Parallel to how organisations today are growing quickly so is the negotiation arena. There is an increasing push for more sincerity, openness, and integrity. Executive management is showing a far higher interest in a contract and commercial management skills nowadays.
Poorly negotiated contracts frequently produce agreements that provide implementation teams with little direction. The most often negotiated terms were published by IACCM in 2018 after researching over 2100 organisations.
Clauses Majorly Used in Contract Negotiation:
The study shows how crucial it is for negotiators to comprehend the concerns that shape particular industries or cultures and to consider these when drafting and negotiating agreements. This may be applied in similar sets or during dispute resolution.
Let's look at a few of these phrases.
1. Limitation of Liability Clause
All firms aim to protect their financial stability, reduce risk, and shield themselves from obligations and losses. The main means of establishing a safety net is a limitation of liability clause that has been carefully drafted and bargained. It clearly states the parties' obligations and protects them in case something doesn't work out as expected.
Responsibility caps that assist in reducing potential liability to a set or calculable amount are always advised.
2. Indemnification Clause
For better or worse, the indemnification provision is frequently one of the most contentious clauses in contract negotiations. Often, the allocation of risk by the contracting parties is a topic that requires lengthy talks.
It is frequently a last-minute, back-and-forth item that is pushed by counsel for both sides and is frequently not fully understood by clients. Therefore, it becomes crucial to dissect the components of the indemnity clause's terms to comprehend and communicate the obligations and advantages early on in the process.
Negotiations over representations and warranties are essentially a risk-allocation exercise. Both buyers and sellers frequently demand revisions to this clause since they are not in agreement with it. The buyer wants the largest set of representations and warranties available to protect itself and transfer risk to the seller, while the seller wants to narrow the scope as much as possible to minimise the possibility of inaccuracy and claims of breach.
4. Service Withdrawals/ Terminations
Business needs and relationships change over time, and even the best deals go awry. There could be several reasons for this, but it is possible that neither party was at fault and the contract simply survived. For this reason, termination clauses occupy an important place in contract negotiations. Business-to-business services make it even more difficult. Companies often suffer for years with expensive contracts and poor service. Non-compliance-focused termination clauses are usually complex, and in most cases, poor service is technically not in breach of the clause. Therefore, it is important to negotiate where possible to include a cancellation clause so that you can move out if you wish.
5. Data Protection
The use of data is now the foundation of strategic analytics capabilities. The availability of customer data can have a significant impact on a company's reputation and performance. With the advent of machine learning and AI, the ability to train models on customer data and reuse those models across customers is a key strategic capability. At the same time, customers often refuse to provide data due to data protection or legal disputes. It's important to consider what it takes to win deals and maintain long-term strategic capabilities. Negotiators should plan accordingly and negotiate with clients who are reluctant to share data.
New Rules, Old Standard
Businesses today are becoming more and more digital, and COVID-19 has accelerated the pace of digitalization. Businesses today are more service-based and driven by intangibles. This includes intellectual property rights, from logos to patents to copyrights. Organizations are moving to a more collaborative and value-creating business model, rather than simply exchanging value. The fact that companies are still negotiating on the same terms they had ten years ago shows a clear lack of progress, a caution to the realities of business. Contractors are still focused on protecting their assets rather than focusing on and addressing issues that could impair contract performance.
One could always opt for AI-based platforms for checking out the risks in their contracts. SpeedLegal itself offers a special feature named the “Red flag table” to analyse the risks present in a contract overall. This tool can come in handy and save you time and money!