rush, trying to speed up the process. If the deal is not moving at the pace we desire (or which is imposed from above), this leads to mistakes and a loss of credibility internally or externally. In either event, that loss of credibility will further prolong the sales cycle or result in a lost opportunity.
  • We make unprincipled concessions in an attempt to get the prospect to act faster. As I explain in an earlier article, unprincipled concessions are “giveaways” not tied to a credible business rationale. Our research shows that this simple negotiation mistake costs businesses between 9 and 18% of gross revenue and significant profit. This is a much too high a price to pay in any sales scenario, especially when it doesn’t contribute to revenue.

To overcome the negative impact of these manifestations, I suggest you deal with each in a conscious way, in order to eliminate or reduce the mistakes and frustration caused by internal pressure. Very few individuals operate more effectively while under pressure. Prospects can sense it, and managers can sense it, and neither responds well to the type of selling environment caused by pressure.

One of the often unspoken issues is that the buying cycle can be vastly different from the sales cycle. Sales management can choose to dictate a certain sales cycle; say four months. However, while this sounds ok, the buyer may have a far different perspective on the timing of the deal. This is a good example of the quote, often attributed to John Lennon, “Life is what happens to you while you are busy making other plans.”

A few years ago, a friend was under some pressure to get a strategic contract done for his company. His executive called for status updates daily (sometime more often). He had a contract draft ready for the customer that at least one person other than him would normally review (two sets of eyes before something important goes to a customer is a good policy).

However, he felt he could not afford the couple of hours that the review would take. The contract had a critical typo in it that caused an internal escalation within the customer. While the deal was done, it took a week longer as a result. As mentioned above, the motivation for going against standard operating procedure was sound: the desire to make the sale happen on schedule.  However, in hindsight, the cost of the extra week was not worth the potential few hours saved.

Setting honest expectations and describing key dependencies and timing is always good practice, though it may not be what the boss wants to hear. This does not mean making excuses – rather it means being factual and explaining what needs to happen and what you are doing to facilitate an optimal outcome. This may be a bit painful in the short-term, where pressure to meet this quarter’s number is strongest – but it will definitely pay off over time, in terms of streamlined, less-painful and more profitable sales.

Musical chairs in negotiation.

Why “Musical Chairs” in Your Sales Organization May Be Eroding Your Negotiation Capital

(This post is adapted from K&R Negotiations’ Six Ways to Shorten the Sales Cycle, a complimentary executive brief.)

Sales organizations often reorganize customer or territory responsibilities at the beginning of a fiscal year.

If your product and sales process is so simple that salespeople (and customer relationships) are as interchangeable as Lego blocks, then frequent reorganizations are unlikely to hamper you. But if you are trying to sell value in complex landscapes to companies with unique business problems, the reshuffling can be terribly disruptive.

In our previous post, we highlighted the fact that sales (buy) cycles are getting longer as customer’s buying habits change.  We also discussed one of the ways companies can shorten those sales cycles by factoring in the customer’s approval process. Unfortunately, with most reshuffles, you unilaterally extend the sales cycle. If you are in a “high value” industry, this could be an unforced error.

You’ll have to wait as the new account owners pick through their predecessor’s notes on your CRM platform, introduce themselves to key accounts, get familiar with the customer’s business — all of which is deadly in an era where the most successful salespeople are de facto consultants who are deeply immersed in and highly valued by their clients’ businesses.

It’s a Matter of Principle: Negotiations Are Continuous

In the most lucrative partnerships or buyer-seller relationships, a deal is not a discrete process. It’s part of a tapestry of interactions, which is why one of our Six Principles™ is “Negotiation is a Continuous Process.”

In other words, if you are skillful in building a good negotiation process, negotiations with your client should never end because you’ll be doing repeat business.

If negotiations are a building block for successful relationships, then they must be seen as a form of interval training, not a single sprint. Since negotiation work can result in a long-term future (or no future), success in that work will create business relationships that make doing business easier and more rewarding for all parties.

Negotiations do not end with the contract signing. In fact, some of the most difficult negotiations may begin after the initial contract is signed. This is particularly true in the technology industry, where many contracts are drawn up before implementation takes place, before any service has been performed, and even before all requirements are known.

These types of contracts guarantee that there will be yet more negotiation.

Some of the most difficult negotiations occur in this execution and revision period. Most contracts have an amendment process, evolving statements of work, change control procedures, engineering change mechanisms, or provisions for out-of-scope requests.

Another key point: The continuous nature of negotiations is that in each negotiation cycle, the parties will call upon what happened before as a model – sometimes of what they want, and sometimes of what they don’t want. But memory and impressions from earlier concluded negotiations will always be factors in the next round. Of course, if any sequence of negotiation is a complete failure, there may not be a next round. We often hear, in sessions around the world, a vendor say, “I’m in the penalty box with my client.” What they really mean is that because of a delivery problem, or a bad negotiation, they are paying the price in their current negotiations. It’s continuous.

We also speak and teach about “negotiation” capital: a “bank” of credibility earned by demonstrating value and managing the negotiation process wisely. This credibility is the foundation of your leverage with the client. Your “fresh new face” means that hard-won capital can reset to zero.

Discussions between customers and suppliers should never end, especially if the relationship is good. An end usually means the relationship is over and only the “survival” terms of the agreement are being implemented.

 While there is a value to reorganizing in order to gain fresh thinking and enthusiasm, we encourage our clients to approach reorganizations with circumspection. In the event that a reshuffling of chairs is critical, the company should encourage and compensate current sellers working on major deals to continue with those deals until an orderly handover is possible or until the deals are closed.

Download your free copy of Six Ways to Shorten the Sales Cycle.

Sales Negotiation

Business Negotiation: Three Questions that Will Shorten Your Sales Cycle

(This post is adapted from K&R Negotiations’ Six Ways to Shorten the Sales Cycle, a complimentary executive brief.)

Perhaps your strategy-level sales conversations have centered on how to shorten sales cycles. Many companies find themselves mired in protracted sales negotiations, driven in part by the expanding involvement of multiple people (and functions) in the decision process.

A recent article (The High Cost of Buying Complexity) cites CEB (now Gartner) research when saying that the customer’s own expectations of the buying process are exceeded by 97%, i.e., taking 97% longer than expected by those requiring the sought goods or services. This seems true whether the ultimate purchase decision is made or if the process results in no decision. In our experience, this is a result of changing priorities or organizations due to passage of time.

Decision to Purchase vs. Decision to Wait

Sellers and sales organizations are often their own worst enemy in this process.


Factor in the Decision Process – Make It Easier for Your Customer to buy

One of the most obvious errors we see is the lack of knowledge of the customer’s decision process. This falls on the seller; however, just as often, we see that buying organizations that need the goods or services don’t have a firm grasp on how to navigate their own processes. This is where a knowledgeable seller can help. They need to ask their counterpart at least three questions in the interest of realistic expectations.

 Three Questions Sellers Should Ask Buyers

“WProcess Iconhat is the process you will need to go through to get a decision?”


Length of Process“How long does it normally take?”


Decision criteria

“What criteria will be used to make the decision?”


We recently advised a client that projected a major deal to close in 90 days. The value proposition was compelling – the buyer would save millions of dollars per year in running their core banking system. When we asked about the process, this was the conversation:

Them: “The CIO will need to go to the board to get approval, but that is just a formality.”

Us: “How will the CIO decide whether or not to go to the Board?”

Them: “If we demonstrate we can actually do this and the savings are compelling. The business case on savings has already been discussed and we have a proof of concept running.”

Us: “Good! When is the PoC supposed to be completed?”

Them: “In one week.”

Us: “When is the meeting with the CIO to discuss the outcome of the PoC scheduled?”

Them: “The week after that.”

Us: “How often does the Board meet? When is the next meeting?”

Them: “Once monthly, however, due to a national holiday, the next monthly meeting will not take place. So, in about 6 weeks.”

Us: “And once the Board approves, will procurement issue a PO?”

Them: “No, they will issue an RFP.”

Us: “And how long will that process take?”

Them: “It has never taken more than 2 months from the RFP request.”

This team was taking an incredible risk and would likely be frustrated, along with the CIO. So, we discussed what could be done to compress this process in a collaborative way with the CIO’s organization. These included steps like:

Collaborating with the CIO’s Organization

CIO Collaboration Steps

Relentless and thorough preparation is where negotiators on the vendor side shortchange themselves. It’s a major point of focus during our negotiation training, and one of the most critical aspects of this is considering the various groups of stakeholders across the table that need to understand and buy your value argument.

The thought process for you as a negotiator is similar to that for your internal negotiations: Identify goals by individual, using their measurement systems as appropriate. Remember that the higher you go in a customer organization, the greater the span of control. As a result, getting sponsors at those levels gives you greater leverage in closing agreements. Research shows that senior executives get very involved in the decision process for major purchases. But that involvement is typically early and late in the cycle.

Asking the right questions and managing the negotiation process with key roles in mind will lessen the likelihood that your deal languishes on the buyer’s side of the table.

Download your free copy of Six Ways to Shorten the Sales Cycle.

Negotiation Examples: How Avoiding Unprincipled Concessions Kept the Customer’s Respect (And Won More Revenue)


When competition starts putting the pressure on you, it’s natural to look at price-cutting as the primary way to keep the business. But in the long run, this is a mistaken impulse, unless accompanied by a sound business rationale such as a reduction in scope, change in terms or outcome from the deal. One of our engagements with a client that served a European industrial (the customer) with technology solutions definitely illustrated the value of avoiding such “unprincipled concessions!”

Unprincipled concessions are “giveaways” not tied to a credible business rationale. Our research shows that this simple business negotiation mistake costs companies between 9 and 18% of gross revenue and significant profit. (See our infographic on the topic for a more detailed discussion of this vital principle and how it can be applied.) Read more

Negotiation Examples: The Power of Agenda Management

The “time factor” — how you manage it against other considerations and use the high-level (or macro) agenda to help create agreement has a huge impact on your success!

This was certainly the case during an engagement with one of our technology clients, whose customer was in the European auto segment. All of our client’s revenue with this automaker was in jeopardy when the automaker announced that a purchasing freeze would be in effect at the beginning of the coming year, due to deteriorating economic conditions and new IT management. Since it was October, these developments required immediate action and a clear agenda that would culminate in closure before end of year. Read more

To Win the Deal, Add Personal Value to Your Negotiation Strategy

Effective, persuasive communication is fundamental to building winning deals. When you are understood and believed, you greatly increase your chances of gaining leverage and having your value argument accepted by the other side.

However, we make a mistake if our communication doesn’t recognize two kinds of value:


  • Company value to the other side
  • Personal value to the representative of the other side

You generate company value by making the deal beneficial to the customer’s organization. Read more

Unprincipled Concessions Cost You Money at the Negotiating Table

Spot Them, Avoid Them and Close Faster

Unprincipled concessions are concessions not tied to a credible business rationale. Years of research show us that this simple business negotiation mistake costs companies between 9 and 18% of their gross operating revenue.

Principled Concessions Infographic

Read more

Negotiation Success Range (NSR)™: Understanding Walkaway Positions so Neither Side Walks Away

Winning Negotiations Strategy

One of our tools for helping clients prepare a winning negotiations strategy is the Negotiation Success Range (NSR)™, which identifies the conditions under which both parties will be satisfied. And if those conditions satisfy both sides, but our side likes them more than theirs? That’s OK: A winning deal is never perfectly even. In business, especially when forging long-term relationships, the NSR is critical because the deal should work for both sides, and both sides need to feel like they have won.

This is easier said than done. As an example, during negotiation planning the seller’s price and the buyer’s cost are often crucial factors in the deal. In fact, price is often a deal maker or a deal breaker. (The impact of price considerations on your deal can be ameliorated with value articulation.)

While the NSR example we’ll discuss relates to price, the tool works with any negotiation term that has a range. Read more