Contract and contract negotiation

A contract is a mutually binding legal agreement that obligates the seller to provide the specified products, services or results and obligates the buyer to pay for them. It includes terms and conditions, and may include other items the buyer specifies. A valid contract needs offer, acceptance, consideration, capacity of the parties, free consent and a lawful object. In Nepal, contracts are governed by the National Civil Code 2074 (Muluki Civil Code), which replaced the Contract Act 2056; public bodies must also follow the Public Procurement Act 2063.

Contents of a contract

Scope of work/SOW, price and payment terms, schedule/delivery, acceptance criteria, quality and warranty, change control, roles and responsibilities, penalties (liquidated damages), termination, dispute resolution (arbitration), confidentiality, intellectual property and insurance.

Types of contracts

Contract negotiation

Contract negotiation is the process of discussion between buyer and seller to clarify the structure, requirements and other terms of the purchase, so that mutual agreement can be reached before the contract is signed. The final document language reflects all agreements reached.

Key points:

• Covers responsibilities, authority, applicable terms and law, technical and business management approaches, financing and price.
• Done by the project manager together with procurement and legal experts.

Steps

Prepare -> Define objectives -> Open
  -> Discuss/bargain -> Agree -> Document -> Sign

1. Prepare: study proposals, set priorities, limits and alternatives (BATNA).
2. Exchange positions and clarify terms.
3. Bargain on price, schedule and risk allocation.
4. Reach agreement and record it in writing.
5. Carry out a legal review and sign.

Tips

Focus on interests rather than positions, be ready to compromise, keep records, aim for a win-win result, and do not neglect the long-term relationship.

Example: A university negotiates with an ERP vendor and agrees on a fixed price with milestone payments, 10% retention and a 1-year free support period.