January February 2014 Edition
Strong roots, new beginnings - how IACCM began, where we are today
Looking back, can you describe the contracting landscape in 1999 when IACCM was founded2 and tell us what the thrust for the association was at that time?
Tim: We didn't have a landscape for Contract Management, just rocks strewn around! We lacked an international contracts and commercial community or profession. Although people had broadly similar roles and job titles, it really was virtually a blank canvas, and this was a fairly consistent phenomenon in business.
Steve: Tim, you had the vision back then to develop that into reality. My background then was much more the hard realities of trying to build a business. I had been general counsel for what became IBM Global Services and had negotiated the first few outsourcing agreements, which were more business-focussed than legal.
Steve, were you more aligned with the sales organisation than the legal organisation or had you split out from them?
Steve: Yes, we reported into various parts of the business, but clearly we were viewed as an adjunct to sales as opposed to the legal function. This sometimes caused some interesting internal discussions, not to say strife, organisationally!
Tim, at that point were you in the business development function or corporate finance?
Tim: It's interesting to ask -- I'm not quite sure! It was really an offshoot of the corporate marketing group that then transformed into a small advisory team. Certainly we had close links to finance, but it was just a special task force of two assigned to drive the re-engineering effort for the global contracting process and to establish a functional organisation.
In terms of getting senior executive support, they saw a need within IBM. Did that involve one particular deal?
Tim: My answer will be different from Steve's, who was very much in a high pressure deal-making environment. I was addressing this at the corporate level within IBM, so I was seeing the conflicts and pressures from truly a global cross-business point of view.
Steve: From a team of six we grew to over 100 people. Our team formed the model for providing negotiations support for a corporate sales function. Eventually we took responsibility for all sales contracting and contract management within IBM for services, products and general practices. So, the organisation became global. We had 550 people within the global organisation by the late 1990s.
Was IBM at the forefront of developments at this time of increasing globalisation?
Tim: A crisis existed in the telecoms and technology sector, driven by the impact of globalisation. International presence was getting in the way of the global capability. It was very specific at that point to technology and telecoms where the founding companies for IACCM came from. Yet, this phenomenon was not unique.
Fast forward to today, what has changed? Do you think organisations still exist where understanding the discipline is still relatively undeveloped?
Tim: Clearly there has been significant progress, indeed if there hadn't, we wouldn't still be here. But does that mean we're at the journey's end, absolutely not! As we said at the beginning of this interview, contracts and commercial staff were massively fragmented. Much of the work has been to steadily recruit those individuals into a co-ordinated body, help them recognise that personal development, status and career opportunities are enhanced by the existence of a professional community.
Some people really get it. They understand that power is in numbers, in influence and in having consistent predictable forms of service and skills. But others feel quite threatened.
Steve: The most significant difference between then and now is we now have a career and a profession called “contracts and negotiations”. It extends across many different companies and involves not just the sell-side of negotiating, winning deals and managing those contracts, but also the buy-side. Many companies now recognize that you can have a career in contracting, and that it's a noble career. This is a huge change and a huge accomplishment.
Tim: Although they recognize the need, many organisations and senior management still regard a career in contracting as something to be tolerated rather than absolutely welcomed. I think we've moved beyond that now.
Is progress being made now on establishing training and education to support and refresh the profession?
Steve: We are in the infancy of this career. We need formal, professional training to meet a heavy ongoing demand from the corporate world for people in this role.
Tim: A very important point Steve, and as you rightly say a significant element of our work over the years has been trying to develop that training interest in the formal education sector.
A bigger issue is the contracts and commercial role is very broad in its need for cross-business understanding. That cuts right across the way that the universities and business schools are organised today. With increasing executive interest and awareness that we are already beginning to see, senior management will join us more in promoting and encouraging the growth of the discipline within the educational sector.
In terms of the future what biggest developments are we likely to see?
Tim: Over the next few years, we will see important initiatives, including growing connections with business schools and universities around the world and the importance of this capability being recognized in the business environment. We're also beginning to see engagement in many other ways.
Returning to the globalisation issue and IACCM as probably the only truly international and global organisation, how will such changes impact IACCM, our members and the work that we do?
Steve: Two driving themes here: First, business is global and large enterprise business is irretrievably global. So if you're going to engage in business with a large enterprise you'd better be prepared to deal with global issues on both the buy and sell sides.
Second, maybe more importantly, we have an opportunity to share tools, techniques, approaches, lessons learned and knowledge among practitioners around the globe. People in this profession thirst for that kind of support, and this is one reason behind IACCM's phenomenal success and growth.
Tim: And as markets evolve -- unless you have commitment and performance capability that matches market demands -- you will run into massive problems. Look at what's going on in the public sector right now: issues like Obamacare; the UK decision not to push ahead with outsourcing of its defence procurement; regular, highly-publicised waste of public money around the world.
Repeatedly, we see how organisations need to shape new forms of relationship with suppliers. We see how customers' needs are not being matched with an understanding of the underlying commitment and commercial capabilities that are going to be necessary.
Looking forward, again, what are the biggest challenges you see for IACCM?
Tim: IACCM has made good progress, having established a body of knowledge. We have several thousand people who are now certified as professionals and who are providing real value in the market. More companies are looking to hire people with IACCM accreditation.
But big questions remain. I see IACCM's role increasingly as being about providing the thought leadership and insight that top management needs to answer questions about building and developing this competence.
To finish then, could you give us a statement on your passion for the future, the profession or IACCM?
Tim: In the beginning we relied on our members to carry the message of [the profession] forward, to tug on the sleeves of executive management and try to get them to listen. This was very hard, not only to gain attention, but also to reach the point where our own membership had enough belief and confidence to actually reach out and do this.
I think we're now moving from what I would term a 'push' environment to much more of a 'pull' environment, where top management is recognizing the critical nature of this, is desperate to know the right answers and is now leading much of that outreach.
Steve: I would say this is a profession that has an outstanding future in front of it,. It is growing and attracting very skilled, very capable members. I see nothing but continued growth and success for this profession and for IACCM, the organisation that supports them.
ORIGINAL FOUNDERS OF IACCM
1. A management team from six organisations were the original founders of IACCM:
- British Telecommunications (BT)
- Hewlett-Packard (HP)
- International Business Machines (IBM)
- Lucent Technologies
- Marconi Communications
ABOUT TIM and STEVE
Tim Cummins, CEO and founder of IACCM In his role as President/CEO of IACCM, Tim works with leading corporations, public and academic bodies, supporting executive awareness and understanding of the role that procurement, contracting and relationship management increasingly play in 21st century business performance and public policy. â€¨â€¨Prior to IACCM, Tim's business career included executive roles at IBM and a period on the chairman's staff, leading studies on the impacts of globalisation and the reengineering of IBM's global contracting processes. His earlier career involved the banking, automotive and aerospace industries, initially in corporate finance and later in commercial and business development. He led negotiations up to $1.5bn in value and his work has taken him to over 40 countries. â€¨â€¨Tim's writing is extensively published and he has acted in an advisory capacity to government bodies in countries that include the US, UK, Australia, Canada and Japan, as well as regular briefings to senior managers at many of the world's largest companies.
Steve Huhn, an early supporter and strong endorser of IACCM, and the President of Stephen Huhn Associates, San Jose, California, enjoyed a long career in Information Technology having worked for IBM for 25 years and Hewlett Packard for 13 more before retiring to a consulting practice in 2013. Steve is a lawyer by training, and worked as IBM internal counsel for the early part of his career. Steve was the first general counsel of IBM's Global Services and was instrumental in the formation and early successes of that business. In 1995 Steve created the contracts and negotiations group at IBM which played a key role in IBM's successful growth of the services business. Steve held a variety of key positions in HP's services business, including VP of sales for HP Services. He helped lead the growth of HP's services business from $250m to over $6bn in annual sales by the time of HP's acquisition of EDS. Throughout his career, Steve led or actively managed well over 100 complex services transactions valued in excess of $75bn in revenue, closing deals on five different continents. Since leaving HP, Steve has formed Stephen Huhn Associates, LLC and is consulting with a number of firms on a variety of transactions. His capabilities include deal-making, strategic selling, negotiations, contracting and relationship management. Steve is a graduate of American University and Cornell Law School and lives in San Jose, California with his wife and son.
TO CONTACT THE AUTHORS, please mail your question to Info@IACCM.com or connect using the IACCM Member Search (login required).
Welcome to IACCM Insider, a new feature in Contracting Excellence
- IACCM President and CEO Tim Cummins has been invited to speak at the World Bank Conference on Procurement in Washington DC, USA, on Wednesday February 19. Titled Procurement: Delivering Development Outcomes, the aim is to discuss the role of procurement in contributing to organizational objectives, especially in the context of international development. Tim has been invited because his “experience and perspective working at IACCM would benefit this event greatly.” Other speakers come from the private sector, academic institutions, and procurement associations. Tim will give a 30-minute presentation, followed by Q&As.
On February 21, 2014, Tim Cummins will be speaking to the members of the Government Technology & Services Coalition (GTSC) in Oakton, Virginia at the Best Practices in Federal Contracting: Focus on DHS & DOD event in Oakton, Virginia, on the topic of Contracting Competence as a Source of Competitive Advantage. To register visithttp://www.eventbrite.com/e/best-practices-in-government-contracting-focus-on-dhs-dod-tickets-9965480019?aff=eorg#.
To get more details about other events planned for 2014, go to the IACCM website.
How do you write a one billion Euro contract for China on six pages?
By Cynthia C. Hollinsworth FIEx, Director Global Contracts Management, Unify: Recently elected a Fellow of the Institute of Export
Nowhere else can you find more growth than in China but you must understand the Chinese culture and commit to it if you expect to succeed in business relationships. I discovered this when I first started visiting China to negotiate contracts. I quickly realized how the unique character of the Chinese is built on a very strong sense of pride in their ancient history and I needed to adapt my negotiating style to their culture.
The Chinese military general and philosopher Sun Tzu said, “The general who wins the battle makes many calculations in his temple before the battle is fought”.
I quickly learned that if you want to succeed in China, you have to make many calculations and do your homework before your embark on your journey. If you are planning to negotiate a contract in China, the following points will help you plan your journey.
Learn the principles of Chinese culture and differences between the East and the West
- Guanxi (relationships). Pronounced: gwanjee å…³ç³»
You need good Guanxi to be successful. It runs very deep in Chinese culture and is all about personal relationships developed through family, school, university and the workplace. It provides a framework for reciprocal favours, mutual respect and trust.
Guanxi is one reason contracts in China are generally much shorter than in the West because, to the Chinese, the contract is less about the paper on which it is written and more about the cultural traditions of trust, respect and harmony in relationships. Unlike in the West, the Chinese do not expect to have to refer to the contract during execution: they rely on Guanxi.
- Mianzi (face). Pronounced: me-inn-jee é¢å
By maintaining Mianzi (face), you maintain honour, reputation, loyalty, dignity and respect with family, friends, society and the workplace. The Chinese are acutely sensitive to gaining and maintaining face and it is vital that you do not underestimate its importance in contract negotiations. Be prepared to make some concessions, because this will give face to the negotiator and help you win the deal.
- Concept of time
- Confucius, the 6th century BCE philosopher said "A little impatience ruins a great plan.” You need to pace yourself in negotiations. Any signs of impatience during negotiations may kill the deal. Doing business in China is more like a marathon than a sprint, so make sure you arrive well rested, allowing some time to recover from jetlag, as you need to be prepared for long days of meetings.
- The Chinese value time differently than people in the West. What has happened in the past is important and is a basis for the future.
- The Chinese use time to cultivate and build relationships, so accepting a dinner invitation from your Chinese customer is an important component of your visit.
Checklist for limiting length of contract
Based on my personal experience, I've developed this checklist. It may help you limit the length of your contract to satisfy your client's needs and still provide a basis for collaboration and protection to both parties.
- Clearly defined scope – we know from IACCM's analysis of the top 10 weaknesses in the contracting process and from IACCM's top 10 negotiated terms how important this is, and it is equally important in China.
- Price and payment terms – clearly define your payment terms, and be prepared for your Chinese client insisting on 5 to 10% retention to be paid after equipment/service is commissioned. Also consider using a documentary, irrevocable letter of credit as the payment instrument. The letter of credit should be confirmed by an independent, first class bank in the West, which is not a branch of the Chinese issuing bank. It should be issued in accordance with the Uniform Customs and Practice for Documentary Credits – UCP 600, published by the International Chamber of Commerce.
- Taxes and duties – be sure to state what is included in your prices and which party is responsible for payment.
- Governance – since relationships in China are built on deep cultural values, provide a framework for collaboration, e.g. communications, reporting, change management.
- Force majeure clause – you might consider using the International Chamber of Commerce model clause which can be downloaded for free at: ICC FREE MODEL - FORCE MAJEURE CLAUSE.
- Intellectual Property issues – while protecting your Intellectual Property Rights (“IPR”) in the contract, don't forget to register your trademarks, patent, design and copyright. (UK SME's can obtain free advice from an EU-funded project, the China SME IPR Helpdesk via CHINA IPR SME HELP DESK).
- Ethics and anti-bribery – you might want to consider using the International Chamber of Commerce model clause which can be downloaded for free at: ICC ANTI-CORRUPTION CLAUSE FREE and beware of scams. They exist all over the world and China is no exception.
- Compliance with laws and regulations – normal requirement
- Limitation of liability and exclusion of financial losses – essential
- Termination – although this is an emotional topic because early termination means an end to the business relationship, include provisions for termination due to persistent breach, non-payment, bankruptcy.
- Governing law – you may have to accept Chinese law – but a useful compromise is Hong Kong or Singapore law, both of which have their roots in English common law.
- Arbitration clause – propose arbitration either through CIETAC – (China International Economic & Trade Arbitration Commission) or preferably the International Chamber of Commerce with a neutral venue for arbitration such as Hong Kong or Singapore. Bear in mind however that the Chinese will always prefer to resolve any dispute through consultation and mediation. The International Chamber of Commerce has published a special supplement to the ICC International Court of Arbitration Bulletin – ICC Publication no. 609 “International Commercial Arbitration in Asia”.
- Language for litigation and arbitration – expect the contract to be in Chinese if the contract is governed by Chinese law.
It is unlikely that you will be able to use your own standard contract template, but to some extent this will depend on the bargaining power of the parties. Some companies are becoming more westernised so it is a good idea to test the water by presenting a term sheetcovering key commercial and legal points.
Because of the Guanxi, the contract symbolizes a desire to do business, so allow for the fact that negotiation may continue even after the contract has been signed, and you may need to make concessions in the future.
You can find growth in China that you will not find anywhere else in the world, but your commitment and understanding of the Chinese cultural and ethical values and China's history, will contribute to your success.
NOTE: The opinions in this article are the author's own and do not represent the views of Unify.
ABOUT THE AUTHOR
Since 2010 Cynthia has been Director Global Contracts Management for Unify (formerly Siemens Enterprise Communications). She has over 20 years' experience in international trade and negotiating contracts covering Europe, North America, Middle East and Asia. She is also fluent in French and German and was recently elected a Fellow of the Institute of Export which reflects her powerful track record and contribution to both the Institute and international trade (www.export.org.uk) While living in the USA, Cynthia was appointed Lead Subject Matter Expert for the NASBITE (North American Small Business International Trade Educators) Certificated Global Business Professional Exam (www.nasbite.org) and led the development of the trade finance domain. Cynthia is an active member of IACCM in Europe.
TO CONTACT THE AUTHOR, please mail your question to Info IACCM or connect using the IACCM Member Search (login required).
Finding your way to a career in contract management
Dipesh Tailor, IACCM Advisory Council Member, interviewed two recruitment specialists: Steve Levett (SL), Director, Owner of Levett John Ltd and Ben Arguile (BA), Managing Director of Arguile Search. What follows is their response to IACCM research revealed in a webinar titled, Ask The Expert - A Career in Contract & Commercial Management. What should research results be telling us?
They focused on the fierce competition for the very few graduate training schemes currently available, and the huge demand for commercial managers who've been through those schemes. Both believe that too few boards of directors understand the unique, all-encompassing role the commercial contracts function plays in winning business, securing profits and saving money.
Q Dipesh 88% of contract managers would recommend Contract Management as a good starting point in the career.
- Do you believe Contract Management is a good start for someone considering this field as a career? Or do you think only those with relevant experience should enter the field?
- What challenges do you face recruiting for a contract manager who wants to get into the field for the first time?
A Steve Contract Management is an excellent starting point for a young, intelligent and ambitious individual. I advise candidates to concentrate on companies with an established graduate program or companies that offer demonstrable training development programmes. The challenge is facing talented competition. Entrants should have at least one degree, law being the obvious one.
A Ben That statistic proves the breadth of skills offered by Commercial and Contract Management as a discipline is helping employers see the value of those skills. Early grounding in contract management exposes entrants to the most important functions of a business and typically produces a very rounded, commercially savvy professional whose skills add value across the business. My best advice is to find a good graduate or training program with a big business. The best way is to apply directly. Defence and IT companies tend to have the most comprehensive graduate programmes.
Q Dipesh 88% of respondents to the IACCM survey claim the organizations they work for do not have a Contract and Commercial Management graduate scheme (plan). This suggests a low number of schemes exist.
- Does the above statistic seem correct to you, given your experience in recruitment?
- What would you recommend a Contract andCommercial Management graduate programme consists of?
A Steve Yes. Graduate programmes in BAE Systems (an aerospace company in the UK) and Fujitsu (a multinational information technology equipment and services company in Tokyo, Japan) are highly recommended.
A Ben I would certainly agree that too few commercial and contract graduate schemes exist. The market relies -- perhaps unknowingly -- on a handful of companies to develop graduates into commercial managers. Competition is huge for the commercial managers who have been through these schemes.
Every commercial professional needs to understand risk, be able to evaluate how real it is, and the potential impact of that risk. Clearly, technical skills are important, but technical skills are only the foundations.
The best commercial people have excellent relationship skills, an ability to influence effectively and they can quickly work out the business pressures. They need to see the bigger picture and be able understand how the terms and conditions interact with the specification and the pricing structure. A graduate scheme needs to address all of this, and while some can be classroom/workshop based, many will likely develop from working closely with experienced colleagues.
Q Dipesh Research points out the following:
- 32% of contract managers have a good to unlimited career path (a good career path meaning there are 2 – 3 levels available)…
- 45% of contract managers have a limited (2 levels available) to very limited (1 level available) career path
- 25% have no clear career path
Based on these results, do you believe Contract and Commercial Management offers good career paths?
A Steve Yes.
A Ben It offers an excellent career path, but commercial and contract managers also need to influence their options themselves. Although commercial managers may have limited career development options internally, they could improve that situation substantially with a well-timed external move. One of the really interesting things about Commercial Management is that it is possible to get almost to the very top of the profession without taking on line management responsibilities.
Q Dipesh 67.8% of contract managers got their jobs from a manager within the organisation they work for. This suggests that to become a contract manager you need to be an internal employee; external employees stand less chance of getting into the career.
- Would you agree with the analysis?
- What could be done to further promote Contract Management externally as a career of choice?
A Steve In my experience this only occurs at a junior level and therefore internal employees do have the greatest success, although most large companies (specifically IT Services/Outsourcing) tend to opt for a law degree as a minimum so they do seek external applicants also.
The ratio of students attaining a law degree to then receiving placements and/or training contracts in private practice or corporates is fairly low. Consulting with respective colleges of law to promote Contract Management could be an alternative.
A Ben As I see it, there are a number of ways of getting into Commercial Management:
- Joining a commercial graduate scheme
- Starting your career in procurement and moving intocommercial.
- Starting as a QS in Construction/Rail/Civils and moving into commercial.
- Or -- as is suggested by the survey -- being moved internally from another discipline by a manager.
Outside of the ways we listed, no doubt Commercial Management is a tough profession to break into. If you are to secure a first role as a commercial professional as an external candidate then a law degree or an LPC is a huge advantage.
Q Dipesh An observation made from the survey is this: If you analyse this by segmentation, buy side contract and commercial managers located in EMEA working for $40BN + organisations with 3 to 5 years experience in the oil and gas industry have the highest proportion of good to unlimited career paths.
Conversely, sell side commercial and contract mangers located in the Americas working for $1BN to $10BN organisations with 2 years or less experience in the IT and Telecoms industry have the highest proportion of no clear to limited career path.
In your opinion are there are any industries or geographies providing good opportunities for contract and commercial managers?
A Steve In terms of career progression within the same company, stating the obvious, but the larger organisations with a more substantial and mature commercial contracts community do offer the best chance of more than one promotion - though invariably, one may still compete against external applicants.
A Ben The biggest markets for us are IT & Telecoms and Defence & Aerospace. Oil &Gas, Civils and Rail are also huge markets. The USA and UK are mature markets for commercial, but the rest of EMEA and Asia are gaining fast. There is a buoyant market in the Middle East for European workers.
Q Dipesh What training requirements would you recommend for Contract managers?
A Steve In an "ideal world" induction training would cover 2 weeks of cross-fertilisation within sales, project, legal and finance departments to learn/see how these interact with the business and, more importantly, how they interact with and see the role of commercial contracts.
On-going training should encompass a number of business matters. Update on UK law is an obvious one, finance (GAAP, pricing [modelling] for example), project lifecycle, supply chain etc. Continuous personal development (CPD) on a matrix system should cover the salient points of contract management (pre and post) as well as extra training on presentation/negotiation/drafting skills etc.
A Ben IACCM certification is the gold standard for us, and might be the only certification purely for commercial and contract professionals. As far as a candidate's appeal to the job market is concerned the best thing any candidate can do is build a curriculum vitae (CV) that shows they can apply their skills in a broad range of settings. Having a track record in multiple sectors and being able to demonstrate both pre- and post-contract signature experience is a real benefit.
Q Dipesh We have seen from the survey that getting into Contract Management is wide and varied. Do you think this is good for the industry of Contract Management or should there be more structure to enter the field? Why?
A Steve Entering any field from other areas of the business is a good thing in terms of personal opportunity and best practice. I believe any formalisation/structure is fine as long as it does not limit or exclude individuals or groups.
A Ben I think this breeds diversity and that is a good thing. However, I would like to see more businesses set up graduate schemes. The industry can never have enough talent feeding in at entry level.
Q Dipesh Contract managers have difficulty in defining their role and demonstrating value. What advice would you give to Contract managers to overcome this?
A Steve Different sectors use both pre- and post-signature in a varied fashion. Some focus more on legal; some on finance (pricing); and some on general business. So the answer isn't necessarily a "one size fits all". What is apparent -- and has been for a number of years particularly in post-signature roles -- is the defined ROI of a Contracts Manager (or lack thereof). No mathematical solution exists that can provide an absolute monetary figure – whether it is a pre- or post-signature environment -- although same could be said for every other profession with the exception of sales and some procurement positions. So, how do you contribute to profits or savings?
In terms of both role and value, the answer -- somewhat paradoxically -- should become more obvious and definitive as the contract becomes more complex. It seems that the more complex the negotiations or contract, the more obtuse the responsibilities of a contracts manager becomes. Responsibilities become more pivotal "all-facing and all-involved" with every facet of a contract both internal and external.
There is no quick fix, however I would like to offer a few points to explore:
- Get feedback If a contracts manager is having difficulty in defining his or her role and value-add, then flip the question. Ask the business/account director what they see as your role and ultimate value - invariably they're paying for you!
- Ramp up existing value Over the years almost 75% of interim roles I have covered were for post-signature experts. In almost every case, the client didn't allocate post-signature support and something went severely awry. I'd say nearly 100% of these placements resulted in recovering the the contract and retaining customer satisfaction, savings, observation of lack of compliance and governance within the business, and a lot of cases ramped up within the existing contract. That is ROI!
- Prove your worth The "challenge" is that invariably the business only acknowledges this all-round expertise when something has gone wrong; therefore your role/challenge is to prove that your actions within your everyday routine are both of a supporting, educational and preventative nature resulting in profits and/or savings.
- Dump modesty, sell yourself! It sounds fairly simplistic, but the more you can say "if it were not for me or my contribution or customer relations…etc." and then show some monetary gain or saving, the stronger your business case will be for additional staff or retention during redundancy rounds! If you can't do that, then you're far too modest and you won't survive!
A Ben The achievements of a commercial professional can sometimes be difficult to quantify. It is hard to define exactly how much more profitable a particular deal proved to be and point specifically to strong commercial and contract management as being the driver for this, although this is often the case. In terms of the job market, one of the most reliable measures of a commercial professional is how they are regarded by their peer group.
Q Dipesh It could be said that Contract and Commercial Management is at a crossroads. Would you agree or disagree?
A Steve Don't necessarily agree or disagree, I see it more as a recurring cyclic event:
Today, companies have sometimes switched responsibilities. Some may be transferring some of the Contracts Management skills/responsibilities into the business while others are actively increasing their staff and giving the Contracts Management teams more responsibility from the business. And they might switch back. I think we can better define it as an evolutionary change.
Also, differences exist in the usage of basic terminology. In fact, many are confused about what commercial contracts manager means. The meaning depends on the type of business. As examples:
- Commercial manager means finance (accountant) or pricing in some sectors (noticeably in both Telco and IT(OS))
- Commercial manager can also mean salesperson
- Contracts manager can mean the person who facilitates the contracting process rather than the management of the contracts document. This happens in the FM sector principally.
- Contracts manager can mean legal too.
I don't believe the commercial contracts community is at a different crossroads than it was five years ago. The community has strengthened somewhat with the IACCM and proactive CDs within companies, but in order to determine which road it does take, it needs the board to be educated as to the unique all encompassing role the commercial contracts function provides in winning business, securing profits and saving money!
Having the IACCM as a fully authorised accredited body will help tremendously and, as a result, the IACCMaccreditation would be seen, recognised and valued in the same terms as CIPD, CIPS etc.
A Ben I agree. It is not exactly a crossroads. Certainly the industry has changed but it is an evolutionary process. In some companies commercial reports into finance, in others legal. Some businesses divide commercial and contracts into pre-signature and post-signature, while others involve the commercial team in the whole life cycle.
Our clients regularly go through restructures and they fundamentally change the way they are set up. In turn we have to react to our client's needs, but commercial professionals with excellent technical and relationship skills are always in demand.
ABOUT THE AUTHORS
Steve Levett - Director (Owner) of Levett John Ltd (www.levettjohn.co.uk), a specialist recruitment company covering commercial contracts and in-house legal professionals on both permanent and interim assignments. He has been a recruiter for 13 years and within this niche area since 2005.
Ben Arguile, Managing Director of Arguile Search (www.arguilesearch.com), a specialist international commercial and contracts recruitment business. He has been involved in the commercial and contract recruitment market since 2006. He worked for a multidiscipline recruiter for 9 years, running the Commercial and Contracts Division. He wanted to create a business that focused 100% on Commercial and Contract Management, so he established Arguile Search.
TO CONTACT THE AUTHOR, please mail your question to Info IACCM or connect using the IACCM Member Search (login required).
Closing in on intellectual property theft
By Craig Moss, COO, Center for Responsible Enterprise and Trade (CREATe.org)
We can no longer assume the legal function is solely responsible for stopping the threat. We know a better way, one that pairs the right people (both legal and contract management practitioners) with a robust action plan. This new method is flexible. It can be tailored to fit many industries, regardless of industry diversity.
By definition, IP -- copyrights, patents, trademarks, registered designs and trade secrets -- is the lifeblood of many companies and, increasingly, the key to competitiveness. But, in a global economy where doing business means working with diverse partners and using digitized information, IP is increasingly vulnerable to theft and infringement whether or not it is intentional.
Actually, this challenge opens the door to opportunity for contract managers to take on a new management systems approach to protecting IP, one that...
- supplements the work normally handled by the legal department;
- positions contract managers to prevent IP theft and infringement throughout the contract cycle; and
- promises to help preserve competitive advantage and avoid costly legal action.
Outsmarting types of IP theft
IP theft is getting smarter. Gone are the days when IP theft meant scam artists selling counterfeit products like cheap watches and phony handbags. IP abuse has crept into virtually every industry, with increasingly serious implications, spreading like a tidal wave from the supply process to the industry to the consumer -- threatening every aspect of an enterprise and its end-to-end supply chain.
The fallout creeps from businesses to personal lives…
- Counterfeiters take advantage of complex supply chains by introducing fake parts or cheaper ingredients into the production process.
- Fake parts and adulterated ingredients flood many industries from automotive and military to foods and prescription drugs.
- Bogus products threaten the health and safety of consumers. Adulterated drugs alone have led to more deaths in one year than the past four decades of terrorist attacks.
Businesses suffer massive product recalls, reputational damage, lawsuits and loss of future contracts. With the digitization of information, IP has become extremely vulnerable to loss. IP loss takes many forms ranging from computers being accessed remotely by hackers to inadvertent sharing through email or improper downloads by employees.
Leaking trade secrets such as customer lists, research data, production formulae and processes and tactical information are other forms of IP theft. In many countries, companies have little legal recourse for the loss of this competitive information. Such data may have cost millions in investments and years of research to develop.
Research suggests the magnitude of the trade secret theft problem. Two examples:
- The chemical industry in European Union member nations may be losing as much as 30 percent of revenues to misappropriation of trade secrets, according to a document published in November 20131 by the European Commission.
- In a single case in 2006, an engineer for the Ford Motor Company copied thousands of company documents2 onto an external hard drive and took it with him to work for a Chinese competitor. Ford estimated damages from that breach at more than $50 million.
In a 2012 survey of executives from multinational companies conducted by The Conference Board3, 93 percent of the respondents said that IP protection is a function of their company's legal department. But the survey also highlighted a lack of confidence in this traditional approach and a lack of results.
More than two-thirds (68 percent) of those surveyed said trade secret theft in emerging markets presented the greatest IP risk, but only 36 percent felt that their company's compliance program was “very effective” at managing that risk. They were only somewhat more confident in their current approach to protecting other forms of IP.
New approach – the management system
The challenge of protecting IP does not mean releasing the legal department from responsibility. It means supplementing it, using a management systems approach that can…
- weave IP protection into the culture of the company and its business operations; and
- help to prevent IP infringement inside the company and its supply chain.
This approach is…
- preventive and proactive;
- creates awareness throughout the company;
- builds on management systems that are already in place; and
- leverages the expertise among existing employees.
Role of contract managers is essential
In a management systems approach, IP protection becomes a consideration with suppliers and business partners before contracts are drafted and signed.
After contracts are signed, IP protection becomes part of ongoing monitoring, integrating into the entire contract life cycle and becoming a factor in pre-contract risk assessment and due diligence. It is also an aspect of contract fulfillment and monitoring for the full duration of the contract where the contract manager is already deeply engaged.
Eight steps to building robust IP protection
Although each industry has unique requirements and priorities, these eight steps can help most companies evaluate the ability of a supplier or business partner to protect IP and prevent problems resulting from counterfeit goods flowing into the supply chain, or pirated software exposing IT systems or trade secrets being stolen.
1. Policies, procedures, and records: These foundations safeguard and reinforce the value of company IP.
- Are they comprehensive and clearly communicated to company employees?
- Is record-keeping adequate and accurate?
2. IP compliance team: In a management systems approach, the team responsible for IP protection in the company and the supply chain is cross-functional, with representation from senior management.
3. Scope and quality of risk assessment: When evaluating a business opportunity or potential partnership, you should ask…
- Is the risk of IP misappropriation considered in the context of industry, IP type and the legal system where business will be located?
- Is IP risk factored into due diligence of a potential business partner, along with financial stability, quality control, cost, reliability and other considerations?
4. Supply chain management:
- Do business partners, contractors and suppliers have IP protection policies and procedures in place, and do they clearly communicate these expectations to their employees?
- Do your contracts have provisions requiring the third party to have an IP protection program?
5. Security and confidentiality management:
- Does the company maintain physical and electronic security to protect trade secrets and other confidential and proprietary information?
- Is this critical material made accessible to third parties on a need-to-know basis, and subject to adequate confidentiality agreements?
- Are clear restrictions available on the use of unlicensed software that can create gateways for hackers?
6. Training and capacity building:
- Does the company provide routine training in IP protection procedures internally?
- Does management extend this training to supply chain companies, at least those where the greatest risk exists?
7. Monitoring and measuring:
- Are mechanisms in place to monitor adherence to the IP protection policies inside the company and with key third parties?
- Are the contractual provisions regarding IP protection being met?
8. Corrective actions and improvements:When a problem or potential issue is uncovered…
- Is it analyzed for a root cause, and is the root cause addressed?
- Does the company have a process to drive continual improvement both internally and with key business partners?
How a management system protects IP
A holistic management systems approach helps to eliminate the all too common unintentional lapses in IP protection. Indeed, many gaps in IP protection involve lack of attention to events such as an employee leaving confidential drawings out in the open, or employees not knowing to question when some of the products' packaging looks incorrect.
One success story
This approach works even when legal action might be warranted. For example, in 2010, a global consumer electronics company discovered that its largest licensed distributor was selling knockoffs (imitation or fake products) of its product to retailers. Fakes were mixed in with the real products. Customers returned the fake devices, and the electronics company had to replace them at huge cost to preserve its reputation.
The electronics company later adopted a management systems approach:
- They implemented new procedures to prevent counterfeits from entering the supply chain, which it then applied to all of its distributors.
- They rolled out new controls, tighter procedures for record keeping, improved monitoring and training to heighten awareness about the damage caused by counterfeit goods.
- Within a year, they had eliminated the counterfeit problem with the distributor and still maintained good business relations.
Contract manager role expansion—IP monitoring
In a management systems approach, we have a compelling case for contract managers to play a central role in the IP compliance team, because of their engagement with business partners throughout the life of contracts.
Contract managers' most obvious contribution is monitoring IP compliance among supply chain partners. Organizations have the weakest performance in this area, according to findings of a pilot project conducted by the Center for Responsible Enterprise and Trade (CREATe.org).
The pilot project, which included global companies in aviation, consumer products, services and information technology based in India, China, Brazil, Japan, Germany and the United States, evaluated the maturity of IP protection in each of the eight key process categories outlined earlier.(See also Pilot updates)
- A contract manager, charged with ensuring business partners and suppliers meet their obligations, is well positioned to spot a gap in IP protection that leads to a preventative remedy, such as new policy, procedures or training.
- The contract manager can also play a valuable role long before the contract is signed, weighing in at the risk assessment and due diligence phases.
The management systems approach can be applied across industries and supply chains. Supplementing the legal approach with a management systems approach helps to integrate IP protection into the core activities of a company and its supply chain.
Under the guidance and leadership of the contract manager, IP protection can shift from being reactive to being proactive and preventive. The contract manager can help guide IP protection through the pre-contract risk assessment and due diligence process, help suggest effective contractual provisions, and participate in the post-contract monitoring and corrective action process.
In some global companies, contract managers may already be tracking hundreds of agreements. Working to identify and address IP gaps in the execution of these contracts may seem daunting. But it is now abundantly clear that businesses in virtually every sector must address the security of their IP if they hope to thrive in the evolving world marketplace. The challenge of protecting these valuable assets is an opportunity for the contract manager to assume an expanded role in the company's future success.
2. Article appeared in the Wall Street Journal, online, originally dated Nov 17, 2012, written by Matthew Dolan
3. Safeguarding Intellectual Property and Addressing Corruption in the Global Supply Chain. Press release dated December 19, 2012 from Create.org (The Conference Board).
ABOUT THE AUTHOR
Craig Moss is Chief Operating Officer of the Center for Responsible Enterprise and Trade (CREATe.org) where he is responsible for developing CREATe Leading Practices, a program designed to help companies and their suppliers reduce the risks associated with trade secret theft, counterfeiting, piracy and corruption. He has developed definitive guides for organizations including World Bank Group's International Finance Corporation and the United Nations. Craig is an Executive Advisor for Social Accountability International (SAI) and previously led Social Fingerprint®, a program helping companies and their supply chains implement sustainability practices. Previously, he founded Global Access Corporation, where he led more than 3,000 business development projects in 50 countries.
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Retooling training to prevent lawyers from hitting bottom
By Vikki Rogers, Director of the Institute of International Commercial Law & Adjunct Professor of Law, Pace Law School, Founder, Trade Logics, LLC
Most law schools have perfected a model in which 21st century law students are broken-down and re-built into 20th century lawyers. As these new practitioners march into the marketplace to serve their clients, a gap forms between their training and the needs of the global marketplace.
…and the gap is widening For years, lawyers have built bridges, or performed high jumps over the gaps between legal training and market realities. But, as international trade increases, technology infuses into business practice, and as global commercial relationships and responsibilities become more complex, the gap widens. Indeed, this suggests that the legal profession needs re-engineering to prevent it from hitting the bottom1.
One of the most striking gaps is the lack of modern technologies in the teaching and practice of law. While most of the commercial world has incorporated technology into their operations, the legal community has largely side-stepped modernization. The global marketplace encourages innovation, research and development, and entrepreneurship. And yet, the legal community has perpetuated a culture of 20th century methods.
Shortly after the introduction of the internet, scholars postulated on the inevitable and exciting potential for the incorporation of technology into law2. Today, although scholars acknowledge that the legal community has been on the verge of a technological revolution for 30 years, it cannot be guaranteed to ever come to fruition3 – at least not through traditional channels.
Challenges to closing the gap
A current project on online dispute resolution at the United Nations Commission for International Trade Law (UNCITRAL) perfectly illustrates emerging trends towards creating resolution systems that operate outside the traditional legal service models. Yet, at the same time, this demonstrates the tension between traditional legal methods and more progressive approaches.
Factoring in technology
One of UNCITRAL's projects is to create a legal framework to support the resolution of claims that arise in low-value cross-border e-commerce transactions4. For example, a consumer or small business buys a product overseas directly from an online seller and the goods are damaged on receipt (or never received at all). The parties cannot resolve the dispute, and short of filing a claim in a foreign court, the buyer is left with no practical redress options.
UNCITRAL's objective is to create a practical redress option for this type of dispute. The online marketplace environment is the catalyst that has forced delegates at UNCITRAL to factor technology into possible options.
Technology apparently voted down in favor of tradition
On the face of it, the project could start a new legal paradigm for regulating cross-border commerce. When deliberations began, delegates appeared to agree that technology could support the creation of some sort of “virtual courthouse” and provide enough “structural support” that lawyers would be optional to the process.
Unfortunately, the innovative thinking stopped at this point. An approach designed to perpetuate traditional legal dispute resolution mechanisms seems to be taking the lead, overriding any possible solutions that might more appropriately mirror and provide for the needs of an online marketplace.
Binding arbitration leads to costly, archaic solutions
Specifically, the online dispute resolution rules in the current proposal do provide for an automated negotiations phase, which is indeed promising and relatively innovative. However, a very traditional online binding arbitration process follows at the heels of this. It's like an expedited business-to-business arbitration that leads back to a non-practical outcome for buyers and sellers.
For example, as an American, if I receive an online arbitration award against a foreign vendor for $50 and the vendor opts not to honor the decision; my only enforcement option is to have a local court in the vendor's country enforce the award under an international treaty. So a project that was otherwise intended to remove courthouses from their brick and mortar shackles, has ultimately full-circled back to traditional 20th century legal roots – at the expense of the consumer and to the potential benefit of the lawyer.
…and the gap widens again!
The state delegates at the UNCITRAL meetings (essentially all lawyers) are advocating their respective positions in the name of consumer protection. Yet, regardless of the swords and shields they use, the gap between law and the marketplace they serve is only being widened.
Online commercial disputes are probably the most obvious and appropriate way to lead a discussion on innovative possibilities for the fusion of law and technology.
So what went astray? In part, it seemed at the outset of the UNCITRAL process lawyers desired the relationship between law and technology to grow, but ultimately, it appears they lacked sufficient understanding and training on the “online” options available. Plus, marketplace experts were largely absent from discussion, which would have otherwise given them the confidence to take a new approach. So, they reverted to traditional approaches.
Indeed, this niche project illustrates one of the current challenges for the legal community, i.e. the lack of law and technology subjects and methods being incorporated into a lawyer's initial training in law schools and ongoing training in the workplace. Without such training, we cannot reasonably expect the legal community to react most appropriately to marketplace needs.
So, where do we go from here?
In other words, how do we retool LOGICS into legal training? The legal profession needs a paradigm shift. By leveraging technology into law – now virtually absent in modern legal practice – legal practitioners would more closely align with the other business groups in a company.
One of the many changes should be the holistic inclusion of technology into the teaching of law – both in law school5 and post-Juris Doctor (JD). “Holistic” means law students should be required to take classes on law practice technology6 (including the idea of legal development labs)7. Students should know how to use technology in the specific marketplace they intend to serve.
Equally important, training institutions should use technology to deliver training on substantive legal topics. Because law-schools – with few exceptions -- are large bureaucratic institutions with inability to rapidly innovate, the post-JD training community needs to largely lead the implementation of a new approach.
A new approach to post-JD training…
In the field of international commercial contracting, a legal team's function is not isolated from other parties in a commercial contracting process. Law is but one factor considered in the formula for commercial success and lawyers must be integrated members of business organizations.
Lawyers, as well as others that have a finger on legal aspects of international commercial contracting, must re-evaluate the means by which they are acquiring the skills and knowledge to take on their management tasks to ensure success. Online platforms that harness global thinking from various perspectives on international contracting are the new approaches.
For example, IACCM has created an effective online certification program that transfers a Contracting Body of Knowledge, appropriate for new lawyers to bridge the gap between traditional law school training and marketplace realities.
Another example: Trade Logics provides online training in international commercial contracting and dispute resolution via a combination of synchronous and asynchronous learning modalities, i.e. taped and live interactive online sessions.
The online environment enables the delivery of substantive content in an asynchronous format, so knowledge can be transferred to users in their own time and at their own pace. As a means to ensure that users don't engage in passive learning and understanding, knowledge is “applied” in a live synchronous online classroom environment. These interactive classrooms offer one of the most interesting and promising environments for online training.
Interactive classrooms offer many advantages
First, in choosing an instructor, training institutions are no longer limited by geographical constraints and can harness thought leaders and subject matter experts from across the world to join their training platforms. Participants have the unique opportunity of gaining access to these instructors for several weeks – not just typing questions or comments, but rather engaging in live audio and visual discussions.
Second, the programs are open to lawyers, as well as others involved in the contracting process, including contracts managers, advisors and consultants. Accordingly, participants gain an advantage in learning from multiple perspectives in the room, providing lawyers with insight into their colleagues' roles and goals in the contracting process.
Third, regional bias is eliminated Because these platforms are open to the global community -- which might even be defined as a global community amongst departments and offices in one company -- participants are not confined to regional understanding and participation.
Fourth, global networking opportunities expand Because the online live training is not limited to a single class, but a training experience over several weeks with interactive exercises, participants become familiar with one another and increase their global network.
Finally, training platforms link with latest technologies The training platform becomes in and of itself, an educational tool as it familiarizes lawyers with mainstream technologies used for global communications. Collectively, by effectively leveraging technology, benefits are derived from multiple directions.
So, the analogy fits…with the right training
Clearly, incorporating technology is part of an evolutionary solution. First, market conditions are forcing the legal community to modernize their legal practice and understand the 21st century commercial contracting needs and concerns. Second, online post-JD training programs in international commercial contracting -- among other topics -- offer a promising path forward for the legal community. Such programs serve as a model or start point for the fundamental changes that must occur within the legal profession.
- See also:
- J. Smith, First-Year Law School Enrollment at 1977 Levels, Wall Street Journal, Law Blog (December 17, 2013);
- J. Schwartz, Drop in LSAT Takers Shows Legal Field's Slump, NY Times (October 31, 2013);
- T. Cummins, What's Happening to the Lawyers, Editorial Comment, IACCM Contracting Excellence Magazine (October/November 2013).
- E. Katsh, Law in a Digital World: Computer Networks and Cyberspace, 38 Vill.L.Rev. 403 (1993). http://digitalcommons.law.villanova.edu/cgi/viewcontent.cgi?article=2830&context=vlr
- B. Rutter, Survey of Existing Courses in Lawyer Use of Technology Educating the Digital Law, O. Goodenough & Marc Lauritsen eds., Chp. 6, e-book, LexisNexis, http://www.law.harvard.edu/programs/plp/pdf/007-03358_03358-ch0006.pdf
- Official documents of UNCITRAL's work on online dispute resolution can be found at: Online dispute resolution documents.
- O. Goodenough, Developing an e-Curriculum: Reflections on the Future of Legal Education and on the Importance of Digital Expertise, Lawyering & Legal Education in the Digital Age Symposium Paper http://www.kentlaw.iit.edu/Documents/Institutes%20and%20Centers/CAJT/88-3_06_Developing_an_e-Curriculum.pdf
- R. Granat & Stephanie Kimbro, The Teaching of Law Practice Management and Technology in Law Schools: A New Paradigm, Justice, Lawyering & Legal Education in the Digital Age Symposium Paper http://www.kentlaw.iit.edu/Documents/Institutes%20and%20Centers/CAJT/88-3_04_A_new_paradigm.pdf
- K. Simpson, Legal Innovation: What's It Going to Take December 16, 2013
ABOUT THE AUTHOR
Vikki Rogers is the Director of the Institute of International Commercial Law (IICL) at Pace Law School and Founder of Trade Logics, LLC. Her areas of expertise include online dispute resolution (ODR), international commercial arbitration and international sales law. She has published widely in these subject areas and is regularly invited to speak on such topics. She also consults on the development of online dispute resolution processes for domestic and cross-border disputes, particularly for electronic and mobile commerce. She represents the IICL as an NGO observer in Working Group II and III at UNCITRAL, and is also an expert advisor at UNCITRAL for Working Group III on ODR. She is responsible for maintaining the award-winning online CISG Database and is an Editor of the UNCITRAL CISG Digest. She also developed and manages the Pace online Certificate Program on International Commercial Law and International Alternative Dispute Resolution.
ABOUT TRADE LOGICS
Trade Logics is an Accredited Training Partner of IACCM. Trade Logics programs are intended to supplement the underlying IACCM Contracting Body of Knowledge for those that need a more in-depth understanding of legal considerations and their negotiation. Refer also to the The Advisory Board of Trade Logics.
Today's best training fuses the latest technology and know-how. By leveraging technology, Trade Logics empowers you to gain access to leading global experts in international commercial law and dispute resolution, knowledge and skills to improve your work performance and enhance professional opportunities and a network of similarly situated program participants across industries and countries.
Need a dual language contract? Here's how
By Pablo Cilotta, International Senior Legal Counsel & Head of Contract Management (HR - EMEA & Latin America)
Having managed legal and contractual matters in multiple jurisdictions, I have heard many professionals based in the US and UK raise this question.
Let's say you are planning to support international expansion of your business into Spanish speaking or other countries, but you're concerned about drafting and negotiation in multiple languages. If you are a global head of contract management or general counsel of a US or European multinational, you likely want to know the obstacles and how to avoid them.
Indeed, if we advise companies with operations across multiple geographies or with several business units in the world, we usually face the need to draft, review and negotiate contracts in other languages. For example, you could be doing this when closing sales with foreign companies, appointing sales agents or distributors who need agreements drafted in other languages rather than English or when acknowledging services or employment agreements with parties that perform services overseas.
This article explores contract drafting and negotiation in multiple languages, from the perspective, mainly, of Spanish-speaking countries. It includes awareness of cross-cultural and language differences, and explores the appropriateness of undertaking a dual language contract model. It does not include legal advice or propose a 'right answer' for all purposes, because each must be decided case-by-case.
Be accurate – errors cost money, trust!
Recent IACCM research reveals several areas where unintentional but substantial misunderstandings can occur, if we are not aware of cultural norms or expressions. It can be embarrassing and costly. In fact, an article in Tim Cummins' blog Commitment Matters stresses the need for clarity in communication during negotiations. Particularly when dealing internationally, misunderstandings happen easily.
Plain language makes translation easier
Wholeness of the message, its presentation, accuracy and consistency are all more than relevant, but the main benefit of a well-written contract is its clarity.
Business leaders don´t speak technical-legal language, so it is important to draft contracts in terms that are easy to understand, using plain language and avoiding legalese. If this is done, translation into a local language will be much easier.
Keeping paragraphs short, dividing the contract into sections with clear sentences, preferring active voice over passive, avoiding multiple negatives etc- all help with clarity in contract drafting, including for translation purposes.
Beware of cross-cultural differences
In his article, David James, author of Cross-Cultural and language training states “Global competition is too great to wing it when you go abroad. Savvy business people learn about the specific cultural differences for each country where they do business. And the differences are significant.”
When managing cross-border functions in multinationals, we must be prepared to explore diversity in multi-disciplinary teams, identifying the impact of cultural differences in drafting and negotiating international agreements. For instance, contract management professionals need to have cross-cultural understanding and training to properly manage choice of law and arbitration and understand how to deal with translations of contracts into foreign languages.
But, recent IACCM research indicates that many American companies fail to focus attention on local culture or language differentiation when expanding into new regions. Worse, during turbulent economic periods, companies often cut the language, international business and cross-cultural training programs once offered to employees.
We must understand the mindset of the people and companies we deal with overseas, and always get local advice on whether or not local laws require mandatory provisions in certain circumstances.
Contract Management in Latin America – its growth and current impact
Lately we have seen contract management beginning to emerge as a recognized profession in Latin America, although still in the early stages of development. Contract management roles are not common in South America. In general, project management, procurement or sales perform these functions. Lawyers manage the drafting and negotiation phase if the company requires in-house support. Otherwise, it becomes the responsibility of the finance jurisdiction.
That said, small or medium size companies that assign contract drafting to external lawyers are exposed to risks when they must negotiate a contract in a foreign language, such as English. These lawyers probably do not know the business as they should, even without 100% domain of the English language.
I have seen this happen with small organizations in Spain and certain Latin American countries. The contract template brought by the supplier from the US or Europe, in its English version, is taken overseas. Then customers in Latin America or Spain - who anticipate reviewing and negotiating in English - find they cannot. Result? An incredible waste of time creating translations, unexpected costs, extra work, having misunderstandings and experiencing the need to review a contract already reviewed.
Narrowing the legal gap – the good news
The legal system adopted in Latin American countries – as well as in France, Italy, Germany, Spain and other countries - is civil law, also known as the Continental European Law system. Its foundation is the French Napoleonic Code and the old Roman system, as opposed to the common law of the Anglo-Saxon community.
With this traditional gap narrowing, Latin American practitioners have been developing new business models that recognize the increasing importance of common law. The gap no longer affects us as much. Obviously this is a great help when negotiating international contracts.
Choice of language – the challenge
One of the first things you must evaluate when doing business with foreign parties is whether the agreement should be in English, or the foreign language or both. American corporations doing business abroad require English as the official language for the contract. But English is not always the best choice. For instance, if our goal is to have a potential dispute resolution in a jurisdiction or arbitration forum where arbitrators do not conduct proceedings in English, then without any doubt the choice of contract language will be the other language, not English.
Avoid dual language if possible
Multilingual contract models can be extremely dangerous and we could run severe risks when transplanting and adapting foreign legal concepts. I would always try to avoid dual-language contracts.
My first choice would be to migrate Spanish customers to English, depending on the customers' size and structure and the circumstances of the transaction. Are we selling to a small or medium client? How big are we? Are we buying or acknowledging an alliance partner agreement?
It's critically important to make a comprehensive assessment and then decide to either migrate them to English or create a dual-language system.
If we migrate customers to English we can still discuss issues in local language (via phone, face-to-face meetings, email) while keeping contract templates and reviewing other parties' concerns exclusively in English. In this case, both parties must understand that only the English language will dominate, because only one version of the contract exists in English. The other language will be a translation for information only.
If this option does not match the other party's expectations, we have no choice but to implement the dual-language model.
If a dual language contract is necessary, companies with overseas operations sometimes use a two-column, side-by-side format in the contract, depending on the country. This type of contract is common when dealing with customers, vendors or partners with subsidiaries or operations in Spanish-speaking countries, as well as Chinese, Korean, Arabic, Ukrainian, Russian and other Eastern European local languages and, to a lesser extent, Italian and German.
Which language controls?
First, in case of conflict between both languages, it is essential to consider which will have priority. The question is which language is the official one? Which is binding? Which will control? The agreement needs to be extremely clear. It should state that the original version is in a certain language (eg English) and if a conflict or discrepancy occurs between the languages, one of them shall prevail and take precedence over the other.
For example, a clause might have the following wording: “This agreement is in both languages, English and Spanish. In the event of any inconsistency, the English version is the original language and the Spanish version is a translation for information purposes only. Then in case of conflict, the English version will prevail and will therefore be the binding version for both parties…”
It is best if both the English and foreign language versions of the contract state which of these versions controls. If neither version states which one controls, then the foreign language version will normally prevail in a local court and the local law will apply if different interpretation criteria or discrepancies occur. Regardless of what the English language version states, always be aware of what the foreign language contract says as well.
Conduct a clause-by-clause review to ensure translation quality
Recent exchanges in our IACCM forum show the importance of making sure about the quality of translation. You must ensure that you have an accurate translation of the contract. One of the two options below can be used to perform a clause-by-clause review:
- Proven independent law firms with international network connections and domain in multiple geographies or
- Official translation companies or individuals with demonstrable experience in translating legal terms and conditions.
A case in point …
Some years ago I experienced the following incident in Spain proving the importance of quality in translations. The relationship and negotiations were in Spanish. The subsidiary drafted a Spanish version of the contract by literally translating into Spanish the English version of the terms and conditions.
A secretary (non-lawyer) performed the translation. But unfortunately, and by accident, the negotiators signed the contract with a provision that stated the need to conduct arbitration in Houston, Texas. The contract was between two legal entities based in Spain, and had no contact point in Texas!
Fortunately, no conflict or discrepancy occurred, but many complications could have resulted. A conflict would have generated additional non-expected costs and time. The company had no opportunity to remove a clause. Also, in Texas, a translation of a foreign-language document would only have been admissible in court or arbitration proceedings if the document had been accompanied by a sworn affidavit from a qualified translator. The affidavit would be required to specify the translator's qualifications and attest that the translation was fair and accurate
Conclusion – keep this as a checklist
Clarity in communication and plain language is essential in contract drafting, especially when dealing internationally. We must pay attention to cross-cultural and language differences.
- Evaluate if the agreement should be in English, the foreign language or both.
- Try to avoid dual-language contracts. Insist on a “migration” of non-English speaking clients to English, but keep meetings, phone calls, conversations and follow-up procedures in the local language. If you must implement a dual-language model, state which language controls and governs.
- Consider both choice of law and jurisdiction at the beginning of negotiations.
- Find out if the contract provides for dispute resolution, choice of forum or jurisdiction or international arbitration. If no provision exists, assess which legal forum is best for the business. If it is a non-English-speaking forum, assume that the foreign language prevails.
- Consider the objectives and agree on the contract language that makes sense with such a dispute resolution clause, if any.
- Use an in-house contract manager or legal counsel who understands both languages. Either get external legal advice to review the contract according to local law or hire a translation company or professional with expertise in technical-legal vocabulary.
- Consider the time and legal fees to be spent in drafting dual language contracts.
- Specify the currency to be applied to the contract and consider that local specific issues can impact contract performance.
- Remember to state that the language that controls will also be the official language during the post-award contract management stage. The controlling language must be stated as the language of subsequent change requests between the parties.
- Finally, have the contract signed by both parties. If it is a dual-language model, each party signs each version.
ABOUT THE AUTHOR
Pablo Cilotta is a bilingual (Spanish & English) in house legal counsel with background in corporate and business law, commercial contracts, employment agreements and HR generalist profile. He has business presence in Europe (Spain); Middle East and Africa; APAC; LATAM (Argentina); and the US market. Within that global presence, his experience includes many industries like the fishery sector, IT industry, law firm consultant. His core specialties include setting up legal entities and subsidiaries, demonstrating expertise in designing, drafting, implementing, reviewing and negotiating contracts, including technology license and channel partner.