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In today’s business world, contract negotiations are commonplace. Savvy business customers will often seek to negotiate contracts to protect themselves and get the best deal. Contract negotiations should be a key consideration as a supplier of products or services to business customers. You should have a strategy for the negotiation of your commercial contracts so you are prepared and in an excellent position to negotiate successfully. This article will highlight some of the key commercial considerations that are relevant for contract negotiations for many businesses.
Why Should Your Business Approach Contract Negotiations Carefully?
Contracts are vital for every business. What your contracts say can determine your business’s critical obligations and risk areas. For example, your contracts can significantly reduce your potential liability and the amount you might need to pay a customer in damages if they successfully sue you in court.
As a supplier, it can be tempting to agree to requested negotiations to win new business. However, you need to handle all contract negotiations with great caution and care.
You must understand the risks you are taking when entering an agreement during the negotiation process and the implications for your business. For example, suppose a customer requests an indemnity clause. Be aware this may make you liable to compensate them on a pound-for-pound basis for any losses they suffer.
Successful negotiations often result in both parties reaching a resolution they are comfortable with. However, reaching this stage requires thought and consideration. A negotiation strategy can help with this, as it allows you to:
- plan how you will approach negotiations;
- determine what time and resources you are prepared to invest; and
- determine how much you will spend on the process.
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What Are Some Key Commercial Considerations for Contract Negotiations?
While there are several legal issues to consider as part of contract negotiations, you must take a commercial and pragmatic view.
Let us explore some key factors to consider from a commercial perspective when approaching contract negotiations.
How Much Time and Resources Are You Willing To Invest?
Negotiating a contract can take time and will require resources. In some cases, contracts can take months or even years to finalise.
As a business, you should carefully consider how much time and effort you are willing to put into contract negotiations. This may differ depending on the particular customer and project value of the relevant contract.
For instance, as a supplier, you may decide to:
- devote less time and resources to negotiation small projects of low value;
- dedicate more time and resources to secure significant and higher value projects; and
- take a flexible approach for existing customers you have worked with in the past, as you have a good working relationship and trust between the parties.
Who Will Be Responsible for Negotiations?
Contract negotiations can often become protracted and escalate. As such, you can set expectations at the outset by letting your customers know:
- your position;
- when you can respond to them; and
- who will be responsible for negotiations.
Certain high risk decisions, for example, may need to be signed off by senior management or the company directors.
It may be helpful to allocate an individual at your business who has some knowledge or prior experience in contract negotiations to make the negotiation process smoother.
Having a clear point of contact with responsibility can help negotiations run smoothly and avoid potential issues later down the line.
Do You Need to Involve Your Legal Team and Consider Your Budget?
Involving your legal team or solicitor in contract negotiations is not strictly necessary. You are free to negotiate contracts yourself. However, involving a solicitor can add significant value, make negotiations a lot easier and help you conclude deals quicker.
For example, a solicitor can:
- help identify critical risks for your business and mitigate those risks;
- guide you on what terms you may consider accepting based on their commercial knowledge and industry experience;
- help you understand complex issues and requests which you are unfamiliar with;
- act as a point of contact for your customer’s legal team and negotiate contracts on your behalf, thereby taking the pressure of negotiations largely out of your hands.
Whilst working with a solicitor can significantly benefit your business, it will also cost your business money. As such, consider how much you will invest financially into contract negotiations.
Spending money on legal fees towards negotiations is a cost you may be happy to incur in the hope that it will help you secure a particular client or project. You can also ask your solicitors for a pragmatic approach, such as guiding you on different negotiation options. Solicitors may offer you a high-level or ‘red flag’ review of the key negotiation legal risks to consider to minimise costs but also offer you legal support.
In summary, there are various commercial factors to consider as part of your contract negotiations. Considering these factors from the outset can help you plan your negotiation strategy, save time, and place you in a better position to conclude contract negotiations successfully.
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Key Takeaways
Negotiations over commercial contracts are very common in the business world. As a supplier, it is vital that you carefully consider and plan your strategy towards contract negotiation. There are several factors to consider and take into account, such as time, budget, and resources you can realistically invest. You may also consider working with a legal team who can help add value and negotiate complex contracts on your behalf. By considering these commercial factors and using them to plan your tactics in advance, you may be in a better position to handle contract negotiations confidently and increase your prospects for negotiation success.
If you need support reviewing or 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.
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