How are important contracts between huge corporations proposed? And how do they then negotiate the conditions?


I couldn’t ever imagine how does it work. Do they just call each other on the phone and arrange a meeting? Do they leave each other an email? A letter? Do they send a person into each others HQ? Also, when they eventually negotiate, is it just two ‘teams’ of people arguing over the conditions?

In: Economics

They have entire teams that do this work. It will be (several) sections of their company, depending on the specific contract they are negotiating. ‘

>do they just call each other on the phone and arrange a meeting?

Yes, and email of course.

>Do they send a person into each others HQ

At some point the teams will meet, but most of it will be done by email and phone, its too much work and coordination to get everyone on board to meet. Meetings generally take place at the beginning, and near the end to hammer out the final points. These ending meetings can be fierce as usually whats left is all the stuff they couldn’t agree on before. For really big stuff, its common for C-level executives to discuss some of the hangups as well.

> Also, when they eventually negotiate, is it just two ‘teams’ of people arguing over the conditions?

Haha, yeah basically. Along with the lawyers. For the most part though stuff is done by talking on the phone and sending versions of the contract back and forth with changes. And this can take a really, really, really long time, even for fairly simple deals. The people who do this are professionals, its not their first rodeo, they all know the game and process.

Usually a third party is involved, like a law firm or specialist in the area. The big ones like Deloitte, PwC etc will the audit the work

There are a lot of ways for it to happen. I’ll lay out one scenario, but there can be lots of variation.

First, a high level executive at each firm discusses the interchange. They don’t usually go into much detail, more like “hey, you do this and we’ll do this and it will be great!”. This can be face to face, email, phone, whatever. That will often depend on how well they know each other and their previous dealings.

After they make a vague agreement, teams will be formed from each company, which may or may not include the original executives. They will often then create a “Memorandum of Understanding” which puts a little meat on the agreement. Still not down to the fine details, but kind of an outline for what will be in the final contract. They may hammer this out in face to face meetings and document exchanges. One company will draft a proposed MOU, the other company will mark it up and send it back, etc. etc. Usually the proposed MOU will be passed by lawyers for both companies, either staff lawyers or outside counsel. Eventually, they get an MOU that both sides are happy with, and it will be signed by high level executives on both sides. Depending on how big a deal it is, it may have to be approved by both companies’ Board of Directors.

Then the process repeats in hammering out the detailed contract. This will often involve more people at lower levels of each company, as the executives may not know enough about how things actually work to do the right thing. Eventually they get a contract that both companies agree with, and again it gets signed. It probably won’t go by the Board at this point, as there’s too much detail and they already bought into the MOU.

I’m a Senior Contracts Manager at a major defense contractor. I’ve negotiated $400M+ contracts. So I feel qualified to answer this.

It typically starts with one company having a requirement to do something or wanting something and looking for another company to perform either all or a piece of that. In my business, the buying company will send a solicitation to one or many other companies for proposals to create whatever the thing is. Typically the solicitation includes not only the request for a price, but also the technical approach and the terms and conditions that the company wants. The responding companies will provide their proposal, which includes their price, and changes to the technical approach, and any exceptions they are taking to the terms and conditions. The buying company picks the proposal it likes the best and the two companies engage in negotiations to hammer out the details.

This usually starts with the buying companies giving the selling company an offer (for a contract). The selling company may accept that offer, but more than likely they will provide a counteroffer where they make changes to the buying company’s offer, either in price, scope, and/or terms and conditions. This typically goes through several rounds of offers and counteroffers. The parties definitely could meet face to face to accelerate the process, but the earlier steps usually happen via email and phone. Once the parties completely agree on all of the elements of the deal they will shake hands and the buying company typically drafts a contract that the selling company will sign and return to the buying company for their signature. Once they have both signed, the contract becomes effective and the selling company is obligated to perform on its agreement.

That’s a very general flow of what happens in my world. It can obviously be very complicated and can take many months to complete.