Bad Economy Presents Opportunity to Renegotiate Contracts

0 Comments Written by on January 21, 2009 | Posted in IP Transactions

While the bad economy has stopped much of the deal activity going on in the business world, the poor economy presents one opportunity that you may have overlooked: the opportunity to renegotiate your contracts.

Why does a bad economy provide such a good opportunity for renegotiation?  Well, the answer is fairly obvious: in a bad economy, parties are just more inclined to work with each other.  Businesses cannot afford to lose contracts, whether as a result of breach or simply termination, so they are more likely to work out a satisfactory resolution with an opposing party who wants to amend an existing contract.

Why might you want to renegotiate a contract?

Well, if you have run out of money and are unable to make the payments required under the contract, you probably want to consider renegotiating.  However, you may want to renegotiate even if you are having no difficulty in making the payments.  First of all, your circumstances may have changed since the time you originally entered into the agreement, and the agreement in its current form just may not make sense to you any longer.  Second of all, you may have entered into a bad agreement that you would like the opportunity to fix retroactively.   Finally, you may just want to take the opportunity to negotiate a better deal since the time is right to do so.

In my opinion, businesses of all sizes should take the time in this slow economy to carefully review their contracts–particularly the most expensive ones–to determine whether or not it may make sense to raise the renegotiation issue with the opposing parties to those contracts.  Then, assuming you decide that it makes sense to renegotiate one or more of your contracts, I recommend that you obtain some outside legal assistance to make certain your amendment(s) is/are drafted correctly, in order to avoid creating a legal mess of the original agreement(s).  A transactional attorney should be able to draft an amendment for you in most cases without generating any significant legal fees for the work. Thus, in most cases, it should be cost-effective to pursue the renegotiation, even with the assistance of legal counsel.

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