Edward Barnes, Head of Corporate at DTM Legal, highlights some of the major pitfalls that you must be aware of, and should avoid, during contract negotiations. Always take legal advice if your business is negotiating a large or unusual contract.

Who are you negotiating with?

Does the other party have the authority to negotiate and on whose behalf are they negotiating?

Are negotiations to be confidential?

Get the other party to sign a confidentiality agreement (also known as a non-disclosure agreement or NDA)  before starting negotiations. This should be signed before giving away business sensitive information and should explain that the information given:

• Is confidential.
• Should only be used for a stated purpose.
• Should be returned or destroyed if the deal doesn’t go ahead.

Are you handing over business sensitive information?

• If so, take legal advice. It can be unlawful to hand over certain types of information, such as personal data about customers or employees.
• Does the other party actually need the information or are they simply on a fishing expedition?

Don’t offer or accept bribes or inducements

The Bribery Act 2010 came into force on 1 July 2011 and prohibits:

• Bribing another person.
• Being bribed.
• Bribing a foreign public official.
• Failing to prevent bribery.

The penalties for committing an offence can be very significant – the new corporate offence of failing to prevent bribery is punishable on indictment by an unlimited fine.

Pre-contractual agreements

• If you are negotiating big or complex deals, you may be asked to sign a heads of terms or a memorandum of understanding.
• Take legal advice before signing any pre-contractual agreement. Even it is not meant to be legally binding, it may create legal obligations and also moral obligations which can weaken your negotiating position.

Don’t enter into a contract by mistake

• A contract doesn’t need to be signed and in writing to be binding – you can enter into a binding contract over the phone or by e-mail provided key terms are agreed.
• To help clarify that you are still in negotiations, mark all correspondence “subject to contract” or “not legally binding”.

More information

DTM Legal provide commercial legal solutions for businesses. If you have any questions about the content of this article, please contact Edward Barnes on 01244 354800 or at edward.barnes@dtmlegal.com.