Content module 2. Algorythm of concluding and execution of international contracts

THEME 5. CONCLUDING OF INTERNATIONAL CONTRACT

5.1. The first stage: Negotiation

5.2. Commercial offer

 

 

The fist stage: Negotiation

As a rule, the parties intend to be partners at first arrange negotiation during which the main points and terms of future (or potential) agreement are discussed.

Negotiating means taking action in order to achieve a situation acceptable to both parties. It occurs when the interests of a person or group are dependent upon the actions of another person or group who also have interests to pursue and whose respective interests are pursued by co-operative means. So, a negotiation is a meeting between two parties, and the objective is to reach an agreement over issues which are important in both parties' views and need both parties to work together to achieve their objective. In other words, negotiation can be defined as a process of bargaining by which agreement is reached between 2 or more parties.

Very often, the outcome of the negotiation is concluding a preliminary agreement obligating the parties to conclude the main contract in the nearest future. If one of the parties breaches this agreement, the other one can apply to the court.

 

Commercial offer

At the start of every agreement, there is an offer which clearly manifests the contractor's willingness. Drafting an attractive and precise offer is therefore a key element of the sales process. Whether done under the initiative of the seller or in response to the demand of a foreign client, it comprises the first obligation of the company to supply a product or service within defined conditions.

a) The characteristics of the offer

The offer must be sufficiently precise, firm and without ambiguity so that its acceptation by its consignee is enough to form the contract. Its composition needs to observe a certain number of precautions as it is the basis of the sales contract.

b) The Pro forma invoice

The most frequent support for the offer is the pro forma invoice which materialises the commercial offer. It is considered as an estimate which determines the large guidelines of sales. It formalises the seller's proposal and enables the potential purchaser to gain awareness of specifications relating to the offer (the amount, the terms of the order,...). It is also used by the purchaser to request authorisations such as import licences or the opening of documentary credit, when this payment technique is imposed by the seller. This type of document encompasses all the elements which appear in the commercial invoice: specifications relating to the product, price, methods of delivery, payment conditions,... In short, this invoice binds the responsibilities and applies the seller's obligations.

 

 

 

 

Figure 2.1. The characteristics of the offer

 

Table 2.1

Constituent elements of the Pro forma invoice

The contract parties	To register precise details of the contracting parties, if possible with the names of the respective representatives for each company.
Object	To establish a detailed description of a product or service with all the technical aspects and packing details (volume, weight and packaging). avoid ambiguous expressions such as the word "delivery" which can indicate the date on which the goods will be dispatched for the seller, and for the purchaser the date on which he will receive them.
Methods of transport	To determine the incoterm, method of transport and the precise time period for the delivery.
Price	The price must be detailed (unit price) firm and definate in order to avoid all misunderstandings. The purchaser and seller must decide the method of regulation at this point. You will maintain this, however in an incoming sale, it is preferable for the seller not to indicate the details of the transport costs if the time period which divides the offer of the goods' dispatch is long. Simply, the parties are careful to use the international money code so as not to expose themselves to unnecessary and expensive litigation (BEF for belgian francs, FRF for french francs,...).

 

c) The acceptance of the offer

The acceptance of the offer constitutes the client's agreement and enables the sales contract to be concluded. The contract only materialises at the moment when the offer is followed by acceptance. As long as it is not in place, the offer can be retracted. An acceptance must be transmitted in written form in order for the seller to obtain a certain guarantee and provides evidence in the case of litigation. In this precise case, the acceptance takes the form of a purchase order or a contract.

Oral acceptation is not recommended in the absence of proof unless the contract is simple and will be carried out by trustworthy people and in good faith. In spite of everything, a written confirmation is always recommended. Be aware that in the case of litigation, acceptance by telex or fax does not always constitute sufficient proof. Companies can resort to standard contracts to formalise the agreement of the two parties. Standard contracts are the practical method, but they have the inconvenience of being non-negotiable. The most reliable method is to draw up contracts tailored to each client.

In some legislation silence can be worth accepting. A prudent buyer will therefore refuse every offer carried out in negotiations in an explicit manner, or will formulate a counter-proposal.

THEME 6. EXECUTION (PERFORMANCE) OF INTERNATIONAL CONTRACTS\