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6 tips for renegotiation in times of crisis

Atualizado: 27 de mai. de 2022

Por: João Saravia

In these difficult times some people have approached me to talk about renegotiation. Companies are not being able to perform their regular activities, and some are being impacted by considerable loss of revenue. So, many are foreseeing that they might not be able to honor contracts that seemed simple business as usual months ago.

Below I briefly explore some of the things I find important in these renegotiation processes, based on the previous experiences I accumulated going through some of these crises, and on the discussions I have in class when lecturing about negotiation in general.

The key thing is being open about the problems and finding solutions that are feasible and good for the parties, considering the situation. It is not a simple process, it will vary depending on the circumstance of the crisis, on what your company is dedicated to, and the moment it is going through. There is an opportunity for strengthening relationships, though, that may bring a lot to you when the crisis is over, depending on how you deal with the situation.

I am sure taking care of these points is a very good start to be successful on it. Good luck to you and all your business partners.

1. Have a Plan

First of all, define your strategy. There are some things you should prepare before engaging into any conversation. Either if you are talking to suppliers or to clients, you are probably talking to many, so you will have to segregate them into groups based on the different needs they have. For example, smaller companies usually have less resources to go through the crisis and your transactions with them are probably of a lesser amount. Bigger companies may be able to cope better. At the same time these might be more strategic to you, and you may transaction higher amounts that impact you more. If the interests of each group are different, so will be the conversations/negotiations with them. Be prepared.

Have a criterion of what you are going to negotiate and be consistent with it on the negotiation with the different companies. Define things that are feasible to you and that are also good for your business partner, so you will continue to have a sustainable relationship after the crisis is over. Also, take into consideration that the companies that do business with you will talk to each other. You will have a stronger position if they realize that you are treating them with the same criteria, and that if they adhere to those criteria, they will be able to have a quicker agreement.

Segregate your team and allocate them to talk to each group, with the criteria that have been defined. Prioritize which companies should be approached first, and so on. Have standard agreements that your team can use and have the delegation to close a deal if these terms are accepted. Have your legal team ready and supported to prepare new agreements in an expedite way.

Include a project management function on the process, to be sure you execute the whole plan and all activities to the very end, until the new agreements are fully executed. People will be tired and stressed, so a constant follow-up is needed to support them.

During the conversations many creative options will appear (I’ll talk more about that on points 3 and 4). This is good. Have a decision-making committee in place that can approve other interesting options if they are positive solutions and fair with the criteria you are talking to with the other companies.

Once your plan is done and discussed, you are ready for the negotiation talks.

2. “Separate the people from the problem”

That’s one of the principles of the Harvard Negotiation Model. In difficult times, the people who you are talking to might be nervous, as they are under a lot of pressure. They know that whatever is agreed (or not) will impact not only them, but the company they work in, all the employees, subcontractors, and so on and so forth. The topics being discussed will not be easy. So will be the emotions.

Acknowledge that. Many people will be a bit lost with the situation, and maybe their company has not structured a plan, so it is hard for them to make a decision, even if it is clearly good to them given the situation. You may have to guide them through the process.

Some may get very aggressive. Be patient. It might be worth dealing with them anyway, if you can make them work on a solution that is good for both, even if they express themselves in a hostile way.

3. Be transparent and truthful

A fundamental pillar in any negotiation is building trust. In an ideal situation, your company and the company you are going to negotiate with, and you and your counterpart, have already developed a trust relationship in the past that is transparent, truthful, reliable, and consistent.

But it may happen that you are talking to each other for the first time to do this renegotiation. In any case, continue building trust by being transparent and truthful. Explain the situation, the solutions you are proposing, and why. The more information they have, the more they will understand why you are giving the options you present.

Also remember that they will talk to the other companies/people you are negotiating with, so your argument will be stronger if they understand you are being consistent and telling the truth.

Do not promise things you will not be able to do. And if you don’t know if something is possible or not, say it. Check it at that moment if possible or say you will answer about it later. And don’t forget to do so.

Creative solutions are welcome, but if they are not following the criteria and terms you had previously defined, then you will have to approve that new option with the decision-making committee.

4. Practice active listening

Your counterparts will come with options to the table. Encourage them to explain the reasons why they come up with those options, what is their current situation, how are they dealing with the crisis, what have been the positive outcomes in their conversations with other companies, and so on. Let them speak. Make open questions instead of the ones that ask for a 'yes' or 'no' answer, so you leave room for them to talk.

The more you discuss openly, the more you can come up with solutions that are good for both and have not been thought before.

Don’t expect things to be solved in one single meeting. Your counterpart and you will have to discuss and approve these different solutions within your respective companies. But the more you know about each other’s situation, the more you can support an approval for a different solution.

5. Formalize your agreements

Close your new renegotiation as soon as you can, so you can move to conversations with other companies, but don’t forget to formalize what you have agreed. If not, you will certainly go back to that conversation, and it becomes an endless loop.

If you have closed a deal based on the standard agreements, then it is easier. If you are closing a renegotiation in one of those different solutions, be sure your legal team has the resources to do the new paperwork quickly.

6. Execute what you have agreed

This might seem obvious, but some good agreements fail on this last part. It may be for many reasons, but mainly because teams are overwhelmed and fail to do what they were supposed to, or because of miscommunication: people inside the companies just did not know what the newly agreed terms were. Be sure your project management function follows the activities approved until the end. Not doing it can have catastrophic impacts on the companies affected and damage your company’s reputation and the one of those involved in the process.

On the other hand, having gone through all this situation in a respectful and appropriate manner, and being able to agree and execute the renegotiated deals will strengthen the trust people have on your company and on the people involved in the process. It will lead you to better relationships in the future in the good times and in the bad ones.

May the force be with you.

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