A well negotiated contract does more than record what’s been agreed. It helps you manage risk, set clear expectations, and build relationships that actually work in practice, not just on paper. Whether you are dealing with suppliers, customers or strategic partners, your approach to negotiation can have a lasting impact on your commercial outcomes.
This guide is aimed at business owners, in-house lawyers and commercial teams who want to negotiate with greater confidence and structure. It outlines practical steps to take before and during negotiations to strengthen your position, avoid common pitfalls, and secure agreements that support your wider business goals.
If you are entering into a new agreement or reviewing existing terms, our commercial contract solicitors can support you at every stage, from shaping your negotiation strategy to drafting, reviewing and ongoing contract management, helping ensure your contracts not only protect your business but actively support its growth.
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Before you start negotiations
Successful contract negotiation starts with careful preparation behind the scenes. If you are a start-up entrepreneur, it can be tempting to move quickly and get a deal signed off, but acting too quickly can lead to less favourable outcomes. Equally, if you are a procurement officer in a listed company, it’s easy to assume that preparation is less critical, but that can be a costly mistake.
Many high-profile commercial disputes arise because the basics were overlooked at the outset. Taking the time to prepare properly can help you avoid unnecessary risk and put you in a much stronger position when negotiations begin.
Before you even open a draft contract, it’s worth stepping back and looking at your position. What leverage do you have going into this negotiation?
Leverage isn’t just about size or buying power. It might come from having alternative suppliers lined up, strong demand for your product, or simply being willing to walk away if the deal doesn’t stack up. Without that, negotiations can quickly become reactive rather than strategic. Taking time to understand your options and strengthen them where possible can make a significant difference to the outcome.
It’s also important to think about the other side. What are they trying to achieve from the deal? Where are their pressure points? Understanding the other party’s priorities can help you move negotiations forward more effectively. For example, they may be less flexible on price but open to longer contract terms, or more focused on speed than detailed risk allocation. When you understand what matters to them, it becomes much easier to structure a deal that works for both sides.
Do you have authority?
If you are a founder, it may be obvious that you have the authority to negotiate a contract. If you are a director in a company, a partner in a partnership or an employee, consultant or agent, your authority may not be as clear cut. For example, your authority may be limited to negotiating contracts of a certain type or value. The larger the organisation, the more important it is that your business has a contract workflow document or policy setting out who is responsible for each aspect of contract negotiation and the limits of their authority.
Ongoing refresher training on contract workflow and authority is equally important, as once you get caught up in an exchange of email, it can be easy to exceed your authority and end up with a contract that binds your business. This point is just as important for founders as it is for scale-ups or well-established businesses, whatever your sector. Although you may be the founder of the business, that does not necessarily mean you are best placed to lead contract negotiations, particularly where you have specialist staff or external agents with the relevant expertise.
Do they have authority?
It’s natural to assume that the other party to a negotiation has authority to contract, but that may not be the case, or their authority may be limited. For example, they may be an agent or an employee with very specific, limited authority. It’s best to know the extent of that authority at the outset of negotiations, so you know when the next phase of contract negotiation has been reached.
Contract authority is a source of potential conflict, so it’s important to understand the basics to avoid the pitfalls.
Have you done due diligence?
There should be some form of due diligence before every commercial contract is negotiated. Otherwise, you may be wasting both time and money in pointless negotiations or, even worse, end up with a contract that is not in the best interests of your business.
Due diligence should not be limited to an assessment of the financial performance of the other party and the risk of their insolvency. Due diligence should be a broad exercise and should encompass an assessment of whether your company wants to be associated with the other company. Do you know where the company sources its goods from or whether it has been accused of using overseas child labour or paying less than the UK national minimum wage? Has a director of the company been the subject of sanctions or been the subject of a health and safety investigation? Due diligence can reveal that association with a third party could result in brand or reputational damage to your company. For example, a luxury retail brand wouldn’t want to be associated with a company that is not compliant with environmental regulations because of guilt by association.
Due diligence should not just be focused on the other contracting party but also involve some market research, so you know what alternative options are available and what your competitors are doing.
Consider confidentiality
There are many reasons why your business may need to keep information and contract negotiations confidential. Negotiations typically involve the exchange of information which, while it may not always appear sensitive, can in fact be highly confidential. This might include technical details about proposed goods or services, pricing structures, financial forecasts or other commercially sensitive information.
Unauthorised disclosure can have serious consequences. For example, if your business is planning a product launch, premature leaks could undermine your strategy and limit your ability to launch on your own terms.
The importance of confidentiality is not always fully appreciated by the other party. So putting a non-disclosure agreement in place at the outset helps set clear expectations and provides a practical safeguard for your business interests.
On the details of the transaction
There is no point being unclear about what you want out of the contract negotiation, because if you are poles apart in terms of pricing or the availability of supply, it is best to know rather than waste time on negotiations that are doomed to failure. Likewise, you need to make sure the supplier is able to meet specific manufacturing requirements or to retain membership of a professional body or organisation, then the negotiations will go nowhere unless you are clear from the outset about what you need.
On your objectives – what is negotiable?
Once you start negotiations, or when you take over negotiations, it can be very easy to lose sight of what’s important.
Price and delivery times may be negotiable, but other points may not be, such as product specification or the ethical sourcing of materials required for the product manufacture. If you are negotiating for the supply of professional services, it can be easy to get sidetracked on price without realising that the price negotiation has ended up with service standards that fall below your minimum acceptable requirements.
A contract should never be at any price but should be on your terms. It’s also important to be realistic. If you are entering a franchise agreement with a national franchisor or a contract with a digital services provider, there may not be much scope for negotiation.
It’s also worth keeping a clear record of how negotiations evolve. With multiple drafts, email chains and different stakeholders involved, it can quickly become unclear what has actually been agreed and why. Keeping track of key decisions, changes in position and agreed points helps maintain consistency, supports internal decision-making and avoids misunderstandings later in the process.
On the potential risks
No contract comes without risks, and so you need to be alive to them so you can manage them in a way that’s acceptable to your business. The first step is for the risks to be assessed and to determine if they are something that your business is willing to accept responsibility for or if they are non-negotiable.
Minimising risk is always a key objective. You may want to achieve risk management by imposing a condition precedent on a contract. Alternatively, a combination of pre-contract negotiation, due diligence and alertness during contract negotiations could address risk.
Contract negotiation risk management strategies include:
- Use of a contract negotiation checklist
- Use of a due diligence pro forma
- Work management, contract formation and authority policies
- Risk allocation measures, such as requiring the contracting party to take out and maintain insurance
- Negotiation of key clauses, including limitation of liability, indemnities, late payment, force majeure, business interruption or disaster recovery, audit rights and termination
This is the level of detail that can, over the long term, contribute to a successful contract. Through effective negotiation, and with the support of your commercial law solicitors, you can manage and minimise risk.
Do you need to use heads of terms during the contract negotiation?
Many businesses avoid using heads of terms, seeing them as an unnecessary extra step in the negotiation process. In practice, many commercial contract solicitors value them as a concise, often single-page document that helps focus attention on the key elements of the deal.
Heads of terms provide a useful starting point for negotiating and finalising the details of a contract. From a practical perspective, they also act as a helpful aide of what has been agreed, particularly in fast-paced or complex negotiations.
If you would like to learn more about this topic, see our article on heads of terms and letters of intent.
The importance of reviewing commercial contracts
Successfully negotiating a contract is only the beginning. All commercial agreements should be monitored and reviewed over time, and, where necessary, updated to reflect changes in the business relationship, shifts in supply and demand, and wider economic conditions. A business’s success depends not only on how well it negotiates its contracts, but also on how effectively it manages and reviews them over time.
The ability to review a contract may depend on the review and termination clauses that were negotiated at the outset. That is why it is essential not to include boilerplate clauses without first assessing whether specific terms require adjustment to reflect current market conditions. A more in-depth understanding of this process can be gained by considering why you should regularly update your commercial contracts, how contract lifecycle management should be approached, and what steps are involved in terminating a commercial contract.
Summary
Poorly negotiated contracts can expose your business to unnecessary risk. Our commercial law solicitors can help you achieve more favourable terms through skilled negotiation, a deep understanding of contract law, and a commercial approach tailored to your industry.
Whether are renewing existing agreements, entering high-stakes deals, or reviewing clauses that commonly give rise to disputes, we’ll ensure your contracts work for you, both now and in the future.
