What is a Commercial Contract and How to Negotiate it?

According to the Australian Government Department of Finance, 83,625 contracts were published in 2022-23, with a combined value of $74.8 billion. Australia’s policies regarding commercial contracts are transparent. They ensure that the contract favours and protects all parties’ rights.

Negotiation is necessary to make a contract agreeable for both parties. In this blog, I will explain what a commercial contract is and how to negotiate it. Moreover, you will learn why understanding its purpose is essential. 

First of all let’s start our blog by understanding what a commercial contract is?

What is a Commercial Contract?

It is crafted according to standard and statutory law rules. Commercial contracts also cover the contract between an employer and an employee. A commercial contract is a legal agreement among two or more parties to conduct a business’s transaction process or run a business together.

For example, when a contract occurs between a supplier and a manufacturer, the latter is bound to supply the goods produced offshore at a fixed price within the decided period. Furthermore, according to the contract terms, the manufacturer will not be held responsible for any damage caused to the goods during the shipment.

How to Negotiate a Commercial Contract?

Commercial contracts get finalised after several revisions and negotiations. Because of the intricate nature of commercial contracts, it is nearly impossible to agree on the first draft of the contract. You must know how to negotiate a commercial contract to agree on terms in your best interest.

Here are the key factors you should consider when negotiating a commercial contract.

• Advance Preparations
• Maintain Professionalism
• Clarity in Terms and Conditions
• Make a Record of the Negotiation
• Get Professional Help

Let me explain the above mentioned factors in detail.

1. Advance Preparations

Preparing before starting a negotiation is crucial to helping you draft a contract that aligns with your interests. Beforehand preparation will make you confident and ready for the expected questions. You can list all the possible questions and prepare the answer so the situation will work in your favour.

You can also prepare a strategy to follow throughout the negotiation process. You can decide on the starting point of your negotiation and your offer. Developing a negotiation strategy will help you in deciding on your opening offer, target settlement, and walk-away point.

2. Maintain Professionalism

A key element of negotiating a commercial contract is maintaining professionalism. Every word you say during negotiation is part of the contract, so you must remember what you say. Your words will significantly impact your business and your reputation in the market.

You must stay respectful when addressing the problem or the disagreements of the contract. It will help you figure out the potential problem and devise a solution that preserves the interests of both parties. It will also help you to maintain a good business relationship with the other party.

3. Clarity in Terms and Conditions

When two parties decide to do business, a contract is drafted that outlines the details of their agreement. This contract is based on commercial and contract law, which is different from employment law. Employment law usually deals with the rights and responsibilities of employees and their employers. In contrast, commercial and contract law is based on facts of the agreements between two or more businesses or individuals who are working together in a non-employment relationship. 

The good thing about commercial contracts is that you or the company you’re working with can decide the main component of the contract. However, when you draft an agreement, it is essential to list down the responsibilities of each party to be fair in what you’re asking for. It is necessary to ensure everyone understands and agrees to the terms to avoid problems later on and have a successful business relationship. Remember, a good contract is transparent, fair, and agreed upon by everyone involved.

4. Make a Record of the Negotiation

Negotiation doesn’t always produce an outcome. While negotiating, you might not agree on mutual terms for the first time, so recording whatever you say or the other party proposes during the meeting is essential. When you close the meeting, the written or saved records will help you draft the final contract.

If the terms finalised in the negotiation change later on, it will either be considered a variation of a contract or a new/separate agreement. While making changes, you can add a copy of the recorded negotiation as evidence.

5. Get Professional Help

If your contact is straightforward, it is easy to negotiate matters on your own. However, if you have a complex business to deal with, you need professional help to sort things out. Business lawyers are the right choice to deal with commercial contracts.

Business lawyers can introduce you to strategies for negotiating the best deals and drafting the contract according to the laws of Australia. Aussie Legal Partners have a team of knowledgeable and skilled lawyers to walk you through the process swiftly and smoothly.

What is the Purpose of Commercial Contracts?

Before drafting a commercial contract, it is important to understand its purpose. Following are points that highlight its purpose.

1. Protect Your Business

Commercial contracts are safety nets for your business. Every clause is designed to shield you from problems in your business. For Example, the confidentiality clause in your contract works as a secret keeper. It ensures that the sensitive information in your contract and business stays protected. 

Similar to the confidentiality clause, there’s the indemnity clause. It protects you and your business, ensuring that you won’t be left dealing with the consequences if something goes wrong. These contracts are your toolkit for confidently navigating the business world by setting clear rules and expectations.

2. Evidence for Commercial Dispute Resolution

When a business dispute arises, it is always about who is right. Most people try to solve a commercial dispute on their own without involving a third party. But when a dispute becomes huge and seems impossible to solve, then the parties involved in the business might involve a mediator. At such points, the contract acts as evidence for the resolution of commercial disputes.

3. Explain the Rights and Duties

Commercial contracts work as a list of promises between businesses. It clarifies the rights of duties of the involved parties. These contracts are super important because they make sure everyone knows their jobs. These contracts also remind you to keep the promises that you have made with the other party.That’s your obligation.

Closing Insights

Negotiating a business is challenging, and everyone needs help to do it. You need special skills to convince another person or party of your proposed terms by negotiating. This blog has summed up all the key points you should consider when negotiating your business contract. If you are not confident enough about carrying out the process correctly, hire a business lawyer.

Business lawyers at Aussie Legal Partners will identify your goals and interests. They develop a negotiation strategy according to your position to enhance your chances of success. Moreover, our business lawyers will also consider the other party’s position to determine the possible objections. A suitable commercial contract will be drafted by figuring out the points of agreement and disagreement.

Contact Aussie Legal Partners today and book a free consultation to discuss the critical elements of your commercial contract.

FAQs

What Are the Risks of Commercial Contracts?

The four major and most common risks for commercial contracts are:

• Financial risk 
• Security risk
• Brand risk
• Legal risk.

What are the elements of a commercial contract?

Some of the most common elements of a commercial contract includes:

• Consideration
• Acceptance
• Intention to create legal relations
• Offer
• Capacity
• Contract
• Certainty
• Dispute resolution
• Legality

What are standard commercial contract clauses?

There are six key clauses in a commercial contract. Here is a list of the clause:

• Confidentiality
• Force Majeure
• Termination Triggers
• Jurisdiction
• Dispute Resolution
• Damages