Original article by Robert Nay, Head of Legal, LegalVision.
Negotiating business contracts can be complicated, time-consuming and, at times, intimidating. Many factors come into play when negotiating a contract, including:
There are typically legal and commercial considerations to evaluate when entering into negotiations. Although contract negotiations can be tiresome, they are critical to mitigating risk. This article explores key ways to negotiate contracts successfully.
Although it may be tempting to immediately meet with the other side when you receive their contract, it is more prudent to review it from legal and commercial perspectives first. During the review, you and your solicitors can flag any clauses you would like to negotiate. In our experience, doing one or two rounds of negotiations ‘on the paper’ (i.e. by sending an amended contract between the parties) can help to reduce the number of contested items. In addition, this process allows the parties to understand one another’s perspectives and concerns.
When proposing amendments to a contract, it is essential to provide reasons to support your requested amendments, or the other side may reject them. Providing reasons helps the other side to understand the rationale behind the change and either accept it or propose a middle ground.
Much of the work in negotiating a contract is done in the lead-up to the negotiations. It is critical to:
It is also essential to familiarise yourself with the contract and to know your business’ position on any outstanding items.
For example, for each outstanding item, you should ideally have a best position, a first fall-back position and a final fall-back position. This allows you to understand how far you can negotiate on specific issues and when to ‘park’ an issue and take it offline for further internal discussions.
Everyone has a different style when negotiating contacts. Some prefer a domineering or combative approach, while others may be more subdued and happy to lead the negotiation. There is no right or wrong approach, and finding the style that works for you is important. Sometimes, you might need to be adaptive and adjust your style, particularly if you have leverage on a transaction.
Our recommendations, regardless of your style, are to:
Negotiating business contracts successfully takes preparation and experience. It is essential to try to resolve as many issues as possible before having a formal negotiation in person or via teleconference to save everyone’s time. Once you are ready to meet with the other side, it is critical to be prepared, open and willing to hear the other side’s view. Importantly, aim to find ways to compromise.
If you need help negotiating business contracts, our experienced contract lawyers can assist as part of our membership. For a low monthly fee, you will have unlimited access to solicitors to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.