How Do You Negotiate Contract Terms? Three Recommendations

Situation: A company has secured a significant new contract with a new, large customer. The customer sent over their standard, non-negotiable contract which includes the right to cancel orders anytime, even if the company has invested significant funds preparing product against those orders. How does the company respond? How do you negotiate contract terms?

Advice from the CEOs:

  • Before you sign the contract talk to the customer about restocking or cancellation fees in cases where you have already invested irrecoverable funds against the customer’s orders. See if they will adjust their purchase order clause or offer language to cover unrecoverable costs.
  • If the customer says that they cannot change the contract, ask for an addendum or side letter of understanding that will protect you from loss of sunk costs against cancelled orders.
  • If the customer will not bend on any contract language, you can go ahead and sign the contract and then take care of your needs as they submit purchase orders. Create a stamp that you can stamp on their purchase orders defining your protections. Each PO is a new contract that supersedes the general contract.

2 thoughts on “How Do You Negotiate Contract Terms? Three Recommendations

  1. Robert Friesen

    Having negotiated large services contracts for decades, I can say that there are very few terms that are non-negotiable without at least a quid pro quo. Sometimes they have to be resolved in a stepwise process but that should include contributions that both parties make to arrive at a comfortable working endpoint. One thing I will say for sure is that if a prospective customer has terms in a contract that can damage one’s company and the customer is not willing to listen to a case for an exception that mitigates the risk and creates a positive, rather than paranoid, working relationship, it’s the wrong customer. Turn, walk and don’t look back. That is a unilateral “power culture” that may even be proud of the contracts it has broken for trivial reasons and the risks will eat away at you for the duration of the terms.

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