Practical tips for negotiating a business contract

by evolvedlegal on April 30, 2012

  • SumoMe

During the lifetime of your business, there will be a number of times where you will need to negotiate contracts; whether between you and your employees, you and your suppliers, you and your clients and/or you and other third parties.

If you do not have a legal background, it is always advisable to seek professional, legal advice, particularly when negotiating a contract, but in any event it is always worth bearing in mind the following practical factors.

Point 1: Information About the Other Party

If you have not had any previous course of dealings with the other party that you are considering entering a contract with, it is well worth doing a credit check on them to ensure all their finances are in order, and they are a legitimate and genuine company.

You should also ensure that you take the right steps to find out what protection and legal redress is available to you should something go wrong and to prevent litigation. This is particularly important if the company you are dealing with is based abroad as there may be legal jurisdiction issues.

Point 2: Is the Performance of the Contract based on the Identity of the Other Party?

It is important to be aware of any specific individuals in the other party who may be imperative to the performance of the contract. You may want to be provided with additional information on that specific individual if that is the case.

You will also need to consider whether you are happy for the other party to subcontract the work specified in your contract to other parties. If you are not happy with this, you will need to explicitly state this in the contract.

Other considerations you may want to think about are what impact a change of ownership in the other party would have on your contract, and whether you are happy with this.

Point 3: What are you Buying/Selling and How much for?

Ensure that the goods/services on offer are described clearly and accurately. The same applies to the price of these goods/services, and how these payments will be made.

Never rely on verbal assurances – if there is something you have agreed upon orally, make sure it is also present in the written contract.

Point 4: Provisions Should Things go Wrong

Consider what provisions should be laid out should the contract fall through, or should the other party breach the contract. When provisions for this are laid out clearly in the original contract, it is often a lot easier to deal with issues that arise should something go wrong on either party’s end.

It is also important to consider at what point you may want to pull out of the contract, and making provisions for this in the document,

Point 5: Time provisions

It is imperative a clear deal time is stated in the contract, to ensure that both parties know what deadline they are working towards and whether or not a fixed term for the contract is required or notice and when dealing with goods or services, if timings are important for delivery, these should be stated. If time is of the essence this should be stated.

Point 6: Are a Party’s Standard Terms of Business Being Used?

If your terms of business conflict with the terms and conditions of the party who you are dealing with it will be necessary either to ensure your terms and conditions apply or to negotiate what extra provisions are going to be entered into the contract so there is a fairer balance between the parties.

Be aware of the fact that the protection offered by a contract is only really as good as the person who is a party to it. If anything goes wrong, you need to be comfortable in the knowledge that you will be able to obtain remedies from the other side. If you are not sure this should come into your thinking and you may need guarantees from financial institutions or other third parties to cover default by the other party to your contract.

As is apparent from the above, each contract is different and a large part of the value of having an experienced business lawyer on your side is the value of his or her experience as well as ability to draft legal clauses.




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