How to Avoid Legal Pitfalls of Negotiating Contracts?
Every aspect of a business requires contracts of some kind, which have to be negotiated before signing them. Sometimes contract negotiations can be tricky, particularly for businesses in which the management team is less experienced. So you need to make sure you know how to keep things in order.
This contribution highlights some of the major legal pitfalls
that your business should avoid during contract negotiations.
- CONFIDENTIALITY: Sometimes you have to go into secret details of your business to persuade the other party to contract. In such cases, before starting the negotiation, make sure that the confidential information such as "know-how" (provided during the process) will not be disclosed. This is done by signing a pre-negotiated agreement called a "non-disclosure agreement". Make sure to add to this agreement keywords such as: confidential, do not show to another person, return or destroy if the contract is not completed.
- SENSITIVE INFORMATION: If the other contractor is working in the same field as your business, then through the negotiation process you may have to provide sensitive information related to your business, such as information related to data or contracts signed with clients, employees, or different stakeholders. In such cases, you should first make sure that the other party is serious about negotiating and contracting, and that they are not only present for fishing. So make sure before you disclose such information, that you have obtained the highest level permission in your organization to disclose. Also be sure to include in the contract a "non-poaching" or "non-solicitation" agreement that prevents parties from approaching employees, customers or clients of the other party.
- EXAGGERATING: The contractor builds his acceptance based on the offer you provide him. Any misleading in submitting the offer or exaggerating about capabilities or about the efficiency of a product is considered a matter of disinformation, which causes invalid acceptance. This matter is considered a great risk that threatens the collapse of the contract at any moment, causing additional costs as a result of stopping the implementation of the contract, resorting to justice, wasting time, and compensation.
- BRIBERY: The act itself is one of the axioms that must be avoided, whether you are the one who offers or accepts it. There are many ways in which bribery is carried out; it may be cash, promises of promotion, or gifts in kind. You must be careful even about any courtesy moves (presenting a gift in kind) that accompanies the negotiation process. Sometimes they are presented not with a good intention or sometimes the other party misunderstands your kindness. Regardless of the failure of the negotiations and the penalties stipulated by the law in this regard, the damage it causes to the company's reputation and position in the market are much greater.
- MISTAKEN AGREEMENTS: On contrary to what is common that signing a written contract makes it legally binding, the legal fact, especially in commercial contracts, is that simply exchanging offers and accepting them, in any way (writing, phone, mail, email, or fax) makes the contract valid and legally binding. Also, the implementation of some clauses of the contract during the negotiating period is considered as tacit approval of what was being argued upon the negotiation process. Therefore, it is advisable to mark the correspondence by some expression like "subject to the contract" or "not legally binding".
- ARBITRATION: In the case where the other party is a foreigner, make sure to familiarize yourself with her/his legal system before starting the negotiation process, because what is considered a "negotiation" according to your law may be considered a "contract" according to her/his law (or the opposite) and whoever is considered qualified to negotiate and contract according to your law, may not be so according to her/his law. For example, when the age of eligibility according to your law is 18 year while it is 21 in accordance with her/his law. Therefore, make sure that the one you negotiate with has legal competence, or is legally represented; also make sure to sign a paper of resolving any dispute arising during the negotiation process or even after contracting through Mediation or Arbitration. This is to avoid wasting time and money in the state of any misunderstanding.
⇨ I am looking forward to your reactions and additional legal pitfalls, including your personal experiences while sitting at the negotiating table. Please, if you have any related information, share it here.
Gaby Hardwicke (2016), Briefing Note: "Contract Negotiations – Pitfalls to Avoid", p. 3.
Charles B. Craver (2010), "EFFECTIVE Legal Negotiation and Settlement", p 148.