7 February 2012
Secure a winning contract
A well-negotiated contract will enhance the fitness and wellbeing of most businesses, especially in difficult market conditions when suppliers and customers negotiate harder and lean more on their strict contractual rights. Here are four tips to give you a good start “out of the blocks” and keep you running smoothly.
1. Keeping negotiations on track
Make sure you know with whom you are contracting and ensure that they are accurately identified in the contract. Who is the person you are dealing with representing? Is it a company or an individual? Do not settle for a “trading name”.
Any correspondence (including e-mails) exchanged during negotiations should be marked “subject to contract” so that a contract is not formed inadvertently.
Avoid oral contracts; they carry an increased risk of dispute about what was agreed. When entering an oral contract, keep records of conversations – especially about any unusual or onerous terms.
2. Keep your eyes on the prize - contract terms
Some kinds of contractual term are very common: these include the names of the parties, supply obligations, payment obligations, quality requirements, liability terms and termination rights.
All of these are important but pay particular attention to the liability terms. Is the supplier attempting to exclude or limit its liability if it breaches the contract? Is that exclusion or limitation appropriate in the circumstances?
The terms of any particular contract will depend on the goods and services to be supplied. For example, data protection safeguards will be important in a contract for the supply of data backup services, but less so in a contract for the supply of goods for resale. Whatever the terms are, it is very important that they are recorded clearly and unambiguously. An ambiguous term is more likely to cause a dispute, which is in neither party’s interest.
3. Don’t settle for “standard”
Many businesses will use a set of standard terms as the basis of their supply or purchase contracts. This is to save them time negotiating a separate agreement for each new customer or supplier and to ensure that everything they want is included in each contract. The terms will typically be heavily biased in their favour.
If the terms you are presented with are unacceptable, try to negotiate variations to them. Alternatively, prepare your own standard terms and lead with them in future negotiations to better establish your terms rather than theirs.
Where the parties do not expressly agree on whose terms are to apply, they can often fall into the “battle of the forms”, where each seeks to impose their own terms by referring to them in tender invitations, bids, purchase orders, confirmations, delivery notes, invoices, websites and other documents. The winner is often the party who gets in the “last shot” before the contract is formed. Try to avoid this uncertainty by confirming (in writing) early on that the contract will be on your standard terms rather than theirs.
4. Beyond the finishing line - contract management
Once a contract has been agreed it is important to ensure that it is properly managed. Keep records of when key contracts will expire and what needs to be done before and upon expiry. A supplier may be able to automatically roll the contract over into a new fixed term and, although they may have been perfectly satisfactory, it may be worth shopping around for a better deal whenever there is an opportunity.