negotiation: standard terms and conditions

IMPORTANT NOTE: The material on this page (and on the rest of this Site) should NOT be used as the basis for any agreement or contract; in all cases you should use your own lawyer qualified and licensed to practice in your jurisdiction. The purpose of this page is to illustrate some areas that need to be considered when drafting an agreement in a common law jurisdiction, it is not comprehensive, only you and your advisors really know what provisions you require for any particular deal.

The first thing that the negotiator needs to do is to produce a working draft contract. He may take a draft produced by the other party, a standard contract used for other business, or he may in consultation with his colleagues and professional advisers produce a new draft agreement. I am a great believer in the use of a scanner and OCR software to capture any draft terms that are presented as hard copy, programs like OmniPage Pro are extremely effective (but you still need to check for errors). Commercial agreements are increasingly subject to restrictions imposed by legislation, your professional advisers will be aware of the legislation. Cross-border agreements normally enjoy somewhat greater freedom of action in that the negotiators can use different jurisdictions and legal systems, however the domestic legislation of the parties must still be taken into accord.

Most contracts in English law have a clear structure, a set of legal provisions (aka the "boiler-plate" clauses) and commonly a series of schedules or appendices which set out in detail product specification, project processes, delivery and acceptance arrangements, and often price, payment processes, support procedures. Contracts may specify the behavior of personnel, conduct on site, reporting procedures, amendment processes and a range of procedures, processes and information which relates to the subject of the agreement. Often the schedules/appendices refer to other documentation, such as technical specifications, quality documentation, standards etc. A contract is the description of a process, a well-written contract is like a computer program in that it not only describes a series of related processes, but that it contains a clear set of rules which define what will happen in a set of defined circumstances. For example if the goods fail to meet the agreed specifications, or are not delivered at the agreed time, then the parties may agree that the contract will immediately terminate with resultant costs falling on the party in breach, or a procedure may be defined for modification of the goods within an agreed timescale, or the consequences of late delivery may be defined. As noted the rights of the parties to reach agreement on specific matters may be restricted by legislation.

LW Melville says that the three graces which a draftsman must satisfy are clarity, conciseness and comprehensibility.

The legal clauses of an English law contract will normally include clauses dealing with the following matters (not necessarily in the same order and additional clauses will be essential for many agreements) and subject to statute limiting certain contractual terms:

Preamble - to set out the names and addresses of the parties, the date of the agreement and a brief description of the subject matter.

Definitions - defines key words so that full descriptions do not have to be repeated throughout the agreement, references to interpretation are often included.

Commencement and period - when the contract becomes effective and if necessary how long it will last.

Subject matter and consideration - what is to be supplied in return for payment.

Licence of IPR - may not be required in an agreement purely for the supply of goods.

Process - delivery, testing & acceptance etc. project management issues.

Support Arrangements - if any, the process, charges etc. normally set out in a schedule.

Confidential Information - especially important in IPR agreements.

Payment - reference to specific provisions in schedule, taxes, customs duties, stage payments, currency, bank account information.

Warranties - what the goods and/or services/software will do (subject to statute), see note.

Liabilities - limitations of liability and exclusions (subject to statute) re subject matter of claims, amount and period in which claims may be made.

Obligations - often found in service agreements, e.g. personnel to comply with security procedures, sub-contract arrangements may also be included.

Breach and Termination - consequences of breach, agreed events which can give rise to termination, consequences of termination.

Force Majeure - consequences of delays caused by forces beyond the control of the parties, e.g. war.

Notices - where formal notices are to be addressed and how delivered.

Amendments and variations - how the process is to be dealt with.

Jurisdiction - what legal system and which courts the parties will normally apply to (of limited application).

Arbitration or ADR (Assisted Disputes Resolution) - if this is to be part of the agreement, a description of the process, normally detailed in a schedule, including the rights of the parties to proceed directly to court. ADR agreements may also be required with the ADR organization.

Survival - the provisions/clauses which will survive termination.

Assignment/Novation - limitations and process

Whole Agreement and other related legal boiler plate provisions, including severability and relationship.

Signature - state the capacity of the signatories and their intention to bind themselves or their organizations (evidence of their authority may also be given, such as a board minute).

The Schedules/Appendices - Define the details of what is to be delivered, the processes and procedures, documentation and other references which form part of the contract. In a complex agreement project management and acceptance procedures will form a key part of the documentation.

Note: Under English law a condition is a stipulation in a contract of sale the breach of which may give rise to a right to treat the contract as repudiated and a warranty is a stipulation the breach of which may give rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated [Section 11 (1) (b) Sales of Goods Act 1893]. The intentions of the parties needs to be considered something expressed to be a warranty may actually be a condition.

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