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International contract negotiation

International contract negotiation : some points of strategy and tactics

Article written by Mr. Giles Dixon

 

 

One of the better definitions of a successful contract negotiation was given to me some years ago by my then 14 year old daughter: “It’s trying to persuade someone else that they want what you want.”

 

That is the goal and, in order to get there, whether you are about to negotiate a large or a small contract, remember the Boy Scouts’ motto –‘Be prepared.’  This is going to mean you should:

  • Know your subject 
  • Familiarise yourself with all the relevant information
  • Prepare a list of your key issues 
  • Prepare an outline organogram showing the key participants and expected documentation
  • Read all relevant documents 
  • Find out what you can about the personality, motives and approach of the other side
  • Take your time 
  • Be ready to withdraw if the deal, as negotiated,  does not give you what you want..  

 

 

The Negotiating Team

 

Care is needed in selecting a negotiating team so that it contains the right mix of people and isn't too large.  As its composition will depend on the type of project, you may need one or two "core" negotiators, with other specialists being brought in for specific agreements.

 

I believe that the smaller the team, the more effective it is and the quicker the negotiation.  A twenty minute meeting between two people will take nearer an hour with four people and two hours with eight or more.  Even if the other side does have a large team, you don't have to equal them in number - only in skills.  With a joint venture, your partners may want to be represented at meetings and that could increase the numbers, but as a general principle a small team tends to be more effective.  And the interaction of the team members is important so as to maintain a united front when talking to the other side. 

 

 

Lines of Authority

 

When negotiating a contract, the people sitting around the table have to have some authority to decide whether changes which are being proposed are acceptable.  It can nonetheless be a useful safeguard to make it clear that changes, in particular changes of a commercial nature, have to be cleared with your general manager, board of directors, etc.   Don't use this as an excuse to change your mind before the next meeting too often since you can lose credibility as a negotiator. But used appropriately, the tactic gives you time to think – although that is also true of the other side if a decision is postponed.

 

 

The Role of the Lawyer

 

The lawyer is a necessary element in a team, but he/she need not attend every meeting: if the other side aren't fielding a lawyer, it sometimes inhibits the discussion to have one on your side.  But always leave the drafting to the lawyers - or at least let them check and if necessary change whatever has been drafted by non-lawyers.

 

In the early days of any company an outside lawyer is going to be needed to support the negotiating team and, if your company is part of a larger joint venture, each of the partners in the project need to be sure their interests are protected.  

 

As for the choice of law firm, the main thing is to engage a lawyer who is experienced in the type of contract being negotiated.  A law firm which is big enough to have specialists can, of course, be useful - covering banking, employment, intellectual property law etc, but nowadays you do not have to go to a large City firm for most of the skills needed: indeed, niche practices and virtual firms can be found with the right skills and they will usually field senior lawyers whereas the mega-firms will delegate the work to junior lawyers with the partner exercising a watching brief.  Whatever lawyers you use, be sure to brief them adequately and give them time to understand your objectives.  Early involvement may mean spending some fees before you know how the deal is likely to proceed, but it is a good investment.  Lawyers are there to help you assess the risks and limit your exposure.

 

 

Documenting the Project

 

There are a few conventions, depending on the type of contract, as to which side prepares the first draft.  In a construction contract, for example, the Employer or the Engineer will usually prepare the contract document with the tender.  In a joint venture if there is a dominant partner, they may draft the JV Agreement, but in a more balanced arrangement it could be useful to have an independent firm instructed for this work.  In a takeover deal, the purchaser usually prepares the draft contract.  In other cases, it is more open.

 

In my experience, there is a distinct advantage in being on the side which prepares the basic project contract.  Although there may be many changes along the way, your draft establishes the framework within which the negotiations will proceed.

 

In fact, initial Heads of Agreement are a useful first document; this need be no more than a list of bullet points identifying the key issues.  Often the document is said to be non-binding, not least because there can be many uncertainties when funding has to be found along with the right partners, consultants and contractors .

 

As for the detailed documentation, points of principle should be discussed in advance, so as to avoid or reduce potential problem areas.  And be sure to give the lawyers time to produce the draft documentation- and/or to review the drafts received from other parties.  Bringing the lawyers in too late can be problematic if the client has already conceded some key elements of the deal without fully appreciating their significance. 

 

 

Drafting Style

 

When you are drafting a document, you can either prepare one which contains a lot of points which you don't really want but which you are prepared to give away later or you can draft what you perceive to be a fair agreement and hope that the other side will accept it as such with only a few changes.

 

I subscribe to this second approach.  A document which is not full of tricks is one which will be agreed more easily and create a better atmosphere for the parties to conduct their business.  I am also a firm believer in using clear English when drafting documents.  When perhaps a minority of the participants have English as their first language, this is even more important if English is to be the language of the contract. 

 

At the end of the day it is the clients, not the lawyers, who have to administer the contracts they enter into.  This requires the lawyer to think of the practical purpose of the contract and include appropriate terms in a logical order to cover that purpose.  Too many contracts have  unnecessary verbiage and several pages of defined terms when the ordinary meaning of words is sufficient.  One example of over-drafting which crept into a lot of PFI contracts was the definition of ‘Available’ which was defined as meaning ‘Not Unavailable’! You then had to look to the meaning of Unavailable before understanding what it meant. 



Language and Law

 

A major international project will usually involve several nationalities but they will most likely communicate in English.  You should always have at least one team member who is fluent in English and this is another reason for making sure that an English lawyer does the drafting.  In addition, the common law system of English law is good for cross-border contracts as it is less dependent on legislation than civil law systems, so what the contract says is less likely to be overridden or adjusted by some underlying law.

 

And while nobody wants to think the contract can result in a dispute, the English legal system is better than many when it comes to getting a just decision or settlement.

 

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About the author : Giles Dixon is a solicitor with his own law firm, specialising in commercial, engineering and construction projects. He worked overseas and in the City of London for several years before establishing his own niche practice.

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