Introduction

This book will help you get the most out of your commercial deals and contracts.

The commercial world can be a cold, hard place. There are hundreds of thousands of intelligent, hungry and astute people doing deals every day in Australia. Very few of them are suckers. Most know their business and what they want to get out of it on every level — profit, growth and expansion.

When you are in such a competitive environment it is critical that you are prepared. This book will help you prepare for contract negotiations and to do the best possible deal you can.

As a lawyer who has been involved in negotiating many commercial contracts over the years, I have seen a kaleidoscope of behaviour from the incredibly astute to the widely speculative.

Some of those who have negotiated best are those without any ‘formal’ education. Their insight, intuition and ability to manage the other parties has been educative to watch. At the other end of the spectrum have been those who have MBA or doctoral qualifications but proceeded through the deal with clumsiness and a lack of smarts. This reinforced a maxim I was given by a client when I was a junior lawyer: What you know is important, but whether you win or lose today depends on how you use it.

I have also assisted clients with my fair share of disputes over the years. What has ultimately compelled me to write this book is seeing too many people fall into traps that are easily avoided — concentrating on the sexier or more cosmetically important parts of the deal to the detriment of the ‘stuff drafted by the lawyers for the lawyers’, as one client once told me.

If some of the lessons in this book had been employed at the outset, millions of dollars could have been saved and been better spent on business expansion and improving the bottom line rather than on lawyers in disputes neither party wanted to have.

In a slightly melancholy way, I suppose the other theme of this book is never to openly trust in the negotiation and performance of contracts. My view of contracts is that they are essentially a competition where both parties are seeking to obtain the maximum advantage for themselves. While there may not be winners and losers as there are in a sporting contest, often one party comes off second best. A contract negotiation is not a place for a group hug or to blindly rely on the word of your counterparties.

In my experience trust is directly related to leverage — he or she with most leverage can be the most trusting. However, there are not that many contracts that I’ve seen where the leverage is so one-sided as to give the more powerful or stronger party the right to be complacent.

Bearing in mind the general parallel of competition will help. Just as the person marking you in football or on the other side of the tennis court net is a competitor, so is your counterparty in a negotiation.

It is important not to mistake or merge competition with enmity. The best contractual negotiations, and ironically the best contracts as far as performance are concerned, tend to be between parties who negotiate hard for the strongest deal for themselves and both sides mutually recognise this. It develops a sense of respect. That respect in turn is the basis for performance of the contract.

This book is targeted at all people who negotiate contracts, from a junior procurement officer or small businessperson to a senior corporate executive.

From my observation, people at all levels in the commercial hierarchy can fall into similar types of traps and create problems for themselves and their businesses that could be avoided by more focus and preparation.

It is critical that what they want and need out of the deal is clearly known.

This book is in essentially three parts. They are:

• The contractual environment — a user-friendly précis of the law and the legal elements of a contract. I have placed an emphasis here on removing the jargon and unnecessary verbosity lawyers speak with in the hope of making what seem complex and strange ideas easily graspable concepts.
• Doing the deal — from the first stage or baby steps to the final negotiation of the contract. I provide practical tips and assistance in this process.
• The end of the relationship — the third part of the book addresses termination. In particular I deal with the situation where things end badly and a dispute arises.

The key word is preparation. I have often been surprised in the past by the confidence contract negotiators have had in doing a deal that meets all their needs and wants when in fact they are unprepared. They have not fully articulated those needs and wants to themselves — let alone been in a position to negotiate the contract in a dynamic environment with a counterparty who wants as much as they can get in their own best interests.

If there is one message I would like contract negotiators to take away from this book, it is that there is no limit to the amount of preparation you can do at every level for the negotiation. A badly negotiated contract is like a two-storey brick house built on a foundation of sand. It may look good for a period of time but the sand shifts and the walls collapse. A negotiation that has been properly and completely prepared will generally see a house that lasts for as long as the owners want it to.

Given the competitive context of contractual negotiations, I cannot guarantee that after reading this book that you will necessarily have the upper hand in every negotiation and do deals that every time meet your heart’s desire. Sometimes the bitter truth is that you will need to do deals with people who have more power, money and leverage. You are not in the position to get the deal you necessarily want.

However, if you still use the tips set out you will be on much stronger ground and are likely to have negotiated a better position than might otherwise have been the case.

What this book is not

You will be unsurprised to know that, like any lawyer, I like to get my disclaimer in early!

This book is a general guide to negotiating contracts and the law of contract. It is not a textbook. It contains a summary of often complex and arcane legal principles.

There is no substitute for getting specific legal advice. If you have an issue in relation to entering into a contract or, alternatively, a dispute arising from the performance of one, talk to a lawyer who is experienced in the field.

Like people, each contract is different. The nature of the issues you have in relation to the contract will depend on factors such as:

• the subject matter of the contract
• the amount of money under the contract
• who your counterparty is
• the respective resources the parties under the contract have
• the importance of the contract to the parties in their business
• the access either party has to legal advice
• the personalities involved.

As a matter of law, your lawyer has specific duties to you as a client. These duties are important and taken seriously by lawyers.

While I hope you can use this book as a general reference and as a guide to understanding the concepts and issues in relation to negotiation of contracts, it cannot replace tailored and precise legal advice!