Why Should You Negotiate Contract Terms

A business contract is crucial to protect both customers and suppliers. However, to fully protect your business, you should negotiate contract terms to look after your best interests. This article will explore why you should negotiate contract terms.

Why is a Contract Important?

A business contract is a commercial agreement that records the terms under which parties will do business.

For both parties in a commercial relationship, not having a contract means exposing your business to high-risk and potential problems later down the line.

Why is Negotiation Important?

Every business is unique and will face different legal risks. Therefore, you should review every business contract before you sign it.

It can be tempting to save time and secure a deal by simply signing the document the other party gives you. However, reviewing and negotiating the contract first is essential. The parties to a business contract will likely have different expectations and want to protect their own interests. Therefore, negotiation is important to ensure both parties can reach a middle ground and are happy with the outcome.

Contract negotiation often means that the parties to a contract will review, discuss, amend and ultimately finalise their agreement’s terms. If negotiations are successful, the parties will sign an agreement acceptable to both of them.

If you are unsure how to handle negotiations, working with an experienced contracts lawyer can help you negotiate your contract and add value. For example, a contracts lawyer can help your business identify the legal risks it faces and negotiate terms into the contract to protect you in the long term.

Why Should You Negotiate Contract Terms?

There are several reasons why you should negotiate contract terms. We explore these below. 

To Help Protect Your Best Interests

Nobody wants a bad deal when it comes to contract negotiations. As a party to a contract, you will want to protect your business interests.

For example, negotiating a contract can help you address the following key issues:

• identifying legal risks and ensuring you are protected from them;
• negotiating important clauses to protect your business when trading, such as ‘limitation of liability’ clauses;
• addressing and negotiating any high-risk, onerous clauses which you are uncomfortable with; and
• negotiating any niche and bespoke provisions to give you specific legal protection in certain scenarios.

To Ensure Your Contract Is Fit for Its Purpose

Every contractual relationship is different. Consider what you are looking for from the contract and ensure that it is tailored to your specific needs. This is relevant for both customers and suppliers. 

For example, as a customer, you should look to negotiate specific terms around:

• the deliverables you are looking for from the supplier and any specifications around those deliverables; 
• ending the agreement with the supplier – you will want robust terms allowing you to terminate in various circumstances. Some supplier contracts do not allow a customer to terminate easily. So, it is important that you negotiate this term so you have the option to exit the contract if need be.

As a supplier, your liability to the customer will be a key concern. Therefore, you should carefully negotiate a limitation of liability clause to protect your business as far as possible, but also take a reasonable approach to keep the customer happy.

Negotiating is a key way to ensure a contract is fit for purpose. For example, a generic contract may not be suitable for your particular project. You can use negotiation to communicate with the other party, express what the contract needs to cover and ensure that it is tailored to your project.

To Help Build Relationships With the Other Party

Negotiating contracts can also help build relationships. For example, you can use contract negotiations as a chance to get to know the other party, understand their needs and goals and develop an environment of collaboration.

Reaching a balanced contractual agreement, which both parties are happy with, may also help sustain long-term business relationships. This is because you will be less likely to experience mismatched expectations. Further, having spent time discussing and negotiating key issues, you can understand what the other party is looking for from your contractual relationship.

Key Takeaways

A business contract is a crucial document to protect your business, whether you are a supplier or a customer. All businesses should review and try to negotiate their contract terms. Negotiating contract terms can help you protect your best interests and ensure your contract is fit for purpose. If you require support with negotiations, you can work with an experienced commercial lawyer who can add value by helping you negotiate contracts to achieve a successful outcome.

If you need help negotiating a contract, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.