CAREFUL HOW YOU GO - CONTRACT NEGOTIATIONS (PART 2)

In the first of our two part article on contract negotiations we looked at the art of getting the best outcome from the negotiation process. In short, 11 tips for successful negotiations.

In the second part we look at avoiding some traps for the unwary and why expert legal advice is always a sensible investment. In short, 9 tips to protect your business.

1. Who are you negotiating with and do they have the appropriate authority to enter into a contract? This seems obvious but frequently can cause problems where companies seek to try and rescind or re - negotiate a contract on the basis that the individual had no authority to enter into a binding legal agreement on behalf of their employer company. Also where there are subsidiary companies within a group, check to ensure that the contract names the correct company rather than trying to argue at a later date that the contract was made with a different but connected company albeit a separate legal entity.
2. Do you wish that the contract negotiations remain confidential? If so, it is advisable to protect the confidential nature of the discussions given their price sensitive nature. A confidentiality agreement sometimes called a non - disclosure agreement should be signed where there are such concerns. The document will cover the main points including confidential information disclosed during the negotiations. They are designed for a specific or limited purpose and are therefore not intended to be of general application for an indefinite period of time.
3. Is a lock - out provision useful? Lock - out agreements or exclusivity agreements again for finite periods of time can concentrate minds and prevent unwelcome and potentially harmful competing bids or further discussions being entered into by a seller whilst a buyer is negotiating the purchase of a business or property and undertaking due diligence with their professional advisers.
4. Watch out for The Bribery Act 2010 Part 1, Part 2. Remember it is an offence to fail to prevent bribery and that the Bribery Act has worldwide application. It does not simply apply to offences committed in the UK.
5. Be careful and be ready for the battle of the forms. Always read the small print of a contract. Understanding which of the parties’ terms and conditions apply to a contract is crucial to understanding the obligations owed and the allocation of risk. Very helpfully, we have prepared an article on the salient points.
6. Understand the difference between a legally binding agreement or contract and a gentleman’s agreement. The former is enforceable and the latter is not and cases are often taken to court to determine what if any legal obligations are owed between the parties because of a lack of certainty.
7. ‘Subject to Contract’ means what it says on the tin. A recent High Court decision in Newbury v Sun Microsystems [2013] provides a classic example of why, when offering or negotiating a settlement of any dispute, it is important to add the words ‘subject to contract’ to correspondence where it is intended that the settlement should not be considered binding until a formal written agreement has been executed. Where a party does not use the words ‘subject to contract’, it should ensure that all the terms it wishes to include in the settlement are clear from the offer letter. Once the offer is accepted, it will be too late to negotiate further terms.
8. Heads of Terms agreed before a formal contract is signed are not generally legally binding unless expressly stipulated to be legally binding.
9. Do not rely on a poorly drafted standard form contract. A ‘one size fits all approach’ usually ends up with an unsatisfactory outcome. A contract which is prepared to best protect your businesses’ interests and properly reflects the terms which have been agreed by also anticipating issues which may arise in the future and upon which legal advice has been taken is far more likely to produce a positive outcome.

This article contains general advice and comments only and therefore specific legal advice should be taken before reliance is placed upon it in any particular circumstances.