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Contract negotiations - pitfalls to avoid

17 Nov 2012

This article sets out some of the major pitfalls your business should be aware of, and avoid, during a contract negotiation. You should always take legal advice if your business is negotiating a large or unusual contract.

Who are you negotiating with?

Does the person you are dealing with have the authority to negotiate and on whose behalf are they negotiating?

Do you want negotiations to remain confidential?

If so, get the other party to sign a confidentiality agreement before starting negotiations. A confidentiality agreement (also known as a non-disclosure agreement or NDA) should be signed before giving away any business sensitive information. The agreement should explain that the information given:

  • Is confidential.
  • Should only be used for a stated purpose.
  • Should not be shown to anyone else.
  • Should be returned or destroyed if the deal does not go ahead.

Are you handing over business sensitive information?

  • Take legal advice before handing over any business sensitive information. It can be unlawful to hand over certain types of information, such as personal data about customers or employees.
  • A confidentiality agreement may give some protection, but it must be signed before anything is handed over.
  • Consider whether the other party really needs the information or whether they are simply on a fishing expedition.

Do not exaggerate or mislead the other party

If you exaggerate or mislead the other party during negotiations, the contract may be undone and compensation payable.

Do not offer or accept bribes or inducements

The Bribery Act 2010 sets out the following offences:

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

The penalties for committing an offence can be very significant. For example, failing to prevent bribery can lead to an unlimited fine.

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Might the other party try to poach employees or customers?

If the other party has access to your customers or employees, consider getting them to sign a non-poaching (or non-solicitation) agreement. This stops one party from approaching, for example, the employees, customers or clients of the other party.

Take care before signing any pre-contractual agreements