Introduction
To successfully conclude an export sales transaction, legal counsel for a U.S. exporting company must conduct several layers of negotiations. He or she must also accommodate the competing interests of many parties, including the U.S. exporter, its manufacturing supplier, and the foreign purchaser.

A successful transaction results from the negotiation of export sales contracts that satisfy the most important commercial objectives of all parties and adequately govern the interaction of those parties for the duration of the relationship. These transactions are often multi-staged negotiations, as they first involve the purchase transaction between the U.S. exporter and its manufacturing vendor, which is then followed by the sales transaction with the foreign purchaser.

It can be, at times, quite difficult to decipher the major business objectives of these three principal parties. There are, however, many competing interests within the client's company that may be even less readily apparent -- different sectors of the company's operations, such as sales, engineering, and management may have different interests.

Before counsel can achieve a unified internal position on contract issues in negotiations, he or she must identify and resolve these competing interests. Doing so will inform counsel about the various priorities and risk tolerance of his or her client. Thereafter, counsel can more assertively advance bargaining positions in the course of negotiations with the exporter's manufacturing supplier and then with the foreign purchaser.

This article discusses the attorney's role on behalf of a U.S. exporting company during contract negotiations with various parties, focusing first on the influence exerted on counsel by the vested interests of certain key employees of the U.S. exporter. It then addresses the objectives of counsel in the course of contract negotiations with the exporter's manufacturing vendor and the foreign purchaser. Although most of the examples in this article derive from transactions involving the export of industrial process and power generation equipment, many observations apply equally well to the export of other commodities.

Counsel's Role

From the perspective of many business people, attorneys only complicate things. This view is often held by personnel within the attorney's client company as well as parties outside it. This perception exists because most business people do not recognize the attorney's role in reconciling inconsistencies inherent in negotiations and articulating the consequences of business decisions.

The attorney actually facilitates transactions as a result of his or her integration of the discussions of management, salespersons, and technical experts. The give and take of the business deal must be condensed into coherent and cohesive terms and conditions that govern the transaction as well as the continuing relationships of the parties. This is counsel's primary responsibility. A complicating factor is that the attorney must first harmonize the competing agendas of the different constituents comprising the exporter, prior to dealing with the separate objectives of the manufacturer and the foreign purchaser.

Counsel may therefore need to educate others as to his or her abilities to facilitate the working relationships of the parties in ways that suitably allocate risk and reward. Legal counsel is not merely a scribe but also a policy and decision maker, especially in light of the increasingly international consequences of business transactions.

Vested Interests within the Client Company

It is not always obvious at the outset that a client company rarely speaks with one voice. Even though corporate management may approve a sale, various persons within the client company often have different views on how the transaction should be structured and closed.

The salesperson's function and efforts are to close the deal. Speed is often a primary issue, especially if commission compensation is involved. Commercial terms such as price, quantity, and delivery date are usually his or her most critical concerns, and therefore he or she often sees the attorney's focus on legal terms and conditions as needlessly delaying the closing. Also, the salesperson may be impatient during the often unpredictable and time consuming internal review and approval process triggered by the need for "legal review" and "management approval."

In contrast, the technical engineer is preoccupied with the technical specifications and performance of the equipment at issue; it is up to him or her to confirm "that it works" and "does the job as advertised." Therefore, there is little room in the technical engineer's world for transactional concerns other than the technical feasibility of the equipment. Thus, the technical engineer often sees legal terms and conditions as mostly immaterial, since he or she is nearly always convinced that the design is sound and therefore that the equipment will work. With this assumption, the technical engineer may not see the need for counsel's concerns for allocation of liabilities, since in his or her estimation, there may be a low probability of technical failure.

Corporate management wants to keep happy the foreign customer as well as the corporate shareholders. It therefore pressures all members of the company who are involved with the transaction (including counsel) to complete the project according to its time schedule, which may or may not coincide with the realities of actual negotiations. Furthermore, even though corporate management may recognize counsel's role as guardian of the company's "deep pockets," it also can be the first to trade off legal protections in favor of commercial compromises.

Because of such disparate interests, counsel must first recognize, identify, and account for the various forces at play in order to understand the agenda of each. This must be done without alienating one or another group. Each may have valid concerns, but it is often up to counsel to reconcile them. To this end, counsel must negotiate contracts that reflect the commercial and technical goals of the client's constituencies as well as his or her own understanding of the legal and financial objectives of the client company.

Thus, the most important and immediate goal of counsel is to create an environment of trust and teamwork within his or her own client company. This can be achieved by an explicit airing of each player's assumptions and goals in relation to upcoming negotiations with the manufacturer and the foreign purchaser. Doing this in a group setting saves time and makes all participants aware of their competing interests and the need for consensus. Explicit consensus is needed on (1) the ultimate contractual goals that must be achieved, (2) the role that each member will play in support of counsel, and (3) the role of counsel as negotiator and policy maker. Without such consensus, the weight of these undisclosed agendas will only lead to acrimony within the client company, frustration for counsel, and transmission of contradictory messages to the other party in the negotiations.

Representing the Exporter in Contract Negotiations with the Manufacturer

As the party responsible for selling the equipment in question to the foreign purchaser, the exporter, and its counsel, must ensure that the item of sale will be fabricated to specification and delivered on time in the proper condition suitable for resale to the foreign customer. Toward this end, counsel for the exporter must ensure that the appropriate terms are clearly articulated in the contract with the manufacturer.

As in nearly all commercial negotiations, the most satisfactory outcomes for the long term are achieved when both parties believe that they have accomplished their goals -- the proverbial win/win solution. Negotiations are most likely to be successful when both sides engage in risk sharing rather than risk shifting -- i.e., sharing the risks and benefits rather than merely trying to shift risks to the other party. Here, it is counsel's job to negotiate a contract that minimizes the exporter's risk of liability and maximizes product support from the manufacturer. Absent one-sided negotiating leverage, counsel can proceed more effectively by measured accommodation than through coercion. Optimally, this means that both sides cooperate to ensure the contract reflects their vital commercial, financial, and legal interests.

1. Determining the Manufacturer's Responsibilities
   In the contract of sale between the manufacturer and the exporter, both parties will focus more importance on those provisions dealing most directly with money. Typically, management, salespersons, and technical engineers are interested only in the direct money issues and less concerned with discussions of the secondary or tertiary ways in which liabilities might be incurred. They tend to emphasize price, quantity, and other direct transaction costs. It is often up to counsel to highlight the costs that are contingent on less predictable events. Discussions of these "uncertain" costs often make management, salespersons, and technical experts of both companies uneasy, because they may be reluctant to tie up resources for contingencies that usually do not occur. Nonetheless, these risks and costs must be allocated between the parties at the outset to avoid the possibility of chaos and larger expenses later.

2. Direct Money Issues
   The manufacturer's maximum aggregate exposure to the exporter for liabilities arising in connection with the sale or use of the equipment is a crucial issue. On this issue, the exporter's counsel will typically push for the manufacturer's unlimited liability, including personal injury and warranty related claims. From the exporter's viewpoint, the manufacturer should be willing to stand behind its product 100 percent and therefore to bear all liabilities caused by its product.
   
   Not surprisingly, the manufacturer nearly always finds such open-ended responsibility untenable. The manufacturer often argues that assuming such liability is unacceptable as a matter of basic commercial policy, which can be persuasive, especially if it is a sole supplier or a larger company with significant economic clout.

   In the end, a maximum level of liability is usually agreed on as a percentage of the overall sales price. Manufacturers nearly always resist any level of liability in excess of the value of the equipment for major industrial plants. Nonetheless, the exporter must extract from the manufacturer a level of liability sufficient to cover any potential warranty and maintenance costs. In many cases, an aggregate liability equal to the contract price (which may also include the price of replacement parts and services related to the equipment) will adequately compensate the exporter for all anticipated warranty problems, as well as any "catastrophic" failure caused by a manufacturing defect. Alternatively, the manufacturer might reject any assumption of maximum aggregate liability in favor of a narrower warranty solely covering specified defects in parts and labor.

   Other common issues center on the warranty's duration or commencement date. In the case of equipment used in conjunction with other devices, the manufacturer will want the warranty to commence as soon as possible. Thus, the manufacturer might initially propose the date of delivery on site or the date of initial testing after installation. On the other hand, the exporter, who will be obligated to pass on the manufacturer's warranty to the foreign purchaser, may not discover that the equipment is defective until its operation in conjunction with the entire plant, usually at a much later date. Generally, this would occur after the foreign purchaser has actually "accepted" the entire industrial plant in which the equipment is installed. In the end, the operational commencement date is often adopted. Both sides usually agree that the manufacturer's warranty would be meaningless if it did not cover the date on which the equipment was tested in its intended role as one component of a larger industrial complex.

   The location of warranty repair and the replacement of parts and other related services is further cause for discussion. Manufacturers are traditionally reluctant to provide warranty and support services anywhere beyond the factory gate. They may initially offer such support at the place of delivery to the exporter such as the "site FOB" or the "Port of Export." However, with the globalization of business, even small suppliers of equipment find that purchasers expect service to be available "on site," even if that site is halfway around the globe.
   Finally, as to warranty, the manufacturer may also insist on certain conditions. One of the most important conditions is that the exporter and ultimate foreign owner use and service the equipment strictly in compliance with its operating and maintenance instructions. If the manufacturer has its way, typically any significant deviation from the operating manual(s) may be grounds for voiding the warranty.

3. Indirect Money Issues
   Attorneys representing equipment manufacturers and exporters should be more leery today of their clients' liability for intellectual property infringement than at any time in the past. One consequence of the penetration of overseas markets by U.S.- brand name products has been an increasing proclivity of local companies to bring claims against U.S. equipment manufacturers for alleged infringement upon their trademark, patent, or other intellectual property rights. Even if foreign claims turn out to be frivolous, U.S. companies are often persuaded to settle such claims just to dispose of them expediently.

   As a consequence of this increase in foreign intellectual property infringement exposure, manufacturers increasingly insist on contractually limiting their exposure. On the other hand, exporters uniformly refuse to assume any intellectual property liability, which they view as solely the manufacturer's responsibility. Naturally, the exporter, who must also keep the end user's interests in mind, views itself as purchasing and reselling a product, not a lawsuit. Therefore, exporters will usually demand that manufacturers assume full responsibility for defending any claim brought against the exporter or the foreign purchaser for the use of the manufacturer's equipment. In this respect, the exporter will not care whether the claim is valid or whether it is based upon a right that vested prior to or after the execution of the contract between the exporter and the manufacturer.

   In contrast, the manufacturer will want to exclude from its liability any claims arising in countries distant from the equipment's use. It will be equally resistant to the assumption of liability for those claims arising from intellectual property rights it could not have known about when it executed its contract with the exporter.

   An additional objective of exporter's counsel is to ensure that the manufacturer's infringement indemnity covers more than simply patent infringement. Salespersons typically think only of patents when considering intangible property rights, but trademarks, copyrights, and trade secrets may be of equal or more importance to a product's market and sales value.

Contract Negotiations with the Foreign Purchaser

Frequently, the foreign purchaser hires the exporter to install the equipment in its industrial facilities outside the United States. The foreign purchaser may be aware of the manufacturer of the equipment but has relied on the exporter to make all necessary arrangements with the manufacturer for the fabrication of the equipment. Thus, the "main" contract for the export of the equipment is between the foreign purchaser and the exporter, and it may make no reference to the manufacturer. In this way, the foreign purchaser looks to the exporter as its single point of contact and legal responsibility in connection with its purchase of the equipment.

However, this arrangement whereby the foreign purchaser relies solely on the exporter may leave the foreign purchaser technically without recourse against the manufacturer for any liabilities or warranty claims not satisfied by the exporter. The foreign purchaser will seek to compensate for its lack of contract privity and recourse to the equipment manufacturer by doing several things. First it will often pressure the exporter to obtain as comprehensive and long-term a warranty from the manufacturer as possible, since it is likely to be the foreign purchaser, not the exporter, who will need to enforce it. Second, the foreign purchaser will insist that the rights of the exporter, as expressed in the contract between the manufacturer and the exporter (especially the enforcement of all manufacturer warranties), be fully assignable to the foreign purchaser. In turn, the manufacturer will be equally insistent that the foreign purchaser agree to any limitations on its liability agreed to by the exporter.

The timeliness of delivery of the equipment is also of utmost importance to the foreign purchaser. In this regard, a liquidated damages provision in the contract with the exporter financially motivates the exporter to meet the delivery schedule date. Since shipping schedules and terms are often solely determined by salespersons or procurement managers, exporter's counsel should obtain a copy of the equipment purchase order to determine whether its pre-printed terms conflict with the main contract terms. Counsel must be cautious to delete or modify any "small print" on the back side of the foreign purchaser's purchase order that calls for draconian liabilities from the exporter if the foreign purchaser's standard shipping terms or delivery schedule are not complied with exactly.

Even in those circumstances when the exporter's salespersons and technical engineers use standard form sales contracts drafted by counsel, the vagaries of sales promotion may cause them to agree to other terms and conditions that counsel may have to modify later. For instance, salespersons all too often agree to the legal term of art, "time is of the essence." They are unaware of the harsh consequences that can befall the exporter who has agreed to such terms, namely, that the smallest delay in schedule may carry with it the substantial liabilities of a material breach of contract.

Similarly, salespersons and project managers may not always appreciate the comfort to exporters of a waiver of consequential damages. Nonetheless, counsel should ensure such a waiver is inserted in nearly all sales contracts (including those with its manufacturers). Waivers of consequential damages, which are often reciprocal, release the other party from liabilities incurred as an indirect consequence of a default or breach of contract. An example would be the loss of anticipated operating revenues incurred by the foreign purchaser as a consequence of the shutdown of its industrial plant caused by the breakdown of equipment sold by the exporter. Such lost operating revenue can far exceed the replacement cost of the equipment. It is commonly considered a consequential damage, and therefore typically excluded from the exporter's liability exposure if counsel is vigilant.

Issues of title and care, custody and control are other common items of discussion between exporters and foreign purchasers. Frequently, tension develops over when title and risk of loss shift to the foreign purchaser. Increasingly, foreign purchasers are requiring exporters to quote a lump sum price, either CIF site of installation or FOB agreed port. Irrespective of shipment terms, however, purchasers seek title to the goods at the earliest point possible after the equipment leaves the manufacturer's factory gate. In contrast, purchasers often resist accepting care, custody, or control over the equipment (and thus the resulting risk of loss) until delivery on-site, at the earliest. Naturally, the foreign purchaser's motivation is to assume the benefit of the transaction (in this case, title), while relegating the risk (namely, risk of loss) to the exporter. Since damage to equipment is a frequent occurrence during international carriage, counsel's task is to negotiate an allocation of the cost of such losses, so as to reduce his or her client's reliance on costly insurance.

In an effort to conserve equity and take advantage of tax incentives, foreign purchasers often finance the purchase of industrial equipment through such sources as national export credit agencies. Therefore, exporter's counsel should inquire at an early stage in the negotiation as to whether the foreign purchaser intends to make its financial closing a condition precedent to payment to the exporter. Exporter's counsel would be well advised to resist any such contingencies and, instead, suggest the use of bridge financing by the purchaser to make payments to the exporter for equipment requiring long fabrication lead times.

Finally, counsel for the exporter must be aware of the timing of the transaction. Some export sales transactions can be completed in one week. Others can take many months or years to complete, depending on the type of equipment to be fabricated and the complexity of its installation. During the time before installation of the equipment, any number of national laws, regulations, and local ordinances affecting the manufacturer, exporter, or foreign purchaser may change. Exporter's counsel therefore needs to keep abreast of changes in the laws of the foreign purchaser's country. Tax laws and regulations, import duties, and environmental standards are examples. In anticipation of such changes, exporter's counsel should negotiate an express allocation of the burden or benefit caused by such changes. In most instances, the exporter cannot anticipate any particular future changes in laws, and counsel is often successful in arguing that all changes in the sales price caused by these variables should go to the account of the foreign purchaser.

Conclusion

Participating in the sale and export of U.S.-origin equipment to a foreign purchaser often requires the international business attorney to conduct several layers of negotiations. First, it is necessary to undertake team building and the molding of consensus within his or her own client company, followed by contract negotiations with the manufacturer of the equipment, and finally by negotiations with the end user, the foreign purchaser. At each stage, the attorney encounters different express and implicit agendas held by the various participants. These varying concerns and business objectives shape the course of negotiations and ultimately are reflected in the final contract provisions to which the various parties agree. This article has presented a number of the key interpersonal and contractual issues arising in the course of negotiations and has discussed some of the likely resolutions.