How can you differentiate between negotiable and non-negotiable contract terms and conditions for suppliers?

The only really non-negotiable contract terms are those that are fixed by law. Anything else is up for discussion and should be measured by one question: "How does this serve the common goal?" Only if it does (to some extent), and priorities do not align, then it's worth negotiating. Leading with the dichotomy of negotiable/non-negotiable while it doesn't fit the above-mentioned criterion, only brings you further from your own goal, and the common one.

There is nothing like that is negotiable / non-negotiable. To constitute the agreement - there is a proposal by one signifying to another willingness to do or not to do something and to align another or seek his acceptance of doing or not doing anything. So, as per me all the term has to be reviewed.

One thing I’ve found useful in assessing which aspects of a contract are negotiable and which ones are not is to ask myself whether the clause breaches any of our company policies or legal provisions. For example clauses that may give rise to competition risks or anti-Bribery and Corruption risks. Total exclusion from liability by supplier is not negotiable, however, liability limitation is. Consequential or indirect losses are also not negotiable. Warranty is not negotiable but period of warranty is. Commercial aspects of the contract such as price, payment terms, delivery options are all negotiable.

To distinguish negotiable from non-negotiable terms in supplier contracts: Non-negotiable terms typically include core elements like price, quantity, and quality standards, as well as standard legal provisions (governing law, dispute resolution, IP rights). Negotiable terms encompass payment, delivery schedules, warranties, performance metrics, indemnification, liability limits, termination, and renewal clauses. Customary industry terms can be semi-negotiable, subject to industry norms and supplier willingness.

Most terms are negotiable based on the relative influence of each of the parties. The only exceptions are provisions required by law or which are practically necessary for the parties to be able to perform. I have had strong SWF clients with hundreds of billions in assets insist on using their own forms for contracts with big international banks which was unheard of until it wasn't.

Thorough market research and supplier analysis are game-changers. Delve into industry benchmarks to understand standard rates and terms. Assess supplier stability by reviewing their financial health and customer feedback, revealing their negotiating leverage and reliability. This knowledge helps identify what can be negotiated and spot hidden risks and opportunities. You can use insights on market dynamics and supplier positioning to craft offers that align with both your needs and their capabilities. Information isn't just power in contract negotiation—it's your edge.

Knowing your market helps assess how good a deal: should you take a deal, can you push further or should you walk away. But research itself does not impact negotiability. Even in a monopoly, there are ways to negotiate clauses.

Generative AI can be an incredible tool to achieve this. I recommend plain ChatGPT if your prompting skills are elite, but better yet Procuro AI is a tailored tool that can help you do this specifically for procurement and sourcing.

Negotiability is not a yes/no question, but rather a spectrum ranging from "forget about it" to "as you wish". The relative power of a party, is a very dominant negotiability factor, but is only ONE of several. The more the market is tilted in favor of the supplier (supplier market), your supplier will lean towards the "forget about it" end of the spectrum, and vice-versa: if the supplier faces fierce competition, then it is a customer market, and more elements of the transaction will be be negotiable.

If there are flow-down terms or language mandated by a law or regulation, if your supplier is not already aware of those requirements, you might want to consider staying away from that supplier. Both sides should already understand what the legal requirements are. I always try to learn about the supplier, either through research or from the business team, before I ever get on a phone call with them. And if I can find out who the lawyer is on the other side, LinkedIn is a valuable resource because I look at what the experience of the lawyer for the other party might be. Invaluable knowledge because once I had to negotiate an IP license with a real estate lawyer. It was not fun.

Navigating legal and ethical constraints in contracts requires more than compliance; it demands strategic foresight. Laws and industry standards often set non-negotiable terms to ensure fairness and accountability. Understanding these implications shields you from legal repercussions and enhances your reputation as a responsible business partner. Consult legal experts to grasp fully the impact of these clauses on your operations and to anticipate potential conflicts. Adhering to legal and ethical standards isn't just a requirement in contract negotiation—it's a commitment to integrity and excellence.

Having an internal Contracts Playbook with common contracting positions (including tiered step downs and approval matrix) is key. Things that will affect the Playbook include your risk appetite, the limitations of your internal operations, the terms of your insurance etc.

Identifying non-negotiable clauses in supplier contracts is crucial for legal and ethical compliance. The article rightly points out that terms related to taxes, safety, and social responsibility often fall under this category due to legal mandates. Consulting with legal experts to understand these implications is essential. This ensures adherence to laws and industry standards, safeguarding against legal repercussions and reputational risks. Recognizing these boundaries is key to maintaining responsible and compliant supplier relationships.

Some contract terms may be un-negotiable because they are mandated by legislation, or regulation. Many such terms concern export, security and privacy. Another factor may be seemingly "unrelated" business: if the supplier has a "Most Favored Customer" provision with an important customer, then giving you a better rate, will result in lowering the price to the important customer as well. Consequently, improving the rate beyond the one the other customer enjoys is effectively non-negotiable. In certain cases terms may be non-negotiable due to legal rights of third parties, such as IP rights.

Effective communication is pivotal in contract negotiations. Clear, respectful dialogue outlines your terms and creates an environment of mutual understanding and trust. Articulate your requirements precisely while showing genuine interest in the supplier's perspective. This approach minimises misinterpretations and builds a strong foundation for collaboration. Every interaction shapes the relationship and can influence future dealings. Respect isn't a formality in negotiation—it's the cornerstone of a partnership that thrives on clarity and mutual respect.

Whenever I provide redlines I always add a comment about why I am making the proposed change - what risk am I trying to mitigate for my client, why the change should be made, etc. I try to stay away from quoting laws to the other side but occasionally, when dealing with a lawyer who may not be well versed in a discrete area of law, then it is needed but always try to do so as if you are not "schooling" the other lawyer.

More importantly, I prefer to focus on making sure both parties succeed at what they are engaged in and negotiate with the objective of having both companies beat their forecasts. When you negotiate to win together, you create a different dynamic. A deal which both parties have an interest in fulfiling and maintaining is a guarantee against issues and disputes. This attitude can unlock new terms and conditions that may have otherwise been unavailable for lack of trust or lack of a vision for the future of the business relationship.

Being reasonable always goes a long way. And holding the otherside to the same standard as well. One tactic is to get into the real reason for a particular contractual position. Usually you'll find that it is either unnevessary or can be watered down with reasonable understanding of their real risk and some compromise on your part.

Communication is vital to effective negotiation. However, negotiability is not effected by the quality of communication: "bad" communication affects the time it would take to understand the negotiability of a contract term, but not the negotiability itself.

When negotiating contracts, consider the broader context and long-term implications. For instance, assess how contract terms affect supplier relationships and business reputation over time. Reflect on how contractual flexibility can accommodate changes in future market conditions or business needs. Sharing past experiences where adaptability or foresight proved beneficial can provide valuable lessons. In negotiation, viewing the contract as a living document rather than a static agreement can unlock new opportunities for innovation and strategic growth.

Our non-negotiable terms are limited and are due to either: 1) applicable law; 2) mandatory flow-down requirements from upstream contracts; or 3) policy based upon an approved risk allocation process. We have developed a document called the terms of reference based upon our standard contract form which tells procurement which items are mandatory as per the above three points. If exceptions are entertained, it follows a governance process which may or may not be approved. My experience with other contractors is that they have their own policies with respect to risk allocation on certain points and depending on how badly they want the work, their flexibility with their policies determines how many deviations they can accept.

Company policies will generally conflict on some points. Under these circumstances, the company that holds the money to pay for the service will generally prevail. My suggestion is to seek to make the deal more onteresting for both parties to unlock better terms. Trust and interests are the key components. The higher the trust, the high the tolerance to risk. The more aligned the interests, the higher the trust. To summarize, the more trustworthy you are, the more negotiable terms and conditions will be. The more engaged you are with your supplier and each other's success, the better the terms and conditions they'll be willing to give.

Some suppliers are just too big to negotiate. Consider Microsoft, which sells to hundreds of millions of customers, if not more, quite a few of which are probably very big ones (governments, big corporation etc.). It is impractical to the point of impossible to manage even dozens, let alone millions of different legal relationships, support systems, liability and conflict resolution regimes etc. Any term that affects the way your supplier usually does business, is consequently non-negotiable. They just can't.

I think it is important to speak with the front line people (e.g. procurement manager, admin, users etc.) to understand their concerns and priorities. BU may want to have a better service (which may need to look at the SLA, indemnity, disclaimer, termination etc), or costs reduction (which may need to look at ordering processes, reporting requirements, SLA etc.). For terms required by the law, those should not spend any time to think about it because it can't be changed anyway. I will ask BU to rank out the top 3 things that they want to change. We then discuss with the supplier for their views and concerns. Business relationship is more than the contract. Playing double advocates with BU and supplier will help to smooth the negotiations.