When should you renegotiate a contract?

Hospitals should renegotiate their contracts with payers when there are significant changes in the healthcare market, such as shifts in sites of service, changes in payer policies, or simply changes in the hospital's financial situation. It's also advisable to consider initiating renegotiations when the current contract is nearing expiration or if there are opportunities for improved terms and conditions. Ultimately, the decision to initiate renegotiations should be based on a strategic assessment of the hospital's financial and operational goals, as well as the existing dynamics of the payer-provider relationship. Been dealing with this subject for over 30 years.

I know of a situation where a large general (construction) contractor had made a contract to supply and erect steel for a very large project at a certain cost for the steel. When the time came to do the work, it was unable to purchase the steel at the cost bid in the contract, and was unable to obtain extra payment to cover the cost increase. It then decided to back out of the contract, to cancel it.

Timing and market conditions are everything! If your volume requirements are up and the increase is permanent, renegotiate. If there is a glut of product on the market, renegotiate. If your demand is down or are in an inflationary market, do not renegotiate.

First consideration—-Existing contract must provide a basis for renegotiation! Changing economic conditions may cause stress or damage to a party but if they don’t rise to a level the current contract recognizes, you just have to struggle through.

An experienced professional is vigilant in being aware and in tune with changing market conditions. The success or failure of a business relationship is relative to the level of trust in the understanding of the shared objectives. Most importantly in successful relationships, the faith in all parties trusting each other in achieving the shared objectives. A well written contract would contain an article or clause that stipulates timelines or market events that would be cause to open specified sections of the contract for renegotiation. These agreed upon terms for renegotiation build into the contract an understanding that renegotiation is both possible and necessary if the market experiences a dramatic shift.

Sometimes a Mediator is helpful to get the terms rolling and to eliminate blame on either side. A neutral can help explain the advantages in changing an existing contract where one party has no interest in renegotiating.

Initiating contract renegotiation involves careful preparation and clear communication. Understand when renegotiation is appropriate, gather supporting data, and define your goals. Start the conversation with a positive tone and explain your reasoning objectively. Focus on finding mutually beneficial solutions and be prepared to compromise. Consider seeking professional help and be prepared for various outcomes while maintaining a professional relationship.

Renegotiating contracts, especially for essential software or products, demands a strategic approach centered on building a strong rapport with the business team. Understanding the renewal landscape well in advance allows for a balanced negotiation, focusing on acknowledging the value of the existing relationship while employing objective criteria for adjustments. Exploring mutually beneficial alternatives, making strategic concessions, and ensuring agreements are documented clearly, fosters a collaborative environment.

Be careful that you don't imply an anticipatory breach of the existing contract. A cold call asking for new terms can go poorly, especially when the existing terms are to the other side's advantage.

Effective negotiation is essential across both professional and personal spheres. This skill hinges on preparation, communication, and rapport-building, each vital for successful negotiations. Setting realistic goals that reflect desired outcomes, with an openness to compromise. Communication plays a critical role in negotiation, focusing on: Practicing active listening to grasp the other party’s needs and concerns, which fosters understanding and trust. Acknowledging the other party's perspective, demonstrating empathy and understanding towards their viewpoint to collaborative discussions. Being open to collaboration, seeking mutually beneficial solutions rather than viewing negotiations as win-lose situations.

Outside law firms may be eager to bill hours, so you may refrain from hiring legal counsel at first discussion, unless your company in house counsel is stepping up. Parties feel threatened when the first contact about renegotiating is from your attorney.