Choosing a Renegotiation Process: Best Practices and Lessons Learned

Spend Matters would like to welcome a guest post from Vantage Partners. See previous posts in this series here: Part 1, Part 2,Part 3.

  • It's tempting to... default to the way you negotiated the first time, or to let the "stronger" party dictate
  • But think about... thoughtfully choosing a process that suits your circumstances

There are several ways to negotiate. But for some, the notion of "choosing a process for renegotiation" is unusual. Buyer and provider often just default into negotiating the way they did at the outset of the deal because that's what worked the first time. When that happens, the renegotiation usually looks like some form of the caricature shown in Figure 1 -- a haggle. The buyer demands "a better deal" and the provider tries to create one. After a long bout of traded threats and concessions, they end up somewhere in the middle, where neither are particularly happy. This method of renegotiating rewards deception (e.g., deliberately starting high so that you will "meet in the middle" on a price more attractive to you), and rewards stalling: the party that is the most stubborn is usually the one that succeeds in getting their way. The outcome of renegotiations that go this way are pretty predictable. A deal no one is especially happy about, and a damaged relationship.

Figure 1

Alternatively, it frequently happens that the "stronger" party (e.g., a buyer threatening to go to another provider, or a provider holding some important information or capability over their buyer's head) will dictate a process that works most to their advantage. Results are similar in those situations.

When renegotiation is an opportunity, however, buyer and provider are more mindful about the process they choose. They agree on a means of renegotiat¬ing suited to their needs; they "pre-negotiate" the process. This "pre-negotiation" begins with the parties taking a careful look at their circumstances and designing a process from there. For example, if buyer and provider have found that, despite performance to contract terms, the delivery solution isn't producing enough value and innovation, they might start with some information sharing about the desired results. From there, they might jointly brainstorm how to modify the delivery solution to enable greater results. If the problem is, however, that buyer and provider have different perceptions about how far off from market pricing their current deal is, a more appropriate process might be to benchmark against similar deals to test the market and then negotiate how to modify the deal based on the customer's particular circumstances and the needs and interests of both parties.

They also consider their previous negotiations (or renegotiations) and, based on what they felt worked and didn't work, modify their approach to the current set of renegotiations. They create a set of "ground rules" that each party agrees to abide by. Using this method, buyer and provider think carefully about how to avoid prior missteps and relationship damage by designing a process that allows them to proceed efficiently and effectively.

The next part of this six-part series will move onto the topic of actually conducting a renegotiation.

- Sara Enlow, Principal at Vantage Partners

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