Contract Negotiation Tips

1. Period/term. Fixed, rolling with notice, or a combination. Are you happy if the other party puts in an option to extend for a further period without your say so? Or that they could terminate early?
2. A supplier should have a limitation of liability clause, to minimise the categories (e.g. loss of profits, loss of business, loss of goodwill) or amount (per incident, per year or in entirety).
3. Frequency and mechanism for price changes must be clearly set out. An agreement to decide on these later is unenforceable and the supplier could be stuck with the original prices for the whole duration of the contract.  For example, it is a good idea to include the right to discontinue certain goods/services if no review is agreed by a certain date.
4. Force majeure clause. Without this, a supplier is obligated to continue the supply despite difficulties outside of his/her control, whatever the cost.
5. Specify the levels of service to be supplied. A customer with audit rights over the supplier’s performance data is in a powerful position.
6. Review meetings. Insist on these and use them to record shortcomings and put these right. One day, as a customer, you may want to get out of the contract by relying on a long list of minor breaches, which together, add up to a material breach.
7. The customer should insist on an interest on late payment clause, providing for a reasonable rate of interest if it pays late (the supplier won’t necessarily demand the interest). Without it, the Late Payment of Commercial Debts Act entitles the supplier to 8% over base rate.
8. A change of control clause will give you the right to terminate the contract early if the other party gets taken over. Would you want to be locked into supplying/buying from a company now owned by your competitor or now a separate entity from its wealthy parent group?
9. It is sensible to limit the usual right for the other party to assign the contract to anyone it wants to.
10. Provide a dispute resolution procedure, particularly if you are sensitive to bad publicity. Insisting on negotiations through a mediation and/or an arbitration procedure will keep your dispute out of the public gaze.

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