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As a business, you will encounter several different types of contracts during your business journey. Although some businesses are familiar with legal terms, for most, this can be quite daunting. Where businesses struggle with contract reviews and negotiations, solicitors can help and add great value through their legal advice. This article will explore how a solicitor or team of solicitors can help you in a contract negotiation to prevent your business from incurring undue legal risk and exposure.
Why is Contract Negotiation Important?
When entering into business relationships and projects, a contract is crucial. Your contract should properly record the terms under which you will do business and document what each party’s obligations are.
The contract will need to cover key issues, including:
- each party’s contractual obligations;
- the payment terms;
- how to terminate the contract if things are not working out as planned; and
- available remedies if the other party breaches their obligations.
It can often be tempting to simply sign a contract without giving it close attention or trying to negotiate its terms. However, taking this approach when it comes to a commercial agreement is risky. Every commercial project is unique, and each business’ needs will be different, too. Therefore, every contract should be properly reviewed and negotiated before you proceed to sign it.
What Are the Usual Steps in the Contract Negotiation Process?
The contract negotiation procedure often involves the following steps:
- each party carefully considers their objectives and reviews the relevant contract accordingly;
- each party discusses their requests regarding the contract – for example, clauses that they want to add, delete, or modify to protect their position;
- the parties update the contract documentation and continue to negotiate until they reach an agreed position; and
- finally, if all is agreed, the contract will be signed and become legally binding on the parties.
Practically, this process can be difficult for business owners or any individuals who are involved in contract negotiations – particularly if they do not have an understanding of legal issues. Working with an experienced contracts lawyer can help you negotiate your contract with guidance and support. An experienced solicitor can also add value in several ways and protect your business from risk.
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How Can a Solicitor Help With Contract Negotiations?
Here are some of the key ways in which a solicitor can help:
1. Advising Whether Terms Are Suitable and Correct
A contract must be properly drafted and fit for purpose. Many businesses quickly pull together contracts in a rush without proper care or attention. This is high risk, your contract must be tailored to your particular project and requirements.
It is vital to use the correct type of contract for your project. As a practical example – your company may be looking for a ‘software as service subscription’ model, whereby you will be licenced software to access via the internet. For this agreement, you need a bespoke software as a service licence agreement tailored to the services you will be receiving. Using the wrong document (such as a standard software licence agreement) may expose your business to risk (for example, if the contract omits key provisions that are required for your protection).
Further, contracts need to be carefully tailored and contain the right terms. There are key points to look out for when negotiating a contract, including:
- whether your contract covers any niche requirements or obligations;
- whether the payment terms correctly reflect the deal you have agreed to; and
- whether specific commercial dates and milestones are laid out in the contract.
An experienced commercial solicitor can quickly identify and address these issues. For example, they will be able to spot if the contract format is correct. Further, the solicitor can identify whether the contract affords you sufficient legal protection. Also, the solicitor can identify if the contract you are about to sign is missing any key information.
In addition, as part of the negotiations, a solicitor can help address critical issues such as:
- making sure the contract is well-drafted, clear and legally enforceable;
- challenging unfair terms; and
- checking whether the contract has been signed properly once agreed.
2. Identifying Undetected Risks
Although you may look at a contract and think it seems okay, there are likely to be various onerous terms written in legalese. These terms could create risks for your business. For example, contracts often contain stringent indemnity (compensation) clauses, which are hugely risky and costly for businesses. You may not understand what an indemnity clause is and what the implications of agreeing to one are.
There may also be big gaps in your contract, which could create legal risks. For example, if your project involves using personal information, your contract could be missing mandatory clauses that are required under the UK GDPR. Failing to include these clauses could mean your business is in breach of data protection laws.
These are key issues that a solicitor can help address. As part of negotiations, a solicitor will use their knowledge to address critical risk issues such as onerous and high-risk clauses, which would put your business at risk. They will also help identify omissions and add clauses that are required in order for your contract to comply with applicable laws.
3. Advising on the Contract’s Reasonableness
As a business that does not work on contracts day-to-day, it may not be easy to gauge whether or not clauses in a contract are reasonable. Having been heavily involved in contract reviews and negotiations, a solicitor can help you understand whether clauses in a contract are reasonable and worth accepting or whether you should be pushing back on them.
Additionally, a solicitor can take a pragmatic and commercial view. Solicitors will be able to guide you commercially on how risky certain provisions are. Subsequently, your solicitor can advise you whether you should accept the provisions or not. In some instances, the legal risks in a contract are minimal. Your solicitor, in which case, can help you to make an informed decision on them.
Further, with the help of a solicitor, you can reach a compromise position with the other side. A solicitor can put your best case forward by using their market experience and negotiation skills. This will help you get your deals over the line quickly and professionally.
Download this free Commercial Contracts Checklist to ensure your contracts will meet your business’ needs.
Key Takeaways
As a business, you should always review and negotiate contracts before signing them. Negotiating a contract can be difficult in practice, and there are inevitably points you may miss without the legal knowledge to identify them. Working with an experienced solicitor can help you identify and address critical risks, ensure your contract is fit for purpose and help you successfully negotiate deals efficiently.
If you need help negotiating a contract, contact our experienced contract lawyers 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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