Negotiating contracts – the pitfalls, and how to avoid them

Barry Riley

This article attempts to highlight some of the most common pitfalls that your business should be aware of, and which you should avoid, during a contract negotiation; you should always take legal advice if negotiating a technical or particularly complex agreement, but here are some pointers that should be kept in mind throughout the process;

Who are you negotiating with?

Check and make sure that the person you are dealing with has the appropriate authority to negotiate the contract. On whose behalf are they negotiating?

Confidentiality?

Do you need the other party to sign a confidentiality agreement before you start negotiations? Before you give away any business sensitive information, check you have a suitable form of Confidentiality Agreement (also known as a Non-Disclosure Agreement/letter) in place.

Is business sensitive information involved?

  • Take legal advice before handing over anything. There are strict laws in respect of data protection, which must be complied with.
  • Whilst a confidentiality agreement may give some protection, make sure it is signed!!
  • Be confident that before you give any information over, you confirm (for your own peace of mind) that the other party is not simply on a fishing expedition.

Never mislead the other party

If you exaggerate or mislead the other party during negotiations, the contract may be undone and compensation payable.

Do not offer or accept bribes or inducements

The Bribery Act 2010 has some strict rules on the offence of bribing another person. Penalties can be significant, and lead to an unlimited fine.

Employees and Customers?

If the other party has access to your customers or employees, consider getting them to sign a non-poaching (or non-solicitation) agreement. This stops one party from approaching, for example, the employees, customers or clients of the other party. A lot of people forget about something like this, but it can prove effective further down the line.

Pre-contractual agreements?

  • With sizeable deals, you could be asked to sign a summary of the main terms before the main contract is agreed. This document can be called heads of terms, a term sheet or a memorandum of understanding.
  • You should take legal advice before signing any pre-contractual agreement. Even if the agreement is not meant to be legally binding, it may create legal obligations. In any event, it can create strong moral obligations which can weaken your negotiating position.

Do not enter into a contract by mistake

  • A contract does not need to be signed and in writing to be binding. For example, you can enter into a binding contract over the phone or by e-mail, if the key terms are agreed.
  • To help clarify that you are still in negotiations, you can mark all correspondence “subject to contract” or “not legally binding”.

This barely scratches the surface of issues to be considered, but it does, however, prove to be a good starting point,  highlighting some of the issues that you should be thinking about early on.

For more information on the above, or for assistance in this regard, contact Barry Riley on 0117 9453 042

Barry Riley

briley@metcalfes.co.uk

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