The consequences of pitfalls during pre-contract negotiations can be severe for any party involved. False or misleading statements, lack of clarity, and misinterpretation are just the beginning of how a contractual agreement can break down. When this happens, the contract that was intended to act as a blueprint for resolving such issues may prove inadequate or even unenforceable.
Pre-contract negotiations exist not only to define a contract’s terms and conditions, but also to identify and mitigate potential risks.
Pre-Contract Pitfalls
Misunderstandings
The most common pre-contract pitfalls often arise from misunderstandings. Communication breakdowns are at the heart of many business issues, and contract negotiations are no exception. These misunderstandings can take the form of overstated capabilities, vague or ambiguous language, or differing interpretations between parties.
Confidentiality Breaches
Many are unaware that binding obligations can arise even before a contract is formally signed. This depends on the conduct of the parties and the nature of their communications. As a result, confidentiality breaches, intentional or otherwise, can occur during negotiations. Failing to safeguard sensitive information at this stage can lead to legal and commercial complications that delay or derail the agreement.
Lack of Due Diligence
In legal matters, good intentions are not always sufficient. For example, omitting a key stakeholder from the process, even unintentionally, can result in serious repercussions. Conducting proper due diligence is therefore essential to ensure all relevant information and parties are taken into account before an agreement is finalised.
Failure to Address Key Issues
Whether due to oversight, pressure, or inexperience, omitting key issues during negotiations can lead to contractual breakdowns. This could include failing to identify all stakeholders (as noted above), omitting provisions on liability, ignoring foreseeable risks, or neglecting to include a clear dispute resolution mechanism.
How to Avoid Pre-Contract Pitfalls
A reliable way to avoid pitfalls during pre-contract negotiations is to obtain legal advice early in the process. One effective approach is through a pre-contract risk assessment—a structured review designed to identify, evaluate, and address potential risks before a contract is finalised.
The care and attention required at this stage apply not only to the form of contract being used but also to the way it is drafted and executed. Mercantile Barristers’ contract drafting experts are experienced in providing practical and commercial advice on all aspects of contract formation.
Contact one of our clerks to ensure you are not tripped up by any of these pre-contract pitfalls.
