by Chris Way

There you are. Sitting atop your wheeled throne forged from the finest leather, steel, and cushion known to man (okay, it’s an office chair, but it’s YOUR office chair), in a resplendent blazer that would make a haberdasher weep.

You’re delivering charming anecdotes, proposing key terms, posing the right questions. You are dealmaking. Suddenly, the people on the other side of the table say something that doesn’t quite sit right. It doesn’t match up to what you already know. The hairs on the back of your neck stand up. What do you do?

You already know dishonesty in contract negotiations is bad. But how bad? When is dishonesty an annoyance and when is it a red flag?

Truthfulness in Contract Negotiations

All contract negotiations involve a bit of salesmanship and a bit of poker playing. Each side will want to make their position look as strong and attractive as possible. Each side may bluff about what it’s willing to do or not do, how valuable their business is or useful their product or service is, and so on. But within the world of dealmaking and positioning, there are lines that should not be crossed. Salesmanship and positioning should never devolve into lies and misstatements.

So how do you identify when a line has been crossed? What do you do when one is?

Rule One- Focus on Facts

All contract negotiations will feature a mixture of opinions and facts. “This is a beautiful property in a prime location for you to lease”. Those are opinions. “This property was recently renovated, and 5,000 cars pass this location every day.” Those are facts. The more concrete details you hear, the more someone is presenting facts.

Facts are essential for business dealings as they allow you to accurately determine how this opportunity meets your needs. Opinions serve as a summary of a set of facts. Knowing this, we don’t care about opinions at all. Rather than accept their opinion, always get the raw facts, and form your own opinions. In some situations you’ll obtain all the facts you need from the counterparty. In others you’ll need to do your own investigation.

Great negotiation begins with preparation. The more you know about your counterparty and the market, the more facts you have at your disposal before you’ve even had the first conversation. The more facts you have, the more ready you are to fact-check in real time, as well as dismiss weak opinions.

Rule Two- Don’t Rely, Verify

A person you’re negotiating with has a different set of interests than you. While you may be trying to do something collaborative, they are not on your team yet. When you are presented with information, receive it, but don’t automatically accept it as accurate. Consider instead, how to verify it. Are there independent sources that can back this claim? Verification allows you to identify bad facts and weak opinions. Again, opinion should be supported by facts. If an opinion is bad, how far afield it lies from the facts could demonstrate an intent to trick you.

If a person won’t commit to any facts that can be verified, take that as a sign that some lies may be in the air. If they’ll verbally offer you facts but won’t provide anything written that backs that up, that’s another red flag.

Rule Three- Does This Statement Impact How This Deal Benefits Me?

Consider how a statement, whether fact or opinion, impacts the value of the deal to you. The real objective in any contract negotiation or business transaction is to acquire something (a product, service, business entity, etc.) that adds value to your business endeavors. Does it provide you with a benefit? Is it useful to your business model? Can it be easily integrated into your operations? Does it carry risk to your enterprise? If a statement and the information it relays has no impact on these, then the statement may be irrelevant.

Let’s consider an example. Seller says, “I have 9 other offers for this”. That statement tells us that there might be some competition, some demand for the product, but it doesn’t affect whether the terms are good or not. It has no impact on whether this deal adds value to you and your business. Seller says, “You won’t find another X as good as ours.” This speaks to some potential scarcity, but scarcity alone doesn’t determine whether this X is a good deal for us. Statements that relate to topics other than how this deal adds value to us specifically are distractions. Demand is a distraction. Scarcity is a distraction.

And here is where we find my line for lies, exaggerations, and misstatements.

I can accept some exaggerations when we’re talking about things that don’t impact value. You’ve said you had nine offers, but you’ve only had two. If it’s a business to purchase, I expect I wouldn’t be the only interested party. The exact amount of demand doesn’t affect me, so a little exaggeration here isn’t going to kill the deal.

But when an exaggeration extends to the elements that add value, now we have a problem. “All of my employees are willing to stay if you buy this business” affects value. “All of the vehicles in this fleet have been serviced within the last two months” affects value. There is no place for misstatement in the details that affect the value of the business.

A misstated fact is different than an exaggerated opinion. “My employees seem open to new management” or “My fleet is in great shape” express the same intent as the more concrete statement examples in the previous paragraph. But they are clearly presented as opinions, inviting you to follow up on them, rather than presenting you with any certain statement of how things are.

However, even when a statement concerns something that doesn’t impact value, if they’ve presented a falsehood, it’s a problem. It may not be a deal killer, but it should be noted and potentially addressed.

Rule Four- Next Steps When Someone Has Lied

Once someone has lied to you, it’s important to address it. You don’t need to, and shouldn’t, cavalierly accuse them of a lie. It’s possible they made a mistake or misspoke. A harsh accusation could damage the relationship. Instead, it’s better to confidently, but calmly, present the discrepancy you’ve found to them and give them the chance to explain.

Then examine that explanation closely. Intent to trick you is a serious red flag. Once a person demonstrates that they’re willing to lie, take them at their word. They’ll do it again. Once you’ve found intent to deceive, it’s a good time to consider walking away from the deal.

There are always reasons not to walk. None of them are any good. If you don’t want to lose this “amazing opportunity”, how amazing could it be if the counterparty needed to lie to try to close the deal? If you have invested a lot of time or resources into the negotiation, that’s a sunk cost. Nothing you do now will recover that time or those resources, so they shouldn’t factor into your decision making.

Keep in mind, even without bad intentions a misstatement might be a big deal. It could demonstrate carelessness that you don’t need to be associated with.

Final Thoughts

Your goal in contract negotiations is not to obtain this product, this service, this business entity. It’s to obtain the best product, service, or business entity that adds value to your business. Lies and misstatements undermine that value. You’re better served looking elsewhere and finding the value you need instead of being the mark someone else wants.

Contracts represent relationships and promises. Relationships are built on trust. Promises are meant to be kept. A liar will lie again. And you might not catch the next one. If a person shows you that they’re willing to lie at the start of a relationship, they’re going to be willing to lie during the relationship. It’s better to walk now than to find yourself in court later, and much more expensively, trying to get away from a deal that was bad from the start.

Contract negotiations are fun, but they aren’t easy. There are numerous moving parts, multiple team members involved from sales to accounting to the C-suite, depending on the transaction. They require a bit of charm, a bit of strength, intense preparation, clear communication, and an ability to challenge the other side without threatening the deal. When you need help with contract negotiations, the team at Way Law is here to help you build the best deal. We’re Your Way Forward ^TM. Let’s work together.