Friday, February 11, 2011

Negotiation - Thoughts on Negotiating Merger Provisions

Most contracts contain what is referred to as a merger provision where “all prior discussions, representations and agreements are considered to be merged” into the Contract that is executed.

While merger provisions are seldom negotiated, as a Buyer in negotiating the contract you need to ensure that all discussions, representations or other agreements that you may have relied upon in selecting the Supplier have in fact been included in the Contract as a commitment by the Supplier. If you don’t, and you have a merger provision included in the agreement, you can’t hold the Supplier to any prior representations or commitments as they aren’t part of the Contract.

Merger provisions are also used to show the clear intent of the parties to the contract regarding how the contract will be interpreted if the contract is ever litigated in court. In interpreting a contract a Court will look at the intent of the parties that is expressed within the four corners of the contract.  They will only look at external or “parol evidence” if the intent of the parties isn’t clear.  In the event of a dispute between the parties, what the merger provision does is make it clear that the parties do not intend to look to prior discussions, representations and agreements between the parties in interpreting the agreement.  They clearly intend that the intent be interpreted strictly by what’s included in the contract as that represents the entire understanding of the parties.

Prior to starting the negotiation have all parties that may have met with the Supplier identify any understanding or representations that were made that you have relied upon as part of your selection process. During the negotiation document all understandings and representations that were made in seeking to get your agreement.  Then include them as part of the Contract, Specifications, or incorporate that document as part of the Contract. When you take Supplier’s representations and make them part of the Contract, you may find that they were more marketing/sales “puffing*”, and the Supplier is unwilling to make them part of Contract. Its better to know whether its real or not before you sign the Contract.

* Puffing is an exaggeration of a product or services capabilities or performance.

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