Lubecka.Law Blog

Contract with a foreign contractor - what should it contain?

1. Why is it worth agreeing on the most important elements of the contract with a foreign partner?

Regardless of the form in which the agreement with a foreign partner is concluded, it is important that the parties agree on the most crucial elements of the contract. Incorporating these clauses will enable the parties to execute the contract in a transparent manner, without any ambiguity or uncertainties. Agreeing on the most vital issues regarding the concluded contract in advance will allow the entrepreneur to avoid unnecessary disputes in the future, as well as save time and other resources.

2. Agreement with a foreign contractor - the most important elements

While concluding a contract with a foreign entity, it is worth agreeing on the following issues:

 

2.1. The subject of the concluded contract and the scope of mutual obligations of the parties

It sounds simple, but in practice such contractual provisions are often not defined by the parties in a sufficiently precise manner. A well-written contract will be interpreted in the same way by each entity, with no doubt as to what the parties actually agreed to. It also applies to issues that seem clear and obvious to the entrepreneur, as they have been confirmed in direct negotiations. The contract should clearly indicate what is the obligation of a given party.

Example – The parties agree that the subject of the contract is the production of a promotional film for the products of a particular entrepreneur.

Contractual provisions regarding the subject of the contract should not indicate that the Contractor will prepare a promotional film for the Ordering Party regarding the entrepreneur’s products. The subject of the contract defined in this way is very likely to lead to a dispute between the parties as to what the parties actually agreed on. The correct definition of this type of subject should indicate in particular issues such as: the type of promotional film, its length, format, method of production, type of materials used for its production (photos, shots), specification of assumptions for the prepared recording, etc. The description of the subject of the contract should therefore be sufficiently precise.

 

2.2. The method by which the subject of the contract will be fulfilled

Contractual provisions, regulating the mode of performance of the concluded contract, are not always absolutely necessary. They facilitate the execution of the contract in contracts concerning, for example, recurring deliveries or more complex objects of contracts that are to be implemented in batches.

 

2.3. The specified timeframe within which the subject of the contract must be fulfilled

Some of the most important contractual provisions are those that specify the date on which the subject of the contract is to be performed. These provisions may be specified as a fixed date or by formula ,, no later than the date …….’’. With such a provision, it can also be indicated that earlier creation of the subject of the contract is permissible – provided that the parties agreed and it is within their interests. Not always earlier creation of the subject of the contract will be desirable by the Ordering Party, as it may involve, for example, the need to incur costs related to the storage of this subject.

 

2.4. Possible consequences of exceeding the specified deadline of the creation

Such provisions are intended to answer the question of what is to happen if the deadline specified by the parties for the creation of the subject is exceeded. These consequences can vary, including more and less severe.  The parties may introduce.:

  • provisions regarding the possibility of withdrawing from the contract, which will not be performed within the agreed period, together with the consequences regarding the costs incurred by the parties, the amount of work involved and the method of their settlement;
  • contractual penalties;
  • the mode of agreeing a new deadline for the creation of the subject of the contract.

 

2.5. The amount of the due contractual remuneration, the date and method of its payment, the currency accepted for settlements

The contract concluded with a foreign contractor should also clearly specify the amount of the due contractual remuneration, as well as the basis, date and method of its payment. If the contractual remuneration is to be paid in parts, it is worth indicating not only the amount of individual parts of the agreed remuneration, but also the conditions for its payment, e.g. whether the remuneration is to be paid simply on a specific date or on the condition that a given part of the contract is performed by the other party .

Of course, in the case of many contracts, the provisions regarding contractual remuneration do not have to be extensive or complex. However, some contracts require detailed contractual solutions in this case.

It is also advisable to specify the currency in which the mutual settlement of the parties will take place.

 

2.6. Contractual penalties

Contractual penalties or other types of provisions regulating the legal consequences of non-performance or improper performance of the contract by a given party are provisions that may, but do not have to, be included in the contract concluded with a foreign contractor.

Interestingly, in practice, they are much less common in the international trade than in domestic contracts.

 

2.7. Transfer of copyrights

Such provisions must be included in contracts where the obligation of one of the parties includes the creation of a work within the meaning of copyright law. These provisions require a lot of attention at the level of determining both the subject of any copyrights transfer, the time at which the indicated effect takes place and the fields of exploitation agreed by the parties.

It is also necessary to complete the legal form in which the indicated transfer should take place, required by the provisions of the applicable law of contract.

 

2.8. Jurisdiction and law applicable in the international agreement

Contractual provisions regarding jurisdiction and applicable law are one of the most important for a given contract in a situation where there is a dispute between the parties. Although these provisions are very often found in the final part of the contract concluded with a foreign contractor, in practice it is worth checking them first, and if the contract is only being negotiated – take them out and discuss with the other party.

Jurisdiction is a concept that will answer the question before which court a dispute between the parties will take place. Whether it will be the courts of the country of one or the other of the contractors. This is important because engaging in a court dispute before the courts of a foreign state is often a vision that an entrepreneur would like to avoid. Of course, in practice everything depends on the negotiating power – usually a business partner who has more of it is able to fight a favorable jurisdictional solution at the contract level.

The governing law stipulates which country’s legal system will be utilized to evaluate a particular contractual arrangement, determine its implications, and resolve any disputes that may arise between the parties involved.

 

2.9. The appropriate language for the interpretation of the provisions of the contract

Contracts concluded with a foreign contractor are often drawn up in two language versions, taking into account the language used by each of the contractors. In this situation, it is necessary to determine which language version will be appropriate for interpreting the provisions of the contract in case of any discrepancies.

In practice, many contracts concluded in the international trade are drawn up in English, which is commonly used for this type of communication.

 

2.10. Mode of contract changes

Such provisions aim to establish the means by which the parties can modify the contract in an effective manner. They determine whether the exchange of emails will be sufficient or if a written form, or another form agreed by the parties must be maintained.

 

2.11. Contact persons in matters relating to the contract

Not every contract will require the introduction of provisions regarding persons authorized to contact between the parties. In many cases, however, placing such provisions is intentional. This may be supported by reasons of a procedural nature, i.e. an indication of who has the right to provide guidelines regarding the implementation of the contract, as well as reservations  for individual stages of its performance, acceptance of the subject of the contract, etc. It is also important to regulate who is authorized to make effective and binding statements regarding the manner of performance of the contract.

 

Of course, these are not all the provisions that may be included in contracts concluded with a foreign contractor, but they are undoubtedly among the most important issues that should be regulated by every, or almost every contract.

Joanna Lubecka
attorney

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