In this article Dr Maria Anassutzi looks back at her lengthy and successful career as contracts negotiator and describes what makes a successful negotiation and summarises the ten top tips for a successful negotiation.
Having a reasonable and legally robust commercial contract to underpin your commercial relationships with your customers, suppliers and service providers is vital to ensure that you build good relationships and grow your business. Whether the contract is with your customers or your suppliers and service providers the contract must give a clear picture of the rights and obligations of the various parties. Also the commercial contract must be negotiated in the right time and help build commercial relationships (instead of damaging them).
Let’s take a look at the basic and key elements of a contract. A contract is a legally enforceable agreement which gives rise to rights and obligations for the parties to it. The formation of a contract is complete once the basic principles of offer, acceptance, consideration and intention to create legal relations are satisfied.
An agreement is formed through offer by one party with acceptance of that offer by another party. This involves a matching of the two communications of offer and acceptance. When a contract is formed through standard terms and conditions of business (sale or purchase) if both parties purport to impose their own standard terms, difficulties arise in determining which terms will prevail.
It is important to remember that contracts do not always have to be in writing to be enforceable. If the parties act in accordance with an oral agreement or understanding for some time and then one of the parties breaches that oral agreement or understanding then the other party will be able to rely on the oral agreement. However in these circumstances it will not be easy to prove what was agreed and what was done or not. That is why it is important not only to have a contract in writing but also to ensure that the contract is a fair representation of both parties’ aims. This is not easy to achieve, and a lot depends on having a successful contract negotiation.
So, here are ten top tips for a successful contract negotiation:
- You need to have a good understanding of your own requirements. This is easier said than done. It requires clear communication within the various teams, groups or divisions of the business to ensure all the various requirements are understood and represented at the negotiating table so that decisions can be taken accordingly.
- You need to develop an understanding and be clear about what results you want out of the negotiation. Distinguish them in what would be nice to have and what is a must have. This must then be further developed by adopting a best and a minimum position.
- You will need to be clear about what, from your own position, is negotiable and what it is not. You will also need to have clear escalation procedures for those points where it may be difficult to find a compromise.
- You will need to be clear about the risks you may be assuming and find a mutually agreed fair allocation of risks and shared responsibility especially in critical provisions such as the limitation of liability. If you seek to limit your liability to a particular sum of money, you must consider: (i) the resources available to allow you to meet that liability; (ii) the extent to which insurance cover is available; (iii) if the insurance is limited on an aggregate rather than a per-claims basis, or (iv) if other claims outside the scope of the insurance might potentially arise under the contract.
- You will need to be able to look at the same problem from different points of view. From your own, your supplier you customer and be able to find an acceptable solution. However, be careful, at the end of the day you need to protect yourself. Understanding the other party’s argument does not mean necessarily agreeing with them.
- Make sure you understand the cultural differences (if any) and also ensure that any arguments are not made personal to the negotiating team.
- Ensure that you try to understand the reason why the other party is making the comments they make and the impact they may have on other parts of the contract or indeed on other contracts. Before deciding on a particular upper limit on liability, you should therefore discuss with your insurers the type of loss in respect of which it may be possible to obtain insurance, and the level of such cover. Your resources will also be relevant in determining an appropriate upper limit, although in practice few companies, however large their resources, will wish to accept potential liability for losses which are not covered by insurance.
- Do not discount and prevent ideas that were not viable in prior contracting situations
- Have a clear timetable and stick to it.
- Ensure that the goal for all the contracting parties is the same and always clear: do business together.
All articles are for general purposes and guidance only and do not constitute legal or professional advice.
Copyright 2011 Anassutzi & Co Limited. All rights reserved.