By UpCounsel Commercial Contracts Attorney Umar Farooq
Whether you’re new to the challenging landscape of contract negotiation or are a seasoned pro, coming to an agreement that satisfies both parties isn’t easy. In fact, reaching a mutually acceptable agreement often requires weeks if not months of discussion that are likely to cause frustration. This is especially true if the other party is stubborn, uncompromising or downright aggressive.
Nevertheless, these qualities, while annoying, are not necessarily a sign that you should not continue the negotiation process. There are, however, some behaviors that are cause for concern.
When negotiating a commercial agreement with another party in the US or overseas, look out for the following “red-flags” that should trigger further due diligence into the other party or cause you to get out of the transaction, period.
1. Bribes
If the other party offers bribes, they are almost certainly not a right fit. Besides, it is criminal to offer or accept bribes under Foreign Corrupt Practices Act (FCPA) in the US and the Bribery Act (if applicable) in the UK.
2. Persistent Exaggeration or Untruthful Statements
If the other party keeps changing facts about its capabilities or experience, this may be a good indication that they are not being forthright in the negotiations or are otherwise hiding something that may eventually come out to your detriment.
3. Changes in Negotiating Person
Although not entirely a deal breaker, if the other party keeps switching its personnel or if there is always someone “higher-up” who needs to approve the deal and you never hear from them (or at least they are not copied on emails), you are probably wasting your time and there is no deal to be had. If you are in situation like that it is best to set a hard deadline when the deal will break if not done and follow through with the deadline. In my experience, there is always another deal to be had but you won’t do it if you are still stuck with the current dead-ender.
4. Refusal to Sign NDA
It may be OK to work without one in small transactions, but for most early-stage companies if the other party is refusing to sign a confidentiality agreement without good reason (good reason being the size or nature of the deal), they are probably not serious or focused enough to enter into the transaction with you. This is another time waster.
5. Success Fee Only Agreement
For professional services providers (e.g. funding advisors, investment banker etc.), I don’t need to explain this. You are wasting your time. If they are not willing to pay a reasonable amount to cover your costs upfront, they probably either don’t see the value you are offering or are taking you for a ride. Run the other way. Stop all communication until they sign an agreement and pay you a mobilization fee or retainer.
6. No Agreement
If the other party wants you to do the work and is not willing to sign an agreement and you think this is your big break, you are probably wrong. There is no break and doing the work without agreeing on the parameters or the fees in writing is plain stupid in modern day commercial society.The Takeaway
If you spot any of the above red-flag items during a contract negotiation, proceed with extreme caution in all future dealings with the other party. In come cases, it might be best to end your interaction altogether.
This is not an exhaustive list of concerning behaviors. The fact is that it is extremely difficult to gauge the intentions of another human being when negotiating a commercial agreement. The difficulty is compounded by differences in culture, ethnicity, age and other factors.
Therefore, it’s important to consult with an attorney if you’re at all concerned about the behavior of the other party during a contract negotiation. An attorney can help you determine whether the other party’s suspicious behavior is merely the result of cultural differences, or whether it indicates bad intentions that could seriously harm your business.
