How To Renegotiate Supply Contracts

This is potentially a tricky thing to do – suddenly the contract struck a few years ago no longer looks like the good deal it was then – so, what can you do?

  • What’s the position? There are three contexts for renegotiation (remediation: specific issues to be addressed, restructuring: usually in mid-term where the scope needs to change, renewal: when the contract period has expired).
  • Don’t drag your heels: start the process well in advance of the contract ending – a year before it concludes is generally a good time to start the process. Is it worth retendering with other suppliers? Make sure that you establish a credible Plan B in case things do not go exactly to plan.
  • Get around the table: use whatever tools you can find to get the other party to renegotiate. If you have an option to break the contract you have a strong position so use it.
  • Be prepared to listen: this is a two-way process after all.
  • Do your homework: look carefully at where the power lies in the relationship and review the financial data against the original business agreement. Benchmark pricing against what the market can now offer and assess your risks in the process of renegotiation.
  • Be clear exactly what you want: make it very clear what you are looking for.
  • Be ready to walk: having a credible alternative is your best weapon. Be prepared to do this if you need to.
  • Set the rules of engagement: make the process as clear as possible so that a timetable is set, etiquette is established, documentation, preparation and review is known by all parties.
  • Use the right tone: never be too aggressive as the relationship may have to continue once the process is finished.

Tricky process, but not impossible!

Good Luck!

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