A well negotiated contract is the way to secure a mutually beneficial outcome and avoid dispute with minimal trade-off.
A written contract is a great way to protect a business relationship. It outlines the terms of the agreement in plain black and white so there is no confusion and no misunderstandings. The parties to the contract are bound by promise (undertaking) and duty (obligation) as stated in the contract. The contract will stipulate what the consequences are of not fulfilling or failing to deliver as promised.
When preparing an agreement you establish the basic rights, duties and obligations of each party, with the intention of developing a balanced agreement, whether unilateral or bilateral. However, very often one party may be of superior power or influence or the drafter, for whatever reason, may prepare a contract that favours one party over the other. One party, for example, may be indemnified against loss but not the other, or only one party may be entitled to terminate the agreement. In such instances only one party has the benefit of protection and the other party is exposed to loss of income, claims for damages or trapped in an interminable relationship that simply does not work.
How does one ensure that the agreement prepared by the other party is fair, reasonable and unbiased in either party’s favour? The objective is to ensure a mutually beneficial outcome and avoid dispute with minimal trade-off. This is achieved through negotiation; a well negotiated contract secures the business owner’s position, so he/she can focus on profit-making activities.
Applying a few simple negotiation techniques may prevent future disputes and loss of income. Read and understand the contract and ensure that the agreement is clear and understandable; remove any ambiguity and get help interpreting content if you are unclear on terms. This includes interpretation of commercial and transactional terms or legal aspects.
Understanding basic legal requirements or principles will help guide you to ask the right questions, such as —
As you would for any negotiation, prepare and agree on the major elements before contract preparation commences. This will avoid high costs, time delays and manage expectations. Be clear on your objectives and among the detailed and complicated provisions, ensure that your objectives have not been lost. Establish concessions and trade-offs at the outset as this can be a powerful tool to ensure you get what you want. Most importantly, don’t be afraid to ask for the change and if you don’t receive the change request, don’t be afraid to walk away from a dubious contract.
Consider the following scenarios and provisions of a contract you are executing to determine whether there is a differential bargaining power or other influences which may result in a biased contract.
Any form of bias, one-sided or unbalanced agreement favouring one party over the other to gain advantage, rarely results in creating benefits for either one or both parties. Such agreements may result in disputes or a breakdown in trust and the eventual demise of the relationship and may destroy businesses. To prevent abominable and catastrophic consequences to your business apply simple techniques to preparing, negotiating and executing balanced agreements that demonstrate trust and a foundation for long term relationships.
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