Negotiating data contracts is all about KYC—Know Your Counterparty

Contract negotiation is the process of coming to an agreement on a set of legally binding terms between two (or more) companies. But more importantly, the process of negotiation acts as the foundation for effective business interactions. To put it another way, your ability to successfully conduct contract negotiations with potential business partners is the single most influential aspect of ensuring your company meets its current and future objectives.

Master negotiators always thoroughly prepare before meeting with the other party. They understand that the contract at hand does not end after the document is signed, so they focus on fostering long-term business relationships to improve their company’s reputation and enhance their bottom line for years into the future.

Although each agreement is unique, the following steps will be valuable for guiding your contract negotiations, regardless of your goals or the specific circumstances of the deal.

Know thy counterpart

The process of negotiating a contract begins long before you actually reach the proverbial negotiating table. Being able to successfully persuade the other party requires a complete understanding of their perspective and their goals for the deal.

Therefore, prepare for the negotiation by conducting comprehensive research into the company itself, its offerings, and the particular individual with whom you will be negotiating. This includes checking out their company website, press releases, blogs, and any articles concerning their previous deals (to assess any precedent terms that can be leveraged).

And, most importantly, assess the quality and tenure of the business relationship manager the counterpart has put forward to conduct the negotiation. Get to know your counterpart(s). Review their LinkedIn profile, career history, common contacts, interests, and position within the firm. Understand the reporting structure history of your counterpart as well as their senior management structure. Who else is involved?

Contracts that dictate high financial, legal and operational risk, will require access to a senior manager or contract negotiator from your counterparty. Make this clear at the start, so if an escalation is requested on your part, it doesn’t come as a surprise.

Preparing with thorough research gives you knowledge of the deal dynamics. What type of deal is this? Is this a new deal with a new or existing entity? Is this an agreement up for renewal? And if so, what has changed at your firm? What has changed externally in the market, and what has changed at the other firm? Is there any pressure or leverage that needs to be understood that is leading to the price increase or unfavorable terms?

Other considerations:

1. Was the last deal for this product/service a struggle or mutually satisfying for both parties?
2. Was the cause of the struggle situational? A difficult representative? Has this changed? Be prepared. Know your counterpart.
3. Measure desired interests and outcome. But in addition to your own interests, be cognizant of your counterparts’ needs, and desired outcome. Is there a time-based constraint that will affect the deal, and any competing interests?

Define your objective and prioritize your goals

Be clear on target and secondary goal(s) of the negotiation with the stakeholders.

1. Clearly articulate the target goal and objectives.
2. Look for feedback and direction from multiple perspectives including from business, legal, compliance and risk. Are there global or division aspects that will be impacted that need to be considered?

Now that the target goal is set, review the entire deal scenario:

1. Our combined research on this deal, the players, perspective, attitude, and our confidence level.
2. All identified leverage points or “other” terms that can be used now to influence the outcome in our favor.
3. Is there an existing “quid pro quo” scenario?

This provides you the power to leverage the lower-priority secondary goals to meet the goals with the highest priority. Not only does this help you strategically negotiate, but it also signals to the other party that you have taken the time to prepare for the negotiation and desire to reach an outcome that offers the best value to both of you.

Approaching a contract negotiation without preparation and a vision leaves you vulnerable to being persuaded to accept terms that aren’t in your company’s own interests. Establish a bargaining range with your business that specifies the optimum (best), or minimum (least) desired outcome. In addition, anticipate an early counteroffer. What is OUR target range of acceptance? Finally, establish “circuit breakers” to the negotiation (e.g., the point in which the negotiation requires a break-off and regroup for senior management input).

When and how to play concessions

An integral element of the contract negotiation process is the concession, in which a negotiating party yields or grants something to the other with the purpose of gaining an advantage.

Discuss possible concessions with your team, so you know exactly how to proceed throughout the negotiation to achieve the best results. You must precisely manage the timing, frequency, and degree of your concessions so you can most effectively persuade the other party to make a decision that you can both agree on. Only offer a concession when certain of getting one of equal value in return. No free concessions.

Setting concessions in advance drastically decreases the likelihood that you will be caught off guard by unexpected offers that may seem appealing at first glance but actually feature terms you should not accept.

Concessions also serve to display procedural fairness. They signal to the other party that you are willing to listen and are committed to taking into account their goals and values. This improves the quality of the business interaction and places you in a more powerful position to achieve your objective. (Note: Be clear on your optimum, minimum and target goals. Frequent requests for small concessions are often interpreted as an annoyance and are unproductive.)

In contrast, an unexpected request for a large concession from either party can be interpreted as a hostile potential deal-breaker. Such significant requests can be confusing to the counterparty. Therefore, if such a large concession is required, it should be brought up early and with context so as to address any concerns and open up possible new deal terms with their own concessions.

Additionally, when you approach the contract negotiation, always work toward accomplishing a win–win outcome from the very first interaction with the other party. A win–lose, one-sided negotiation simply does not work. Instead, it leads to an unsustainable and untrustworthy relationship with all involved.

The key to starting a contract negotiation is your attitude. Enter the negotiation with the goal of establishing a collaborative approach. Such an approach leads to cooperation, sharing relevant information, and encourages both sides to work creatively towards resolving issues. The goal of the negotiation is to create a contract that offers value to both parties.

Be a good listener and practice your composure

The negotiation begins. This is a good time to lay out the perspective of the agreement’s terms and conditions, as well as price, from both parties. It is time to be honest. What works for each party in the agreement? What doesn’t work, and why?

Listen carefully. Oftentimes, what is said in this opening gambit is the true target goal of each party.

This is important because during lengthy negotiations the target goal can get confusing and muddled over time as subsequent concessions are made.

So, ask thoughtful, open-ended questions to demonstrate that you value the other party’s perspective and will consider their goals and priorities when establishing the deal. Practice active listening by directing your undivided attention to the discussion at hand, making eye contact, and monitoring your body language to ensure it displays openness and professionalism. When the other party speaks, respond by paraphrasing their words and repeating them back, so they have the chance to offer further clarification or prevent miscommunications.

Be creative and open minded to reach your goals

Approach the contract negotiation with a sharpened skillset. Measure your attitude and approach. Investigate and analyze all components of the deal. Review your targeted terms. Oftentimes, for market data this revolves around a Data Use Agreement (DUA) that defines usage provisions. Ask yourself: is your targeted goal and use provision SMART (specific, measurable, attainable, relevant, and timely)?

• Specific: Does it address specific uses for display, distribution, and data derivation? Are there geographic or divisional boundaries?
• Measurable: Are they measurable for audit or compliance purposes by either party? Is there a clear reportable and auditable use measurement?
• Attainable: Is the targeted goal attainable within terms? Or will the goal be in “breach” on day one because of an unattainable use provision?
• Relevant: Are all the terms discussed for negotiation relevant? Are there terms included that are not relevant or germane to your ultimate use provision? If so, consider some triage if it improves other desired terms.
• Timely: Is this agreement timely? Does it address both current and forecast use provisions? Is there a mechanism in the agreement to adjust the usage provision based on emerging business requirements?

Constantly evolving your negotiation strategy in response to receiving new or updated information is necessary to gain leverage, solve problems collaboratively, and avoid conflict that can stall or even terminate the negotiation.

Always keep ‘the long game’ in mind

Whether you are negotiating for a simple renewal or a major deal, always consider the big picture and work toward developing lasting business relationships rather than short-term victories.

Following the steps outlined above will help to ensure that the other party leaves the negotiation feeling satisfied with the results, which sets a positive, respectful tone that encourages future business interactions. When you approach a negotiation with a win–win mindset, you are demonstrating your willingness to compromise and reach a fair solution that benefits everyone. Treating your negotiation partner with honesty, integrity, and respect means you are not only closing the current deal on the best terms but also building an integral framework for a long future of profitable business interactions.

Peter Esler has served as global head of market data at Jefferies, Citigroup, and Bear Stearns, and most recently as head of market data systems and services at Millennium Capital Management. He is currently managing director of PVE Consulting LLC: www.marketdataconsultants.com