Tag Archives: negotiation

How to Form a Contract

Lots of contracts are filled with mind-bending legal gibberish, but there’s no reason why this has to be true. For most contracts, legalese is not essential or even helpful. On the contrary, the agreements you’ll want to put into a written contract are best expressed in simple, everyday English.

Most contracts only need to contain two elements to be legally valid:

  • All parties must be in agreement (after an offer has been made by one party and accepted by the other).
  • Something of value must be exchanged — such as cash, services, or goods (or a promise to exchange such an item) — for something else of value.

Does a contract have to be in writing? In a few situations, contracts must be in writing to be valid. State laws often require written contracts for real estate transactions or agreements that will last for more than one year. You’ll need to check your state’s laws to determine exactly which contracts must be in writing. But even if it’s not legally required, it’s always a good idea to put business agreements in writing, because oral contracts can be difficult or impossible to prove.

Let’s take a closer look at the two required contract elements: agreement between the parties, and exchange of things of value.

Agreement Between the Parties

Although it may seem like stating the obvious, an essential element of a valid contract is that all parties must agree on all major issues. In real life, there are plenty of situations that blur the line between a full agreement and a preliminary discussion about the possibility of making an agreement. To help clarify these borderline cases, the law has developed some rules defining when an agreement legally exists.

Related: 10 Categories Where Federal Agencies Spend the Most on Contracting

Offer and Acceptance

The most basic rule of contract law is that a legal contract exists when one party makes an offer and the other party accepts it. For most types of contracts, this can be done either orally or in writing.

Let’s say, for instance, you’re shopping around for a print shop to produce brochures for your business. One printer says (or faxes, or emails) that he’ll print 5,000 of your two-color flyers for $300. This constitutes his offer.

If you tell the printer to go ahead with the job, you’ve accepted his offer. In the eyes of the law, when you tell the printer to go ahead you create a contract, which means you’re liable for your side of the bargain (in this case, the payment of $300). But if you tell the printer you’re not sure and want to continue shopping around (or don’t even respond, for that matter), you haven’t accepted the offer, and no agreement has been reached.

But if you tell the printer the offer sounds great except that you want the printer to use three colors instead of two, no contract has been made. This is because you have not accepted all of the important terms of the offer. You have actually changed one term of the offer. (Depending on your wording, you have probably made a counteroffer, which is discussed below.)

When Acceptance Occurs

In day-to-day business, the seemingly simple steps of offer and acceptance can become quite convoluted. For instance, sometimes an offer isn’t quickly and unequivocally accepted; the other party may want to think about it for a while, or try to get a better deal. And before the other party accepts your offer, you might change your mind and want to withdraw or amend it. Delaying acceptance of an offer and revoking an offer, as well as making a counteroffer, are common situations that may lead to confusion and conflict. To minimize the potential for a dispute, here are some general rules you should understand and follow.

Related: Hobby or Startup? Important When Filing Your Taxes

How Long an Offer Stays Open

Unless an offer includes a stated expiration date, it remains open for a “reasonable” time. What’s reasonable, of course, is open to interpretation and will vary depending on the type of business and the particular fact situation.

To leave no room for doubt as to when the other party must make a decision, the best way to make an offer is to include an expiration date.

If you want to accept someone else’s offer, the best approach is to do it as soon as possible, while there’s no doubt that the offer is still open. Keep in mind that until you accept, the person or company who made the offer — called the offeror — may revoke the offer.

Revoking an Offer

Whoever makes an offer can revoke it as long as it hasn’t yet been accepted. This means that if you make an offer and the other party wants some time to think it through, or makes a counteroffer with changed terms, you can revoke your original offer. Once the other party accepts, however, you’ll have a binding agreement. Revocation must happen before acceptance.

An exception to this rule occurs if the parties agree that the offer will remain open for a stated period of time.

Offers With Expiration Dates

An offer with an expiration date is called an option, and it usually doesn’t come for free. Say someone offers to sell you a forklift for $10,000, and you want to think the offer over without worrying that the seller will withdraw the offer or sell to someone else. You and the seller could agree that the offer will stay open for a certain period of time — say, 30 days. Often, however, the seller will ask you to pay for this 30-day option — which is understandable, because during the 30-day option period, the seller can’t sell to anyone else.

Payment or no payment, when an option agreement exists, the offeror cannot revoke the offer until the time period ends.

Related: 100 Great Questions Every Entrepreneur Should Ask

Counteroffers

Often, when an offer is made, the response will be to start bargaining. Of course, haggling over price is the most common type of negotiating that occurs in business situations. When one party responds to an offer by proposing something different, this proposal is called a “counteroffer.” When a counteroffer is made, the legal responsibility to accept, decline or make another counteroffer shifts to the original offeror.

For instance, suppose your printer (here, the original offeror) offers to print 5,000 brochures for $300, and you respond by saying you’ll pay $250 for the job. You have not accepted his offer (no contract has been formed) but instead have made a counteroffer. If your printer then agrees to do the job exactly as you have specified, for $250, he’s accepted your counteroffer, and a legal agreement has been reached.

Even though a contract is formed only if the accepting party agrees to all substantial terms of an offer, this doesn’t mean you can rely on inconsequential differences to void a contract later. For example, if you offer to buy 100 chicken sandwiches on one-inch-thick sourdough bread, there is no contract if the other party replies that she will provide 100 emu filets on rye bread. But if the other party agrees to provide the chicken sandwiches on one-inch-thick sourdough bread, a valid contract exists, and you can’t later refuse to pay if the bread turns out to be a hair thicker or thinner than one inch.

Related: 10 Top Tips For Winning Large Bids and Tenders

Exchange of Things of Value

In addition to both parties’ agreement to the terms, a contract isn’t valid unless both parties exchange something of value in anticipation of the completion of the contract.

Consideration Defined

The “thing of value” being exchanged — which every law student who ever lived has been taught to call “consideration” — is most often a promise to do something in the future, such as a promise to perform a certain job, or a promise to pay a fee for a job. For instance, let’s return to the example of the print job. Once you and the printer agree on terms, there is an exchange of things of value (consideration): The printer has promised to print the 5,000 brochures, and you have promised to pay $250 for them.

Gifts vs. Contracts

The main importance of requiring things of value to be exchanged is to differentiate a contract from a generous statement or a one-sided promise, neither of which are enforceable by law.

If a friend offers you a gift without asking anything in return — for instance, offering to stop by to help you move a pile of rocks — the arrangement wouldn’t count as a contract because you didn’t give or promise your friend anything of value. If your friend never followed through with her gift, you would not be able to enforce her promise.

However, if you promise your friend you’ll help her weed her vegetable garden on Sunday in exchange for her helping you move rocks on Saturday, a contract exists.

Promises vs. Action

Although the exchange-of-value requirement is met in most business transactions by an exchange of promises (“I’ll promise to pay money if you promise to paint my building next month”), actually doing the work can also satisfy the rule.

If, for instance, you leave your printer a voicemail message that you’ll pay an extra $100 if your brochures are cut and stapled when you pick them up, the printer can create a binding contract by actually doing the cutting and stapling. And once he does so, you can’t weasel out of the deal by claiming you changed your mind.

Related: Negotiate Your Salary Without Playing Hardball

Credit: Beth Laurence, J.D. via Nolo.com

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10 Categories Where Federal Agencies Spend the Most on Contracting

 

For the last several months, the Government has trumpeted its initiative to simplify the federal acquisition process.

The main component of that overhaul is “category management” — sorting agencies’ purchases into the most common groups of products and services. The General Services Administration is currently developing a website to help procurement officers, called the “common acquisition platform.”

The platform will serve as the single access point for agencies looking to purchase goods or services from those categories, each of which will have its own “hallway” of product options, as well as digital services offering advice and information, such as industry trends and existing contract vehicles.

GSA and the other six largest and highest-spending agencies, known as the Strategic Sourcing Leadership Council, met last month to move the development of the acquisition overhaul forward. In a blog post Wednesday, Anne Rung, the White House’s Federal Procurement Policy Office administrator and Tom Sharpe, the Federal Acquisition Service commissioner, spelled out what the categories might look like.

Related: 10 Top Tips For Winning Large Bids and Tenders

Once the online portal is fully operational, Rung and Sharpe said category management will provide “a new and transparent view of the fragmented federal acquisition landscape that will help drive the government to buy and act as one.” Ultimately, they expect the changes to lead to more informed decision making and, in turn, dramatic savings for agencies and taxpayers. The categories below, listed by amount spent across government, cost agencies $277 billion in fiscal 2013.

  1. Facilities and Construction: $72.1B. Includes construction and building materials and services, as well as real estate purchasing and leases.
  2. Professional Services: $64.4B. The broadest of the proposed categories, this includes legal, financial and marketing services, public relations and technical expertise.
  3. Information Technology: $47.4B. Includes software, hardware, consulting, security and outsourcing, as well as telecommunications.
  4. Transportation and Logistics Services: $34.1B. Includes package delivery, logistics support, motor vehicles and fuel, among other things.
  5. Medical: $33.2B. Includes pharmaceuticals, health care services and medical equipment.
  6. Industrial Products and Services: $11.8B. A catch-all category for tools, machinery and maintenance.
  7. Security and Protection: $4.8B. Includes systems, services and animals.
  8. Human Capital: $3.6B. Includes educational services, vocational training and human resources investments.
  9. Travel and Lodging: $3.6B. Contracts for passenger travel and accommodations would fall into this category.
  10. Office Management: $2.1B. This category would include products such as furniture and office supplies.

Related: The Decline of American Entrepreneurism

Credit: Eric Katz

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10 Top Tips For Winning Large Bids and Tenders

Responding to an Invitation to Tender or Request for Proposal (RFP) can seem like a lot of work with a limited chance of success. But it doesn’t have to be that way. Here are my top ten tips for improving your win rate.

1. Build relationships

Start building relationships early. Get to know the decision makers; their buying processes and what they look for in their suppliers. With sufficient insight you can respond to their next RFP much more effectively.

2. Play to your strengths

There is no point pitching for business that you can’t deliver. So when a new RFP is issued take a long, dispassionate view of the requirements and ask yourself:

Related: Quick, Easy Ways to Improve Your Focus

  • Do you have the ability and resources to fulfil the contract?
  • Will you need to invest in new technology and, if you do, will the ROI justify that?
  • Do you have the required industry accreditations, such as ISO9001 or CSA STAR certifications?

3. Analyse

It probably took your customer several weeks to write the Tender or RFP. Use it to precisely map your strengths to the specified requirements. Don’t include anything which is irrelevant. Don’t leave out anything which is important.

4. Stand out from the crowd out

Make a point of visiting the customer before you pitch. Not only does a site visit help to raise your profile and create or reaffirm the relationship, but it gives you an excellent opportunity to gain additional insight as to what might secure the business.

Related: Behaviors of Successful People

5. Listen, ask and listen

Ask probing questions and listen carefully to the answers. Pay close attention to how things are said as well as what is said. Empathy and intuition can help you discover the customer’s real (perhaps unacknowledged) needs and pain points.

6. Pay attention to detail

The best relationships are founded on mutual success, so approach your prospect with this in mind. Think about how you can add value at every stage of the pitching process. Build desire. Even small benefits can add a lot of value.

Related: Make The Entrepreneurial Difference

7. Develop advantage

Try to work out who you’re likely to be competing with. Do you have a genuine competitive edge? If not, can you create one? Can you win on innovation? How can you defeat heavy discounters? Could you offer advantageous billing terms? Is leasing an option?

8. Research

Research your competitors. Use their web sites and social media to see how they operate and what they specialise in. If you understand their strengths and weaknesses you can identify areas where you can give yourself a competitive advantage.

Related: The Art of the Pitch

9. Review Meetings

Reviews let you monitor and improve performance, as well as giving you a chance to identify new opportunities and build closer, multi-level relationships which help to lock out the competition.

10. Learn from experience

You won’t win every tender but you should be able to work out why you lost. Make the effort to ask for the reasons– was it on price, offering or resources? Once you have the reply, consider how you could have improved your bid to win the business.

Related: Marketing Tools Entrepreneurs Should Keep Handy

Whatever happens, keep listening and learning. If you won, perform regular and honest reviews and do whatever you can to strengthen the relationship and keep the business. If you lost, adjust your strategy and keep the dialogue open, and keep in touch with the prospect just in case the winner doesn’t perform as expected. Sometimes, the substitute wins the game.

Credit: Julian Patel

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CMG Business Group…. Propelling Industry to New Heights!

 

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Negotiate Your Salary Without Playing Hardball

 

A few times a week, I get requests for advice on negotiating a job offer. They usually start like this: I’m in the recruiting process, and I just received an offer from the organization that I want to join. I’d like to sign, but I was hoping for a higher salary. What should I do?

According to conventional wisdom, the best way to boost your salary is to get an offer from a competing employer with a higher salary. It’s true that a competing offer gives you leverage, but many people find this strategy distasteful. If you’ve already decided where you want to work, and you’re not well along the way with other employers, it’s disingenuous to start interviewing elsewhere, not to mention a waste of your time.

In many cases, I’ve proposed a different strategy. It requires no hardball negotiating and keeps your integrity intact.

It’s an approach that I used during three years negotiating advertising contracts, where I started out as a doormat but somehow ended up setting a few company records. Since then, I’ve taught it in my negotiation courses to executives and students, and it proves highly effective.

The starting point is to approach someone in the organization who (a) you trust, (b) has some influence, and (c) has a vested interest in hiring you. From there, there are three steps to follow:

(1) Express your enthusiasm: “I’m thrilled about the offer. This is my first choice, for the following reasons, and I’d love to join.”

(2) Explain your contribution and/or need: “I just have a few questions about the terms that I’d like to address before I’ll be ready to sign.”

Related: Behaviors of Successful People

The merit version: “I know this position often pays $Z, and I believe I can add enough value to earn it.”

The need version, if you’re comfortable: “I put myself through school as an investment in education, and I’m in debt $X from student loans. I’ve calculated the cost of living at $Y; I’m concerned about being able to support myself and my family.”

(3) Ask for advice: “I trust you, and I’d very much value your recommendations. What would you suggest?”

By that point, according to clever studies by researcher Katie Liljenquist, three things tend to happen. First, you’ve flattered the contact. As biographer Walter Isaacson wrote, Benjamin Franklin excelled at appealing “to their pride and vanity by constantly seeking their opinion and advice,” and found that “they will admire you for your judgement and wisdom.”

Second, you’ve encouraged your contact to take your perspective. In order to give you advice, the person has to walk in your shoes. With that usually comes a bit of identification and empathy: “I remember when I was in a situation like that.”

Now that the contact has a good feeling about you and appreciates your dilemma, you’re in for the third response: commitment. In the best case scenario, the contact will take the initiative to advocate for you directly. Failing that, you’ll gain some valuable advice about who to approach and how to make your case, as well as some possible history on precedents for negotiating in your role.

Related: Quick, Easy Ways to Improve Your Focus

Advice-seeking is a powerful way to have influence without authority. If you’re worried about manipulation, I have some good news: it doesn’t work if it’s not authentic. When Liljenquist instructed people to use advice-seeking as an influence strategy, their negotiating counterparts saw right through it. It was only effective when people were genuinely interested in learning from the contacts they sought out.

In most situations, I find that this strategy is just as effective as the hardball approach. When it doesn’t work, people sometimes develop doubts about taking the job, and it becomes appropriate to continue interviewing elsewhere. Once a comparable offer comes in, it’s still not necessary to play hardball.

All you need to do is share the terms of the competing offer, and say, “I’d rather come here. Is there anything you can do to make this an easier decision for me?”

More often than not, the answer is yes.

Credit: Adam Grant

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CMG Business Group…. Propelling Industry to New Heights!

 

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