Question

When both parties discuss the terms of a contract they are

Answer 1

B - Negotiating.

This is because they are communicating, they haven't yet agreed to anything or committed to the contract as neither parties have signed, thus leading to both C and D to be incorrect.

A, however, is not exactly a term used for this situation - contracting is more of a term used to say someone contracted a disease or the flu or etc. 

Therefore, B would be correct as they are indeed negotiating the terms of the contract.

Hope this helps!