A lot of our daily work and business interactions involve negotiating, whether it is negotiating a pay rise with our employees or negotiating with a counterpart on the terms of a business deal or future collaboration. Negotiating the terms of an agreement is an art and forms the cornerstone of any well-drafted agreement.
This article will set out a couple of tips for contract negotiation.
1. LIST OUT IMPORTANT ISSUES
From the outset, both parties should exchange a term sheet which is essentially a list of issues or matters that are vital to be incorporated into the agreement. For example, what are the payment terms, what are the obligations of each party, tenure and the termination process.
Dealing with the fundamental issues at the outset will make it easier for both parties to ascertain if they are on the same page. For example, let’s take governing laws as an example. If one party is a Malaysian based company and the other is a foreign entity it is most likely the Malaysian party will want Malaysian laws to be the governing laws.
On the other hand, the foreign party may want the governing laws to be that of their own country. When negotiating the jurisdiction clause, always remember that the governing laws should be of the country in which the agreement or contract will be carried out.
2. COMPARTMENTALISE THE NEGOTIATIONS
Negotiations are about compromise. Before you start negotiating, you must already know what are the issues you can compromise on and what you absolutely cannot do without. There is no such thing as an “all or nothing” attitude when negotiating a contract.
The best way forward is to compartmentalize the negotiation and break-up the negotiations into segments or sections. This will enable parties to consider the agreement in sections and not as a whole.
3. ASK QUESTIONS, DON’T DEMAND
If the other party is taking a tough stance on a particular issue, don’t out rightly reject it or refuse it. Alternatively, ask questions. Asking questions will open up the discussion and you will be able to understand why the other party is taking a hard-line position on certain issues. If there is a war of words, you will not be able to close the deal. I have seen weeks and months of negotiating fall through due to parties not being able to agree on simple matters that could have been resolved by asking questions.
4. PAY ATTENTION TO THE EXIT ARRANGEMENT AND DISPUTE RESOLUTION
When a contractual relationship has gone sour, the one clause you will need to look at is the exit clause. What are the terms for parties to exit a business relationship that isn’t working? Does it require both parties to mutually agree to a termination? Or can one party terminate unilaterally without cause?
The exit clause or arrangement in any contract is of vital importance because if one party wrongfully terminates the contract, this can give rise to a repudiatory breach by the terminating party which will then give the other party a right to treat the wrongful termination as a repudiatory breach and to accept that breach, to terminate the contract and claim damages as appropriate.
5. FIND COMMON GROUND
It is important to recognize and acknowledge similarities and points of agreements between parties. These similarities help to set a collaborative tone and remind negotiating parties that you are both on the same side.
6. DON’T RUSH!
In my experience, contracts that are rushed through or executed for the sake of being executed, usually end up in litigation. Resist the urge to glance over the documents and file them away. Instead, take your time and go through each issue and clause with a fine-toothed comb, including drafts and memos, to determine whether the documents accurately reflect the negotiated terms as you understand them. Understand that the terms of negotiation have legal consequences and can bring huge impact, whether good or bad to a company. Always remember that errors are common when negotiators and their lawyers are under pressure to wrap up a deal quickly.
7. SPEAK TO LAWYERS
Once the terms have been negotiated and agreed on, please seek professional assistance in getting the said negotiated terms recorded in a contract or agreement. Always have your lawyer review anything you execute or sign. Also, a legal professional would be able to advise you on the consequences or effects of the terms that you have negotiated.
About the Author: SHARMILA RAVINDRAN is the founder of the law firm Messrs Ravindran located in Mont Kiara, Kuala Lumpur. She has more than 14 years of experience in the legal industry servicing clients that include local and foreign companies. She is now actively involved in corporate advisory work and commercial litigation and is a Panel Adjudicator with the Kuala Lumpur Regional Centre for Arbitration. She also sits on the Bar Council Child Rights Committee and is the Legal Director for Lean in Malaysia. She can be contacted at firstname.lastname@example.org.