As you expand into a global market, creating contracts and working with knowledgeable business attorneys becomes increasingly critical to your business. When you negotiate international contracts, however, there may be more complexities than when you’re negotiating contracts within your home country. Here are some steps to consider when negotiating international contracts:
Step One: Clearly Define Your Goals and Terms
Before you start negotiating an international contract, you need a clear understanding of what you’re trying to accomplish. What is the goal of the contract? Furthermore, what services do you plan to provide or receive, and what will the compensation be for those services? Other elements to consider or questions to ask yourself include:
- Who is involved in the process? (suppliers, vendors, contractors, distributors, etc..)
- What does the supply chain look like?
- How can you minimize your company’s risk as much as possible?
- Who bears the risk of loss for goods in transit and at what point does the risk of loss shift?
- What are the payment terms?
- What are your distribution or product delivery requirements?
Spell out all expectations and goals related to your contract beforehand. This way, you’ll know exactly what you want it to accomplish, and you’ll have a mutual understanding of all the key details that need to appear in the finished version. In certain circumstances, a term sheet may be helpful to have these items on paper.
Step Two: Establish Jurisdiction for Your Contract
In order for a court to have jurisdiction, you will need evidence that the parties agreed to have the contract governed by a specific jurisdiction. In certain instances, you must prove the contract was executed in that jurisdiction, and that the breach of contract happened there. Failure to establish these key factors could make it difficult to have your case heard. For international contracts, that could pose a substantial challenge.
One of the most contentious points when negotiating an international contract is the choice of law provision establishing jurisdiction. If you agree to the other party’s (international) jurisdiction, filing a dispute in an international court means that you need to contend with a foreign court system and the challenges that come with it (see step four). On the other hand, if you require applicable U.S. State law to govern, you may have a harder time negotiating the terms of your contract. You may also have a hard time establishing jurisdiction over a foreign company if there is no “nexus” to the U.S. or if there are no U.S. subsidiaries.
Step Three: Lay Out Dispute Resolution Terms and Strategies
Plan ahead for potential disputes with regards to your contract: a vendor who doesn’t deliver on time, a provider who fails to handle the terms of the contract properly, or a dissatisfied client who did not receive what they expected in return for their payment. Including provisions for dispute resolution in your contract is vital. You should negotiate international contracts with the assumption that disputes will arise at some point, and you will need to deal with them accordingly.
International arbitration is a cost-effective and efficient dispute resolution mechanism for international contracts. International arbitration helps combine the factors of civil law procedure and common law arrangements to establish clear rules and procedures for managing and resolving disputes. There are several organizations that facilitate international arbitration, such as JAMS, the AAA, and UN Commission on International Trade. With so many options, the parties should be able to pick an organization and set of rules that work for them.
Step Four: Consider the Importance of a Local Attorney
Your business may use a local business attorney to work with you or your staff on various contracts for U.S. customers, employees, and vendors/suppliers. In many cases, however, unlike the business attorneys at the Law Office of Elliott J. Brown, that attorney may not have the experience needed to manage, negotiate, or draft international contracts. In certain cases, your business attorney will need to work with a local attorney in a foreign jurisdiction. A local attorney can prove particularly beneficial when it comes to managing challenges that may arise from translation or heavily regulated industries.
Step Five: Don’t Forget the Possibility of Termination
In a perfect world, you would be able to keep your contract indefinitely. In many cases, however, you may need to terminate your contractual agreement. Set out the terms for that possibility ahead of time so that you know what constitutes valid termination, what penalties the terminating party will face, and how to terminate that contract. Termination will also decide what happens to certain deliverables, payment, unfinished/unshipped products, and the desctruction of confidential materials.
Are you struggling to negotiate international contracts for your business? Contact our business attorneys today to learn more about how we can help.