What Leads to Renegotiation? What renegotiation skills will you need before returning to the bargaining table? One or more parties initiate renegotiation for one of two or both reasons below:
- A faulty agreement or
- environmental or uncontrollable changes
A written contract intends to capture the deal’s complete understanding and essence. Most professional negotiators (lawyers or others) believe they can capture that in a written agreement. In actual practice, they can rarely achieve such an objective perfectly for three common reasons:
- The parties to an agreement cannot predict all the events and conditions that could affect future transactions.
- The implementation costs (transaction costs) may change, limiting resource allocation to the deal.
- The parties are not convinced that the contract will stand the acid test of a legal challenge. The court may not interpret the contract as expected.
Environmental changes are a significant cause for initiating renegotiations. For example, the product, services, and labor shortages due to the pandemic forced numerous companies to renegotiate their existing contracts.
A change in circumstances usually increases costs or reduces benefits to at least one party. When the party affected concludes that the cost of complying is less attractive than abandoning the contract, it either terminates the agreement or demands renegotiation.
Here are a few suggestions to minimize renegotiation risk and expenditure:
- Cultivate a trusting relationship with the other party before renegotiation
- Avoid haste and take the necessary time
- Describe and include a renegotiation process in the initial contract
- Include a predetermined specification and criteria that will lead to renegotiation
- Avoid being competitive and be collaborative
- Weigh your demand against the value of the relationship
- Create value in your renegotiation
- Thoroughly evaluate the costs of failure
- Involve all necessary parties
- Design the proper forum and process
- Consider hiring a professional negotiator
I would love to hear about your experiences! Please share your stories here.
Thank you.
Satish Mehta
Author, Speaker, Coach
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