7 Steps to Negotiate Your Consulting Agreement like a pro
Consulting is a tricky business. And negotiating a consulting agreement is logically complex. This is because so many variables are open for discussion: scope, timeline, deliverables, team composition, price, etc.
7 Steps to Negotiate Your Consulting Agreement like a pro.
And most of variables will impact the results of the project, and therefore the value your business will get out of it.
“A negotiator should observe everything. You must be part Sherlock Holmes, part Sigmund Freud.” ~ Victor Kiam
Once you have a satisfying proposal, you can start negotiating. Like the selection process, you need to gather as much information as possible to leverage during the negotiation.
But here are the essential steps you can follow to secure and draft a practical & solid agreement.
There are many reasons why executives can work with consultants to create value better and faster. As an outside vendor, a consultant often can see issues that stakeholders and employees too involved in your organization can’t provide.
1. Prepare for your negotiation thoroughly-
Before you dive into the key elements, take the time to prepare for your negotiation. The first step is to agree on what you want to negotiate. With intangible services, almost all the components of the proposals are negotiable. You can modify anything from the scope, the team composition to, of course, the price.
You also need to keep in mind the overall value of the project vs. the price. Again, understanding the dynamics of the pay-off matrix will help you define the required magnitude of the negotiation. Now, look also at how much latitude you will have in the negotiation. Do you have a negotiation edge? Or are your hands more or less tied?
Finally, get the right people at the table based on the size and the strategic importance of the project. No spending weeks negotiating cost when fixing the issue yields more each week than the project’s cost.
Try to anticipate as much as possible how the Consultants will act to get the best deal. In this situation, the best deal is when both parties have a positive outcome.
2. Negotiate the key elements – what not to miss –
When you enter a negotiation with multiple dimensions, the BATNA (Best Alternative To Negotiate Agreement) and ZOPA (Zone Of Possible Agreement) concepts can come in handy. They will allow you to draw a bundle of potential deals along the different dimensions. To build such a bundle, you will need to analyze how the changes in scope or team staffing will impact the price and conversely identify the trade-offs you are willing to accept. Do not lose sight of the ball. Usually, it is better to achieve your expected results than a half-baked result at a low cost.
If you still need to reduce the costs, you should explore other savings opportunities such as travel expenses or expert staffing.
3. Draw the contract –
“A contract is only as good as the people signing it.” – Jeffrey Fry
Once you have negotiated the terms of the agreement, you can start drawing the contract. You can either work with a standard consulting agreement or a couple: Master Service Agreement (MSA) plus Statement of Work (SOW). The latter solution is particularly adequate when you work with the same consulting providers regularly. We strongly recommend working with your legal team to develop your own agreement templates.
4. Formalize your expectations –
Even if you work with a standard consulting agreement, the Statement of Work is the first element in the contract. It covers the scope of work & deliverables, the schedule & phasing, the Governance & Escalation procedure, and the expected outcomes & metrics.
The contract is always the reference in case of litigation. You want the Consultants to commit to the results of the project, not the means.
5. Define the terms & conditions – how and why –
When you have described what work will be done, how and when, it is time to define how the consultants will be paid. Even if you have opted for a flat fee, you should state clearly the schedule and the terms of payments in the contract.
If you work with hourly or performance-based fees, you should include the conditions to get paid and the potential safeguards to avoid derailment.
6. Clarify the rules –
Depending on the project and the company, you should include the following rules in the agreement.
Confidentiality – You should always integrate this clause in a consulting agreement. Many projects include confidential information about the company’s strategy or products.
Use of Third-Party – Many Consulting Firms work with subcontractors or partner with other firms on projects.
Intellectual Property – Monitor the information and the models developed during the project and clarify the ownership in the contract.
Client Policies (such as information management and safety) –The Consultants should comply with any rules that you might request.
Conflict of Interest and Non-Compete – On some projects, you might want to make sure that the consultants won’t have any conflict of interest or won’t go and sell the methodology they developed for you to your competition.
7. Prepare for the worst – avoid the risks and the pitfalls –
As the old saying goes, hope for the best, but prepare for the worst. In your contract, you should integrate clauses covering the most likely problems you might encounter if the project goes awry. The resolution of the issue if and when it occurs will be much easier to manage.
Negotiating a consulting agreement is first and foremost negotiating a contract. Most of the best practices that procurement professionals have learned in other categories will apply. The main difficulties will come from the complexity of the category, making every element of the contract negotiable, and the asymmetry of the information, where the consultant will often have the upper hand.
Following the above 7 steps will allow you to be well prepared for the negotiation and get you enough leverage to negotiate the agreement to your company’s advantage.
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