Advice on Negotiating a Contract

When the going gets tough, it’s all about the contract and as many small business owners will attest, having a good legal agreement can make the difference between boom and bust. A good legal agreement is often not just about something that is solid and binding, it is about having something that accurately reflects what all parties want out of a deal.

Break it Down then Build it Up

Sometimes what stands between two parties in a negotiation is not what really matters commercially and negotiations can be clouded by psychological factors, positioning, and ‘matters of principle’. Parties negotiating a contract should start by being brutally honest (at least to themselves) about what it is they want from the relationship, drawing up a comprehensive set of commercial requirements, then reconciling their requirements with the other party. Doing that should make it easy to immediately identify where common ground (or aligned interests) exist and where there are differences. Differences should then be broken down in to their smallest constituent parts by each party then compared again to see where alignment and differences lie. Parties should always remember that a good agreement is one which suits both sides, so the fact that the opposing party is happy is not always an indication that you are giving something away.

Set a Deadline

Negotiating a contract can be a complex and difficult task and it is no wonder that the most complex legal battles, court cases, mergers and acquisitions often close at the very last possible moment. In many cases, if no deadline was set, the deal simply might never happen. Although negotiating a contract while having a gun to your head is not ideal, often it is necessary to make sure a contract gets signed rather than eventually forgotten about. So before embarking on a contract negotiation, agree a deadline with the other party.

Stay Alert

As the negotiation nears the end and the signatures get closer, it is common for last-minute changes to be requested. Whilst this can be legitimate, it is often used as a negotiating tactic to low-ball one’s opponent or slip something in that a party did not want to flag up earlier. Be aware that such last-minute amendments can make a crucial difference to the contract and therefore should be thoroughly scrutinized. It goes without saying that this also means that the very final version to be signed (often the printed or PDF version) should be checked word-for-word against the version of the contract that was understood to have been agreed to make sure the other party has not accidentally on purpose slipped something ‘minor’ in before asking for your signature.

Be Thorough

Once getting to a written contract that is generally satisfactory, it is worth double checking to see if there is anything whatsoever that might be worded ambiguously. Nothing within any contract should be left to interpretation, even if both parties know what it’s supposed to mean. Many court battles have been lost and won on technicalities, including down to what ends up being the most probable interpretation of a clause. The last thing that either party wants after going to the trouble of negotiating and signing a contract is to have it fall over in court because of a small ambiguity. So it’s important to make sure that intended meanings are reflected exactly in the contract wording.