Contract Negotiations 101

By Joshua Brown, General Counsel & Compliance ManagerOur Business

Introduction

Negotiating a contract in the context of procurement goes beyond effective communication. Once a preferred supplier has been identified through a Request for Quotation (RFQ) or Request for Tender (RFT) process, negotiation becomes a strategic exercise aimed at finalising terms that uphold probity, deliver value for money, and align with the relevant regulatory framework. Whether you're working within local government, a statutory body, or administering a state-funded project, the following guidance will support you in concluding negotiations with clarity, compliance, and confidence.

Setting the scene for your negotiations

Effective contract negotiations aim to achieve a win-win outcome, where both parties leave the table feeling their key interests have been met. In procurement, this doesn’t mean compromising probity or value for money - it means working collaboratively to finalise terms that are commercially sustainable and operationally sound.

A useful framework in this process is understanding each party’s BATNA (Best Alternative to a Negotiated Agreement) and WATNA (Worst Alternative to a Negotiated Agreement). Knowing your BATNA helps you define your walk-away point and negotiate with confidence, while recognising the WATNA can bring perspective on the potential risks of a failed negotiation.

By appreciating the other party’s drivers and constraints alongside your own, you’re more likely to land on mutually beneficial solutions that support long-term delivery success.

Step 1: Preparation is key!

In addition to having a thorough understanding of the contract itself, before entering the negotiation room (whether in person or online), take time to:

• Ask for contract departures: Ask for the supplier's contract mark-up early, so you’re not negotiating blind.
• Identify key internal stakeholders: Identifying all key internal stakeholders that need to be involved in negotiations ensures early co-ordination and avoids misalignment, last minute roadblocks or post negotiation work.
• Identify the procurement context and objectives: Define what success looks like. Beyond price, are you seeking quicker delivery, better service continuity, or risk mitigation?
• Develop negotiation strategy and fallback positions: Outline your must-haves, nice-to-haves and deal breakers. Before negotiations commence, prepare fall back positions or alternatives. Think about how far you can concede without compromising key outcomes or introducing unacceptable risk.

Step 2: Communicating effectively

Parties should communicate openly and respectfully, with a strong focus on active listening—the practice of fully concentrating, understanding, and responding thoughtfully to what is being said. This goes beyond simply waiting for a turn to speak; it involves asking clarifying questions, summarising key points to confirm understanding, and acknowledging the other party’s concerns or perspectives in a meaningful way.

Active listening helps build trust, reduces misunderstandings, and allows negotiators to uncover the real drivers behind a position—not just the position itself. This, in turn, creates a more constructive atmosphere where creative, win-win solutions are more likely to emerge, especially in complex or high-stakes negotiations.

Step 3: Focus on commercial outcomes

The best negotiators secure outcomes that are both legally sound and commercially practical. This involves ensuring risk is fairly allocated, pushing back on positions that shift unreasonable risk to your organisation or accepting them with clear mitigation strategies.

Where possible, simplify unclear or overly complex obligations to avoid future disputes or delivery issues. In Queensland procurement, success isn’t just about the cheapest offer - it’s about achieving value for money across the life of the contract.

Step 4: Keeping records of discussions

Negotiation should not compromise fairness or the perception of probity—especially in public sector procurement. Maintain:

• A clear record of communications and changes.
• Transparency with all shortlisted vendors if changes affect evaluation.
• Consistency between the procurement process and contract negotiation (e.g., don’t negotiate significantly different outcomes post-award unless defensible and well documented).

Step 5: Check your negotiated agreement reflects agreed positions

It is prudent to ensure that any negotiated changes are:

• Reflected in the final contract document accurately.
• Reviewed by internal/external advisors, particularly for larger, more complex agreements.
• Signed and stored in accordance with internal procurement governance and record-keeping obligations.

Conclusion:

Contract negotiation in Queensland’s procurement environment is a balancing act between achieving commercial value, maintaining probity, and managing risk within the bounds of regulatory compliance. Success requires more than just legal knowledge—it calls for a commercial mindset that aligns contractual terms with real-world delivery outcomes. By understanding your obligations under relevant policies and frameworks (like the Queensland Procurement Policy), you can confidently negotiate agreements that are not only fair and compliant, but also practical and enforceable.

For those regularly involved in procurement, it’s worth developing standard negotiation playbooks, including scripts, fallback positions, and internal briefing notes. These tools streamline approvals and help ensure consistency, particularly when negotiating under pressure or across multiple projects. In more complex negotiations - such as those involving construction contracts, infrastructure projects, or grant funding - engaging an experienced commercial advisor can provide critical support. They can help stress-test risk allocations, spot red flags, and ensure the final contract delivers long-term value without compromising compliance.

If you have any questions or would like to discuss this further, please do not hesitate to Joshua Brown at jbrown@localbuy.net.au.