Negotiate Fairly

Prepare for fair contract negotiations

Prepare to engage in processes that treat suppliers fairly and as partners in achieving sustainability. Identify your most crucial sustainability value factors and critical questions to ask before you go into contract negotiation with suppliers. Make it clear in these discussions that sustainability is a priority by asking them about sustainability capabilities, past performance, or details of their proposal that you do not fully understand. It is also an opportunity to hear their expectations relating to sustainability in the contract. This information will allow you to decide where and how suppliers will need to be supported in achieving contract sustainability goals. 

Structure negotiations to deliver on sustainability in a mutually beneficial way

Structure negotiations so that the responsibilities, risks, and rewards of achieving sustainability outcomes are shared. While in many cases terms will have been decided and fixed at the planning and RFx stages, gain the supplier’s perspective on which cost factors could stretch them financially, such as paying living wages or sourcing sustainable materials.¹ Avoid high-pressure negotiation strategies designed to maximise cost efficiency such as promoting cost competition, or imposing short deadlines, as these can compromise a supplier’s ability to meet social and environmental terms. Consider gain share models² to create incentives to bring up innovative ideas during the contract. For example, if a supplier innovation creates savings through energy efficiency, negotiate how much of the benefit would be shared. Risk-sharing related to foreign exchange or commodity price fluctuations is also important, especially for smaller suppliers without hedging capacity.

EXAMPLE: Etsy elevates ambitions during negotiations

Etsy employed a focused negotiation strategy for its cloud services procurement. They required providers to source at least 35% renewable energy for their data centers and assessed their sustainability policies and performance. Google Cloud Platform was selected, surpassing Etsy's minimum by committing to 100% renewable energy and providing comprehensive reports on their sustainability efforts.³

EXAMPLE: Marks and Spencer (UK) ringfences labour costs to exclude them from price negotiations

Marks and Spencer (United Kingdom) developed a “Cost Price Model tool” to separate or “ringfence” labour costs from price negotiations to allow suppliers to pay living wages.⁴

EXAMPLE: Undercompensated suppliers unable to meet compliance requirements

In the fashion industry, more than 20% of suppliers indicate that less than 80% of the orders received from retailers or brands were priced to cover the cost of social, environmental, quality, and other compliance requirements.⁵

Build partnerships and engage in open dialogue

Create the conditions for mutually agreed sustainable performance expectations by starting negotiations with a partnership mindset and encouraging supplier input on draft contracts for mutual sustainable commitments.⁶ The final version should reflect all sustainability commitments in the winning tender. Consider also supporting suppliers (e.g., SMEs) to understand contracts by simplifying language, subsidising legal resources, designing fair and reasonable delivery terms, and including fair exit terms.