Top Tips for Negotiating Contracts

Scotland
01/07/2011
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Getting to the finishing line of signing an agreement can sometimes seem like an impossible task but here are out top tips for surviving a lengthy negotiation:

Be prepared - the Scout motto has as much importance in contract negotiation. It is vitally important to do your background research on your counterparty, both to understand the other side’s position and to understand how that fits in with your own objectives. Once you have a handle on the purpose of the contract and what your organisation wants to achieve during the negotiation, it is also important to choose the right people to get it for you. This includes the right in-house team, together with externals advisors (where necessary) who know and understand your business.
Go face to face - you should attempt to have at least some of the negotiations in person, particularly for high value or strategically important transactions. Much can be achieved via conference calls and emails, however the benefits of meeting your counterparty, building a rapport with them and witnessing body language during negotiations shouldn’t be underestimated. At the end of the day, you will be working with these people in the future so getting to know them at this stage will help in other ways too.
Get the basics right - for valid contract formation, there must be a valid offer and acceptance between the parties and the intention to create legal relations (note: consideration is not required in Scotland). However, it is also imperative to identify the correct contracting parties (not always easy when dealing with large group companies), have comprehensive description of the goods being sold/services being provided, and agree the timing of when the contract will come into effect.
Beware writing is not always required - whilst it is advisable to put commercial contracts into writing, this is not strictly necessary for contract formation. Indeed some contracts can be concluded orally or by a short exchange of emails. You should therefore be mindful of your actions during the negotiation stage in order to avoid premature tacit agreement. It is often advisable to include a statement that all negotiations are “subject to written contract” in any letter of intent, or heads of terms which may be produced at the start of a negotiation.
Keep written records of negotiations - evidence of agreement at the negotiation stage may become crucial should uncertainties or disputes arise in relation to a contract, so it is important to keep good notes of what has been agreed on each call or at a meeting. It may be that a party needs to rely on written records to show that the final written agreement was not intended to include any pre-contractual discussions.


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