Prolific Advice: Five steps to negotiating the best contract for your business
In addition to news and information services, Prolific North is committed to providing a range of management resources for our readers.
Last year we partnered with three leading professional firms – Lucas Fettes, Tree Accountancy and Turner Parkinson – to offer a quality new advisory service for our readers, Prolific Advice.
Experts from these partners are also publishing practical, case study-led advice on a range of issues that affect Prolific North’s readership.
This week, Andrew Booth, Partner at Turner Parkinson, looks at the most important dos and don'ts before signing a contract.
You need to remember that, whatever you think the deal is, if something goes wrong you only have the contract to fall back on. So the contract is key and when you negotiate it you need to make sure you cover off your risk.
Here are some top tips for contract negotiations to help you through:
1) Keep your cards close to your chest
Never give up your bargaining position to the other party, which means, if you’re arguing over a particular issue, don’t tell them what you will “settle” for. Keep your cards close to your chest – request a change and explain your reasoning, but don’t say what you are willing to back down to. If you do that, you’ll just be giving key issues to the other side.
2) Understand what you are agreeing to
On the flip side, never agree to anything that is important without the other side giving you a reason that you understand and accept. It’s not unusual in negotiations for someone to “try their luck” and ask for something they wouldn’t normally expect to get; don’t give in to chancers by letting issues slip through. If they are giving something to you as well, that’s a different matter, but make sure you know what you are giving them before accepting it.
3) Stick to the issues that matter
If you are dealing with a business that is much bigger than you or has a much stronger bargaining position than you, try to avoid picking the contract apart as it is unlikely you will get anywhere; it is more likely to make the other side much more difficult to deal with. Pick a few of the key issues for your business (such as term or liability) and go back to the other side with a shopping list of issues that you would like to talk about. In those sorts of situations, the contract is likely to end up being very one-sided anyway and you’re unlikely to be given many amendments to the contract, so make sure the amendments you get are on the issues that matter most to you. Remember, though, that this approach is only correct where the commercial advantages of the contract outweigh the risks; if the risks will still be too high with the amendments you get, walk away.
4) Get in there early
When you are given a contract for signature, review it and suggest amendments as soon as possible. If you leave it until the last minute, the other side is much less likely to be willing to talk about the issues you have. If you raise issues early, you’ve got longer to talk about them and agree a middle-ground.
5) Don't presume to know everything
Finally, in most cases you should talk to a lawyer. If a contract is simply non-negotiable, ask a lawyer to tell you the key risks in signing it. If it is negotiable, get a lawyer to suggest the amendments. Even if a contract looks fine to you from a commercial viewpoint, it might be very risky from a legal perspective due to issues that will be missed by the untrained eye. The most common of these issues is limitation of liability, which is a really complicated area of law. Don’t presume that it’s standard wording or just “fine” – usually liability is the most heavily negotiated issue in contracts because it is so important, so make sure you understand how it works and the risks involved before you sign.