Top Tips on Negotiating a Commercial Contract

Negotiating a successful commercial contract will save you time and money in the future. A good contract should be as comprehensive as possible satisfying the needs of both the parties. This article includes some top tips on how to negotiate and create a commercial contract.

Who are you negotiating with?

If you are doing business with a new client then you will need to ensure that you are satisfied as to their location and credit worthiness. Performing a credit check on an individual or company might mean you avoid ending up out of pocket if they fail to pay in the future.

If you are dealing with a company check the company address and registered number at Companies House, this check can be done for a relatively low cost online.

Would you be happy if the company or individual you are dealing with assigned their rights to someone else, or is their identity important to the performance of the contract? Allowing assignment can be a strong negotiation point for a contract as many providers are only happy dealing with one party. Assignment can bring a higher price and more favourable terms for the contract provider. Conversely however assignment requires a high degree of flexibility and the ability to deal with different parties, of which may not suit your organisation. Make sure either way that the terms of assignment are clear.

What is the purpose of the contract?

Irrelevant to whether the contract is for goods or services an adequate description of what is being sold should be provided so that the buyer is clear on exactly what they will be receiving.

If you are a commercial seller then you must ensure that any goods sold under the contract are of a ‘satisfactory quality’ and are ‘fit for purpose’. Due to the Sale of Goods Act (1979) these requirements are automatically implied under the contract.

Any assumptions as to the quality of the goods or services which are bespoke to the contract should be documented as agreed by both parties. These assumptions will normally match whatever was negotiated upon at the point of sale – what was the agreed price?

Before drafting the contract it is important that you negotiate and agree upon a price for the performance of the contract. However when creating the contract you should try to detail any potential extra costs that may be incurred by the buyer. Try to be as transparent as possible with costs as this is one of the main areas of contractual disputes.

If the contract is for a large sum of money then a payment plan can be negotiated between the parties and this should be detailed in the contract. Dates should be given for when the deposit money should be paid and when each payment instalment is due. You may also like to provide a preferred payment method i.e. by cheque or bankers draft.

Every business should ensure that they have tightly drafted terms and conditions of business prepared by specialist commercial lawyers for every transaction – and should consider dedicated commercial contracts for large transactions.