Which party's standard terms and conditions to use in negotiations?
The first point of contention in a contract negotiation is who's terms and conditions to use. Each side wants to use their standard conditions, but what's best approach?
Business related Terms & Conditions in German commercial agreements
40% of all business contracts do not deliver the finanacial benefits that were expected at signature costing the companies an average of 10% of their revenue. Therefore it makes sense to check the each and every contractual condition.
Major pitfalls in commercial contracts
Issues that cause most of the claims and disputes when trying to resolve unclear contracts after contract signature:
- Lack on clarity on scope and goals leads to misaligned interest and to future opposition,
- Legal and contractual team not involved early enough leads to wrong forms and extended lead times,
- Failure to involve stakeholders,
- Protracted negotiations,
- Negotiations focussed on the wrong terms and conditions,
- Lack of contractual flexibility and unsufficient focus on governance,
- Contractual complexity leads to unmanageable instrument in the daily work.
Favourable terms & conditions
Depending on the client's or supplier's negotiation power and on the specific business field there will be more or less influence on favourable and beneficial terms and conditions.
In any case you should include the following terms and conditions:
- Legal Definitions
- Delivery terms
- Payment terms
Ideally the Contractor would like the Subcontractor to be bound to the same or stricter quality and performance requirements. Subcontracts as a general rule are usually weighted more towards reducing the own company's risk vs those of the contract counter party.
The client imposes strict terms on the contractor, who imposes even stricter terms on the subcontractor, and so on down the chain.
Standard agreements vs specific individual conditions
By contracting back-to-back, one needs to amend the already existing specific contractual document with the business partner in order to reflect the actual legal scope. One should weight the risks and focus on mitigating the major ones in the back-to-back contract with the subcontractor.