LECTURE 2

International Contract Negotiations

When it comes to foreign contract negotiations, being a “bull in a china shop” is a really
bad idea, advises Laurie Fitzgerald, convention manager for Smith, Bucklin and
Associates Inc., Northbrook, Ill. As manager of the International DB2 Users Group
conferences held in Europe and the Asia-Pacific region, she's learned to take negotiations
slowly and to explain in detail what she wants and why.

“I tell them up front exactly what I'm looking for, what kind of rate I'm looking for, and
that I need the best deal.”

Fitzgerald opens negotiations by sending a copy of her standard contract with negotiable
points highlighted. She also demonstrates the value of her event with three to four years
of pick-up history, food-and-beverage expenditures, and auxiliary service usage.
“Sometimes I feel like I'm the salesperson,” she says.

No matter where you're headed, expect some demands to go unmet. Act of God clauses
that are standard in the United States may be unacceptable in the host country. Meeting
requirements, such as housing within walking distance, may be unavailable. And
payment policies may be inflexible, requiring a 100 percent advance deposit to guarantee
rooms.

Knowing how motivated your counterpart is to negotiate is critical to your success. “All
contract terms are market-driven,” according to John S. Foster, CHME, Esq., attorney
and counselor at law, Foster, Jensen and Gulley, LLC, based in Atlanta. “That's true
whether you're negotiating in the United States or with a vendor in Europe or Asia. It all
depends on how badly each side wants to do business with the other side.”

Termination Clauses

A major sticking point in negotiations may be contract provisions that protect you against
losses in the event of contract termination. Since September 11, the threat of a terrorist
attack can scuttle travel plans to troubled destinations. You ought to be able to cancel
your meeting and terminate contracts without liability, and you ought to be able to get a
refund on advance deposits.

A force majeure clause spells out the circumstances — civil strife, terrorist attacks, and
other occurrences beyond the control of either party — that allow you to terminate the
contract without either party being liable. An Act of God clause covers hurricanes and
other natural disasters. A separate clause should specify when deposits are refundable.

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“One thing that I put in any international contract is the provision that I reserve the right
to cancel the event, should that area be placed on the U.S. State Department Advisory
List,” says Jonathan T. Howe, Esq., president and senior partner, Howe and Hutton, Ltd.,
Chicago. “I would be very reluctant, especially in the environment we're in now, not to
have that provision in the contract.”

Should it be a deal breaker? That depends on how much risk you're willing to assume.
For associations, the problem is attrition if attendees decide not to travel. They can avoid
penalties by requiring attendees to pay advance deposits. For corporations, the problem is
cancellation and loss of nonrefundable deposits. But because the planning time frame is
shorter, the risk is less.

If a property resists changing its contract — typically all of one page — it may be open to
including an addendum. Before signing, ask your insurer to review it. “In the end, it's the
insurers who help you,” says Fitzgerald. “I want to know if they're comfortable with it.”
Also you can explore getting extra coverage for terrorism.

“The topic of terrorism is a big issue right now — everyone is still grappling with how to
deal with it. Some of the big insurance companies in this industry have decided recently
to cover terrorism, but they limit the amount that they'll cover, and it's expensive,” Foster
explains. “So to a certain extent it's still almost an uninsurable risk.…The cap on
terrorism insurance right now — what they'll cover for losses — is $250,000. That may
sound like a lot, but for an association, the hope is that its meeting will make more money
than that.”

Negotiating Meeting Requirements

Meeting facilities in many countries are not comparable to what you expect in the United
States. Be specific about your requirements. Provide sketches of your room setups and
request room dimensions, ceiling heights, and location of windows, mirrors, columns,
and other obstructions.

Items that you're accustomed to getting in the United States but have to negotiate hard to
get abroad include:

• Guarantee/minimum night stay, usually 100 percent, but negotiable

• Comp room ratio, as many as one per 25 per night, but not cumulative
• VIP/staff room upgrades, provided you demonstrate value
• Meal plan options, if you have food-and-beverage events
• Free meeting space, if the property can resell unused time blocks
• Comp move-in/move-out days, if you're not incurring labor charges

“Just because I know that a certain property doesn't negotiate on deposits, that doesn't
mean I'm not going to ask them to do it,” says Foster. “I may be able to swap something
else — give them something that they want and get something that I want, which is a
lower deposit.”

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A good interpreter will help you understand the nuances of conversation with suppliers
and help ensure that you get what you ask for, when you asked for it. “Some people think
that ‘mañana’ means tomorrow,” explains Howe. “But it really means “not today.” And
in Japan, if somebody says, ‘That may be difficult,’ you can take that as a no.”

Prices and Payment Policies

Foreign hotels may have limited meeting space, so it is customary to charge for rental,
setup, and turnover. Ask about what is included in price quotes and what additional
charges you may incur. Be aware of the value-added tax (VAT) rate — as much as 25
percent in some countries — and how to obtain a refund. (See related article on VAT,
page 26.)

Foster recommends protecting cash deposits against loss in the event that a property
defaults. There are three ways to do it: Send funds to the foreign hotel on the condition
that the funds are deposited in an interest-bearing escrow account; send the deposit to a
U.S. affiliate of the property to be held in escrow; or request a standby letter of credit for
an amount equal to the deposit. For any deposit, whether it's local or overseas, try to
negotiate a smaller amount that can be paid closer to the event dates to avoid sending
payment so far in advance.

Dispute Resolution

No matter how favorable the contract terms that you negotiate, disputes can still arise.
International arbitration is the method of choice for resolving these disputes. Stipulate
where the arbitration will take place (typically a neutral country) and what rules will
apply. “It's a good way to go, because you don't get tied up in the foreign country's legal
system,” advises Foster.

Negotiation Basics

Do:

• Give yourself time

If U.S. negotiations normally take four to six months, it could take a year or more
for an international event.

• Do your homework

Research online and talk to others who have been to the destination.

• Understand the culture

Cultural differences can impact what you get, when you get it, and how much you
pay for it.

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 • Get local help

A tourism board, travel agent, customs broker, congress organizer, or your local
chapter/office can be your ally in negotiations.

• Know with whom you're dealing

Check references and inquire about the quality of services rendered.

• Ask for English

Request English as the official language for negotiations and specify the English-
language contract as the prevailing document.

• Define the terminology

State your requirements in descriptive terms rather than industry jargon.

• Read the small print

Standard terms and conditions, rules and regulations may be referenced in the
contract but not attached. Review all referenced documents before signing.

• Obtain insurance

Make sure your organization is ensured for losses outside the United States.

Don't:

• Assume it's included

If what you need is not spelled out in the contract, it's probably not included in the
price. The same is true for taxes, gratuities and service charges.

• Agree to something you don't understand

Ask questions, gather information and, if you're unclear about something, ask
again.

• Sign a contract without examining a translation

Request copies of the contract in English and the language of the host country,
then compare the documents for consistency.

• Be the ugly American

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 Arrogance, disrespect for cultural differences, or a “bull-in-the-china-shop”
approach will only hinder negotiations.

MORE ABOUT NEGOTIATION

In the art of negotiation, whether it is business or personal requires planning and
execution. Unlike toddlers, who negotiate by crying and rolling around on the floor,
adults need to employ a different skill set to get their point across. The following are
some tips for successful negotiation.

Before the meeting be well rested and well fed- also visit the restroom before “entering
the arena” as you don’t want a nature call to have you leave the room or adjourn the
meeting early.

Wear comfortable, yet appropriate clothing- the commercial expression “don’t let them
see you sweat” is never more applicable. A tight collar and or tie or a skirt that is being
hitched or hiked that will cause you to fidget will detract from your image.

Focus on issues, not personalities- if you have to deal with persons you don’t like (or
those you do like) it is tempting to let your thoughts about that person influence your
behavior. Focusing on your goal and treating everyone as an equal will help matters
become resolved in your favor. By treating all fairly you will avoid simmering about
grudges or worrying about feelings, which can be an obstacle in your success.

Speak in supportive statements- Attach credibility to your statements by speaking in facts

not feelings. Avoid sentences beginning with “I think” “I feel” or “In my opinion”. When
stating facts, be prepared to quote your sources and elaborate or deflect questions meant
to deflate your position. Being armed with facts stands up better than trying to justify
feelings.

Listen (with more than your ears)- Listen for audible content but also watch the body
language. Are your opponents sitting with an “open” body posture or are their arms
tightly folded across their chest? Are they scratching their nose often in disbelief? Are
they looking down or are they engaging you with their eyes in a game of “blink” to
establish who is boss?

Find points of agreement to build on- pick up points that you agree upon and incorporate
them into your presentation. An example would be “I agree with you on the importance
of XYZ, and this is how the implementation of PDQ can benefit XYZ".

Choose your battles wisely and place some “decoy” items on the table- a trick popular
with attorneys is to ask for much more than you want so that you can “sacrifice”
superfluous or unreasonable items to gain ground for the important issues. Compromise
with care on items important to you. Weigh carefully whether holding out will be in your
best interest. Sometimes a speedy resolution isn’t the best.

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Take minutes- Have someone tape or take minutes so that all that has been said is
recorded. Reiterate that your responsibility will be and that you will execute your part
right away. If in a business meeting you can end by saying “I will have this in a memo to
distribute this afternoon” or “I will make the necessary phone calls to get this rolling right
away”. If contracts are involved, have them ready on the spot or as soon as possible to get
a signature to what has been agreed. Although most contracts have a “cooling off” period
of three days or so, getting a written commitment to your settlement brings you that much
closer to your goal.

End on a positive note - Shake hands and smile. A smile shows friendliness and
confidence and that you are a great person to do business with, even if everyone in the
room wasn’t altogether pleased with the outcome. Conversely, if you did not get all you
wanted, don’t appear a bad sport. Focus on your “wins” and play down the losses. Take
honest notes to yourself on your tactics and see how you can improve for next time.

Contract Negotiation and Writing Tips

Individuals and companies negotiate and enter into contracts fairly frequently in the
course of business. Some business agreements may be simple enough for the typical
person to draft, while others may require the help of a skilled contract attorney. In either
case, the ideal end result is confidence that you have negotiated the best terms for your
business, and created a well-drafted agreement that will avoid any dispute or potential
litigation. Below are tips on negotiating and writing a sound business contract.

Negotiating Tips

Certain fundamental strategies will assist you in the day-to-day negotiation that all
businesspersons perform, in contracts and other business transactions. The following are
a few suggestions to get you started on the road to effective negotiation tactics.

• You should always have clear objectives. It helps to make a list of goals before
meeting the other party.
• It is important to go to a negotiation having done your research. Know relevant
law, facts, and figures.
• Consider what you really need to get from the other party, and also decide in what
areas you are willing to compromise.
• Build trust with the other party. Trust will aid communication.
• You may want to have a first draft of an agreement written before meeting with
the other party.
• Try to keep the discussion ordered when meeting with the other party. Make a
checklist of topics that should be reached during the negotiation.

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 • Listen to the other party and their concerns.

Contract Drafting Tips

It is helpful to understand the basics of contract drafting even if you rarely draft your own
contracts. A basic understanding can add to your confidence in all types of business
writing, and will also aid when reviewing and interpreting the contracts in which you are
a party.

• An effective contract should always be clear, specific, and focused.

• Sentences should be short to avoid unnecessary complexity and ambiguity.
• You may want to look at sample agreements prior to drafting your own.
• Make sure all party names are accurate. Include their business titles if
applicable.
• A contract should be consistent in its tone, grammar, word usage, and
abbreviations.
• Outlining the contract can aid clarity and allow for quick reference to certain
clauses.
• Define important terms.
• Anticipate litigation by including sections regarding venue, choice of law, and
attorney fees.
• All parties should sign the contract, including business titles if applicable.
• Pages should be numbered. Avoid the appearance that pages could have been
added after the agreement was signed.
• As with any business writing, proofread very carefully.