Top 5 tips for drafting and negotiating business contracts

Drafting and negotiating contracts can be intimidating. There is an awful lot of information to take in and consider, as well as many legal terms and expressions that can be difficult to understand if you’re not a lawyer. However, negotiating contracts doesn’t need to be complicated.

Tom Justice, associate solicitor and contracts expert, gives his top 5 tips to consider when drafting and negotiating contracts for your business.

Tip 1 – Think about whether you need bespoke or standard terms

Many of the agreements you enter into may be on the same or similar terms. If this is the case, you should consider drafting standard terms of conditions or template agreements for use by your business. This will be a useful starting point for any negotiations and can save time and money spent reviewing or negotiating other parties’ documents.

If you already have standard terms and conditions, you should review them annually to ensure they are kept up to date and reflect how you operate in practice.

Of course, there are instances where bespoke agreements may still be required if the agreement is unusual or particularly high value.

Tip 2 – Avoid ambiguity 

When drafting contracts, you always need to think about third-party objectivity. In other words, what would happen if someone unfamiliar with your business or those you’re working with, were to read your agreement? Would they understand the objectives? If the drafting isn’t clear, it could be problematic later if a dispute arises, as an ambiguous contract could be interpreted in a number of ways (including in favour of the other party).

If you want to rely on something important later, make sure you say it expressly.

Tip 3 – Consider your obligations

When drafting contracts, you must be clear on whether something is an absolute or qualified obligation.

For example, suppose you have a contract with another party concerning the sale of goods. In that case, it is important for the contract to clearly define whether the goods have to be delivered on a certain date with no leeway – “absolute” – or if the seller has to use their reasonable endeavours to deliver the goods on a certain date.

This can apply in lots of other scenarios (such as the performance of services or payment dates) and can be the difference between being in breach of contract or not.

Tip 4 – Remember that changes can happen

We'd all love to think that once we're done negotiating a contract, we can just put it in a drawer and never think about it again! However, in reality, things change. Therefore, you need to try to remember this when entering into a contract.

This is challenging, but you should consider events that may have an impact on the provision of the goods or services to which the contract relates. For example, how would delays be dealt with? Or what should happen if the cost of raw materials increases?

It is important that contracts include objective criteria that the parties can easily follow if one of those situations occurs. If the contract only says, “the parties will seek to reach an agreement” where changes occur, this will not be enforceable, and the parties may find themselves at an impasse if no agreement is reached.

Tip 5 – Set termination rights from the outset

In simple terms, termination rights are how a party can get out of a contract. This doesn't necessarily have to be if something has gone wrong; it can be without cause and may be as simple as each party being able to terminate the agreement on three months' notice.

Termination rights should be clearly drafted so that the parties know their rights if something goes wrong, and we always suggest seeking advice before terminating an agreement (as terminating a contract without the legal right to do so could result in a claim being brought against you).

How can I find out more?

To learn more about the ins and outs of drafting contracts, join us for contracts training on 12 October. Delivered by in-house experts, including Tom, this half-day session will give you all the tools and knowledge you need to confidently manage your contracts.

For further information about contracts, contact Tom using [email protected] or 0191 211 7913.