The Startup Guide to Reviewing International Contracts
More haste, less speed. You'll be even busier later.
Whether you're a global startup or a domestic company expanding overseas with services spanning the globe, you're bound to collaborate with foreign companies at some point. If you have a finance manager in your organization, they could meticulously review the contract with you and double-check any areas that might cause legal disputes, but unfortunately, that's rarely the case for most of us.
As a marketer who has experienced a typical foreign company, a startup headquartered abroad, and a domestic startup offering services overseas, looking back at the first time I had to sign a contract with a foreign partner and oversee its execution makes me heave a sigh of relief. I'm just incredibly thankful that the incidents and accidents I've faced since then didn't happen back then.
Even domestic contracts, signed cautiously while building face-to-face relationships, often lead to losses if you aren't paying proper attention. How much worse could it be with a foreign partner you've never met and can't easily visit if a service issue arises? While knowing how to handle an accident is important, preventing such accidents in the first place through contract review and negotiation is paramount. For the startup professionals out there who are currently wrestling with contracts (that make no sense even when translated to our native tongue), I want to offer a guide compiling the absolute must-check items—even if it's a pain to do right now.
Even at DelightRoom, which operates the premium alarm app Alarmy globally with 49 million cumulative downloads and 2 million DAU, practitioners in each department proceed with foreign partner contracts keeping the following points in mind. Despite this, there was an instance where a US company (hereafter referred to as Company C) took advantage of the transition period when a new department manager joined and billed us an absurd amount. Let's use this case study to better understand each item and see how to respond when problems arise.
The Startup Guide to Reviewing International Contracts
1. Are the contract's effective date, service provision period, and termination date clearly stated?
2. Always check if there are separate Termination conditions in the main text that weren't discussed beforehand!
3. Delete ambiguous or double-meaning expressions, or revise them into clear words.
4. Specifically detail the scope and content of the services provided in an Appendix or Exhibit.
5. Meticulously verify that the contract you are signing is indeed the final version with all revisions applied.
What kind of problems can occur when the above items—which might seem obvious—aren't followed? If you can't easily guess, you're lucky. It means you've been working with trustworthy partners.
First, if item #1 is unclearly marked, you're left in a situation where the start and end are vague, naturally increasing the chances that separate contract termination conditions mentioned in #2, un-discussed minimum execution periods, or cancellation fee clauses are hidden in fine print somewhere in the text. If it isn't filtered out at this primary stage, it's highly likely that when the counterparty was pitching to us, they verbally claimed the contract could be done as a one-off, and brushed off Termination details as 'just something typically included in a standard contract.' Even if automatic contract renewal upon lack of termination notice is an expression always stated in that country's standard contract and usually overlooked, you must find a middle ground and fix it if there's any room for trouble.
In fact, for any contract, it's best to specify an exact termination date if possible. If there's a condition attached requiring a 7-day notice before contract termination, it means even if you terminate on January 23rd, you have to pay the costs up until January 30th, 7 days later. You're better off setting January 30th as the termination date and adding a clause to extend if necessary.
Let's take a look at a real-world example. In Company C's case, the previous manager listed as the contractor signed the deal right before leaving the company, and the service only launched two months after their departure. The contract terms stated a fee of $5,000 for the first 60 days, transitioning to a standard package of $3,600 per month thereafter. The problem was that the title of the table specifying this was 'Monthly fee,' and the $5,000 for the first 60 days—which we judged as reasonable after hearing Company C's explanation—was actually billed as a 'Monthly' $5,000 by dividing those first 60 days into 30-day chunks, meaning a total of $10,000. This was a classic case of deceiving the contractor with ambiguous or double-meaning notations. This is exactly why you must absolutely go through the process in item #3 beforehand.
This only came to light during a full review of the contract because Company C's sales rep insisted to me—having joined 5 months after the contract was signed—that we had to pay a new first 60-day fee to extend the contract. Looking closer, it included a clause stating we had to maintain the service for a minimum of 12 months, and a Cancellation fee would be incurred if terminated earlier. The cancellation fee confirmed by Company C's rep was $3,600, equivalent to one month's service cost. Contrary to the original contractor's intention to test a new type of creative for $5,000, we were on the verge of being billed $20,000, combining the basic package costs for the months we didn't receive service and the cancellation fee. After I joined, no communication had occurred from Company C other than reaching out for additional sales, so should we just take a $15,000 loss like this?
The answer lies in the contract.
Even for accidents that have already occurred, the answer lies in the contract. You need to find as many clues as possible in the contract to formulate your response, and officially send a Termination notice email based on that contract. If you properly completed item 4of the guide, its effectiveness will shine at this very stage. In attached documents labeled as Appendix, Exhibit A, Exhibit B, etc., it is best to specify the format, and scope, of the provided services, free add-on services, communication scope, and all other forms of collaboration that can occur between both companies. This is crucial documentation that both the advertiser (or buyer) and the agency (or vendor) can present as a basis for requesting mediation when a mutual issue arises. These addendums can be used by the advertiser to protest if service quality falls short of the paid cost, and by the agency to defend themselves if they aren't paid or are asked for excessive services.
Based on the facts that Company C failed to properly execute the services specified in the addendum, issued an invoice different from what was previously discussed using ambiguous language, and didn't state the exact cancellation fee in the contract, we continued to protest based on the contract. As a result, we ultimately reached a mutual agreement to pay only $10,000 and terminate the contract. Of course, raising a claim without knowing the earlier history was personally quite a difficult process. If you join a position that had a bit of a vacancy period, I highly recommend meticulously reviewing the details of previously signed contracts during your initial handover period.
Have you meticulously checked and followed the 'Startup Guide to Reviewing International Contracts' presented earlier? If so, the final finishing touch remains. Namely, comparing and reviewing the actually billed invoice against the contract. Since invoice emails are often sent only to the person in charge of payment rather than the contractor, if you're outsourcing your accounting, payments might be delayed because neither side knows the details, or an incorrectly issued invoice might be paid as is. If you failed to properly follow item #3 during the contract review stage, you need to frequently check and request revised invoices to prevent them from stealthily relying on ambiguous expressions to bill you double or triple the cost. You must not forget that signing a contract carelessly just because you're busy can lead to a bigger disaster. Just looking at Company C's case, while we did save the unfairly billed $10,000, we ultimately incurred an unexpected $5,000 loss at the beginning of the contract.
Contracts are your shield to prevent accidents and help you cope with them. The busier you are, the more time you should invest in reviewing and revising contracts. Because later on, you'll be even, even, even busier.
We are DelightRoom, servicing the Alarmy app that wakes up 49 million mornings.