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contract law

Common law jurisdictions developed the law of contract from medieval times. The essence of contract law is that the parties have entered into a commercial bargain. That is both parties have assented to the deal. Common law is not interested in intent, but in the statements, written and verbal, made by the parties. In order to judge whether there is a valid bargain the concept of offer and acceptance is applied. The classic statement in English law is that an offer in order to be capable of being converted into an agreement by acceptance, must consist of a definite promise to be bound and the other party has the clear option of accepting or refusing. Advertisements are normally offers to negotiate, rather than promises to be bound, although it is possible to make an offer to the world at large, if the offer is specific.

As regards commercial negotiations the parties are normally careful to ensure that no binding agreement is entered into until all the elements of the contract are agreed. In a complex negotiation the parties may exchange letters of intent, and these pre-contractual documents usually attempt to avoid creating binding obligations - this is an area of the law which is often misunderstood and the intentions of the parties are not always reflected in this type of documentation; some non-binding agreements are actually evidence of a contract.

If the parties fail to deal with all the key elements during the negotiation then unforeseen consequences can result; in the UK there have (in the past) been a number of problems with IT contracts entered into by legal firms, because the lawyers failed to understand how to deal with software contracts and the definition of their own technical requirements.

It is normal for the parties to start negotiations with a number of documents including draft contracts (often separate drafts produced by both parties), technical specifications, operational requirements, and other relevant documentation. This paperwork assists the negotiators to focus and record the issues. It is common to circulate detailed written responses to documents produced by the other side, amended and marked-up versions of contracts, to produce clarifications and position papers. This has the effect of improving communication and reducing uncertainty. Document control and management is a vital discipline during complex negotiations. Documents are also circulated to key team members, not only to the legal advisors, their responses are recorded and a joint position is agreed internally before continuing negotiations with the other side. The need to agree and negotiate within each organization, whilst keeping the overall negotiations in play often leads to complex juggling of timetables and changes in the order of discussions.

Richard Christou, in the introduction to his book Drafting Commercial Agreements [1993], said "The negotiation of contractual terms ..... is all too often regarded as a contest in which the supplier attempts to exclude the maximum possible liability on the supplier .... From a commercial point of view, this is not the most fruitful way to approach a continuing business relationship, since it normally leaves one of the parties unsatisfied with the deal.. It is far better to look upon the purpose of such negotiations as to define the risks which each party is willing to accept.."

During the process of negotiation one of the primary tasks of the negotiators is to identify all the areas of risk and then apportion the risks. In order to undertake this task the negotiators will call upon the advice of experts; such as lawyers, engineers and financial experts. The negotiators also need to discuss a series of possible, and hopefully unlikely, events; including non-performance, failure to meet performance warranties, force majeure (events, such as war, over which they have no control), the death of key individuals, changes in exchange rates, new technology, business failures, assignment and take-overs. Paul Klinger and Rachel Burnett, in Drafting and Negotiating Computer Contracts, note that "Compromise is an essential feature of most successful negotiations: each party needs to walk away afterwards feeling that he or she has gained." One of the tricks is to sell a concession which is of less concern to you as a major problem within your organization. Where you do not wish to concede a key issue, build a fence of related points around that issue, and be prepared to trade these rather than your "no-go" issue. This is often the case with warranty periods.

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