What is the primary objective of contract negotiations?

I will reply to this topic arguing to what is called modern theories saying that in any negotiation, each party enters to gain the most.

The fact that we try not to offend the other party, or not to make him/her feel losing, or gain the most almost up to his/her breakpoint, are subjects of the technique we use during negotiations and not a deep belief of what is called win-win situation.

Personally, I push to the edges to gain the most but always give something back that doesn't bother my side. 

So from this context, I would not pick just one answer (a,b,c or d) but a fine combination of these four options.

In the bottom line, there is no rule saying we have to get an agreement through every negotiation we make.

 

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From a long term point of view, I would agree with  Md. Fazlur Rahman

What Objectives

The first thing to consider when planning a negotiation is to decide on what the objectives are. Here are some of the more common things of concern about most purchasing transactions.

Price

Long Term Costs

Product or Service Specifications

Delivery Date

Payment Terms

Length of Warranty

Warranty Coverage

Legal Jurisdiction

Packaging Requirements and Charges

F.O.B. Terms

Freight Charges and Carrier Used

Order Quantity

Length of Agreement

Cancellation Terms

Patents and Copyrights

Maximum and Minimum

The best target objective for each subject well as the least acceptable target should be decided. Some items will only have one satisfactory objective. Other items may have a wide latitude. For example, 12 may be the only acceptable order quantity because each piece of the item costs thousands of dollars. On the other hand, acceptable payment terms may vary between 2% 10, Net 30 to Net 60 because that is not as important to you. During the negotiation, you will be willing to compromise or give up on your less important objectives in order to obtain your more important ones.

Long term costs should be your first priority because that objective includes many of the other objects. You will give in on the objectives that are less important to you but may actually be most important to the supplier. The supplier will give in on the objectives that are less important to her and be more hard-nosed about the objectives she must have to close a deal.

Use Data to Determine Probabilities for Success

Setting objectives should not be arbitrary. They should be based not only on what you would like to achieve, but on what seems possible. A realistic estimate of possibilities can be made by analyzing the marketplace. For example, it will be very difficult to obtain price decreases if business is booming and the supplier is fully booked with orders far in advance. It will be much easier if the economy is down and the supplier has plenty of unused capacity. If you know that other suppliers have lower prices or are just hungry for business you have a better chance of getting your supplier to cancel the increase.

Look at the Price History

The purchasing operation should keep price history records. Compare the changes shown in price history with changes in the Producer Price index or even the Consumer Price index for similar periods. It is best to look up the code for the Producer Price index product category rather than use the summary index for all products as price movements will be closer to actual for a particular product. Compare the index with the supplier’s price changes. Suppliers often fail to change prices in spite of cost changes for fear of losing business. They postpone increases until they are forced by the economy to make very large increases. However, any supplier who has gone for years without asking for an increase in spite of rising costs means he has probably been overcharging for years.

Be Ready to Compromise

Leave room to negotiate. Don’t expect to obtain every objective. Don’t negotiate so well that you leave the supplier with little or no profit. That may reduce your costs in the short term, but if the supplier decides the product is not profitable, he may stop selling it and you will be forced to go elsewhere, or he may simply lower his quality to save costs. You will be better off if you allow the supplier to believe he has done well.

Contract negotiations can be simple or as complex as a chess game between masters. Some of the largest contracts are the most simple, while often a small contract is heatedly negotiated down to the smallest detail. The buyer is tasked with achieving the best results possible for his company, but those results aren't always best served by hard-line bargaining. A small company might be price sensitive, but a large company might put greater emphasis on reliability of supply.

Achieving Supply Goals

In negotiating a contract, your first objective is to procure the exact products and services needed by your company under price and delivery terms that meet its volume, quality, delivery time-frame, cash flow and pricing requirements. Achieving this objective requires thorough research into your company's purchasing history, including rate of consumption, pricing, payment and delivery terms. Going into a contract negotiation not fully prepared with this information will put you at a negotiating disadvantage and potentially result in supply chain delays or overages.

Paying Good Prices

Your second objective is to pay a good price. This does not necessarily mean the lowest price. In many ways, you get what you pay for. The lowest price may come from a supplier desperate for business who may fail to deliver because of financial difficulties. The lowest price may also come with quality compromises in terms of the products and services being purchased, as well as the degree of customer service and order modification forbearance. If you are trying to keep your inventory on a just-in-time basis, cooperation from your suppliers will depend on paying a price that guarantees that you are treated as a valued customer rather than a problem customer.

Good Supplier Relations

The U.S. Department of Defense recognizes the importance of win-win negotiations in maintaining good relationships with suppliers. A DOD contract negotiation guide states, "In commercial business, win/lose outcomes often occur when the negotiators do not anticipate additional business beyond the initial transaction." If you have any intention of future contract business with a supplier, your negotiating objective must recognize and offer motivation for that supplier to want to do future business with you. This involves negotiating contract pricing and terms that are agreeable to both sides.

Develop Supply Chain Knowledge

Each negotiating session and resulting purchase adds to the company's supply chain management knowledge. An additional objective is to aggregate this knowledge to support future procurement operations. An example of useful knowledge is the relationship between currencies, product quality, delivery time and availability of the product or service you are purchasing. Compiling a history of these relationships allows you to better plan your purchasing schedule and carry out your negotiations successfully. Even notes on the negotiating habits of your sales reps can prove useful in future negotiations.

Certainty

The aim of contract negotiation is firstly to achieve certainty, to record what is being supplied, when, in what quantities and to what standard, and what are the consequences of delay or failure to meet the agreed requirements. Many a dispute is caused by the failure of the parties to define at the beginning of their relationship exactly what is going to happen; one example in my experience was the failure of a major IT agreement because the parties both thought that their man was project managing the project, in fact the issue had never been agreed. This is especially important in the case of complex projects, where project plans and methodologies will normally be prepared as part of the contractual documentation.

the best deal

Seeking clarity does not conflict with the view that negotiations should achieve the best deal, it merely points out that both parties to a negotiation have to understand what it is that they have agreed to. Many disputes have their origins in a lack of clarity. Careful discussions of each element of the deal also ensure that each party's objectives are acknowledged and dealt with. In the main negotiators should aim for a win-win solution which benefits both parties.

Creation of a long-term relationship between the parties

Whilst this is not always possible, and some cultures, such as the Japanese, place more emphasis on this aspect of negotiation, this is increasingly important as companies build networks of alliance partners. Partnering in industries like aerospace and IT is essential, due to the complexity of the products and related projects. As the supply chain evolves into a virtual organization partnering is becoming increasingly important in all industries.

The "Ritual Dance"

Few organizations are prepared to acknowledge that the process of negotiation often serves internal political functions. The process of negotiation with third parties may be necessary ensure that new policies are accepted within the organization.

There may also be a political or social need to "prove" that the company has driven a hard deal with the other party. This is sometimes the case in cultures like South Africa, which are often exposed to high levels of conflict within their societies. US companies will sometimes be driven by such concerns.

Sometimes being shouted at is just a normal form of social discourse in that society; it may have no serious aggressive meaning.

A skilled negotiator will ignore bad behavior by the other side and proceed with the deal, or manoeuvre the opposing negotiator into a fight where his (and it not always a he) aggression blinds him to his real objectives - he also needs a deal and to retain his kudos with his fellows. Like a skilled ju-jutsu fighter the negotiator will seek to let the opposing side over-balance. Never, ever, lose control of your temper during negotiations.

Walk-over deals can be achieved and these normally happen where ignorance leads the other side to negotiate in a very aggressive manner, this results in a game known as "chicken", the first one to jump loses. In such situations the normal course of events is that one person underestimates the other side and announces to the other members of his team that he will wipe the floor with that idiot, or words to that effect; the negotiation then becomes unpleasant. The game is played by sitting tight, being aggressive back if necessary, shouting if you have to. The other negotiator then makes the mistake of linking his ego to the game, and in his determination to win he loses control and loses face in front of the group, especially if you remain calm in the face of his behavior. There are variations to this game.

The Board room politics of the other company are nothing to do with the negotiator; who may have to take care to ensure that the negotiation reflects a number of critical elements within his own organization, for example legal and sales.

A Negotiator is also paid to walk away from a bad deal

A good negotiator must be prepared to walk from a bad deal, not to get the sale at any price. Your company will not normally thank you for an unprofitable contract, or one with a poor partner, or where it is unclear what the other side will actually do. If your company is prepared to make a deal at any price, unless this is the launch sale, then it has problems

 

 

Get the most from the other part

The primary objective of contract negotiation is to discuss and arrive at an agreement with some concession from each party in order to move ahead smoothly. In this context Option-B is most appropriate answer