Managing a contract portfolio has always required diligent oversight and a keen attention to detail. But, now that contracts are becoming longer, more complicated agreements, and there is an increase in contracting at the international level, contract management must entail a well planned, highly strategic approach. For large companies, engaging in international contracting is quite common and handling an international contract portfolio is relatively routine, as they usually have the resources and manpower needed. For smaller businesses, however, technology has enabled international contracting, but managing it can be a bit trickier. Here are some best practices for managing an international contract portfolio:
Clarify Applicable Laws
Prior to entering into a contract with an international partner, it is imperative that the parties determine the laws that will govern the agreement. In some cases, it may be helpful to have a master agreement written in accordance with one country’s rules and regulations, and a supplementary document that explains the relevance and pertinence, if any, of the other country’s laws. Of course, this may be far too complex and expensive to achieve. As a result, for many contracts, U.S. laws are often selected as the governing force, but small businesses in foreign countries may not be comfortable with this option.
Fortunately, there is a growing reliance on international arbitration for disputes that occur across national borders. Thus, it may be wise for the parties to an international contract to consider including dispute resolution language that allows for submission to an international arbitration body, such as the International Chamber of Commerce.
Recruit Counsel to Review
All contracts should be reviewed by legal counsel, and international agreements are no exception. In fact, given the potential complexity of these agreements, it is crucial to have a knowledgeable attorney review a prospective contract with a foreign entity. In the past, it was likely difficult to find someone who understood foreign and domestic legal implications, but these days, international business is becoming the norm. Therefore, unless a company is entering into completely uncharted territory, law firms should have some familiarity with international business concepts.
Address Matters Country by Country
Business practices differ by country and cultural differences will certainly influence how a company conducts its affairs. Although contracts with U.S.-based partners may be approached in a fairly similar manner, companies cannot treat all international contracting partners in the some way. It is important to understand any cultural nuances with respect to language, communication, and expectations. Obviously, having to accommodate foreign partners in various countries complicates the management process and may require more time and effort on the management team’s part, but failing to do so could have some costly or embarrassing repercussions.
Focus on Relationships
The key to managing any contract, whether it exists on a local, national, or international level, is to build and maintain strong working relationships. This clearly ties into understanding and respecting cultural differences, but it also relates to the terms and conditions incorporated into a contract, as well as the management strategy that is employed. For example, to cultivate a long-lasting contracting relationship, it is important to negotiate in a positive manner and to utilize performance incentives to foster goodwill. Although it is becoming outdated, there is still too much emphasis on risk allocation and consequences, when parties should be creating realistic goals and focusing on outcomes driven management.