When the parties to a commercial contract are living up to mutual performance expectations it’s a pleasure doing business. Both sides are happy to receive phone calls from the other and everyone is quick to take credit for the commercial success.
But when things start to go pear-shaped, you may soon find your telephone calls are no longer being returned. The individual who signed the contract, who you may have never met, is near the top of the company ladder where it’s easy to be inaccessible.
Nobody closer to the ground will talk to you except a receptionist who’s starting to sound annoyed after your third message. It doesn’t help that your dealing with a large corporation with offices scattered about the nation.
Your frustrated knowing the situation can be improved through discussion and maybe some additional good faith negotiation. If only someone on the other side would stand up and be accountable for the organization!
Situations also arise wherein two or more individuals in an organization, with leadership positions, provide inconsistent or conflicting communications. This translates into commercial risk. You want the other party speaking with one voice.
These problems are avoided when both sides designate party representatives. This will be the person you talk to when things go bad and you need answers. It’s also the designated recipient of notices and other important contract communications. When communications are received by a party representative, in compliance with notice requirements, the receiving party cannot later argue they were not properly delivered.
It is not necessary that the party representative is the individual signing the contract. The person executing the contract, nonetheless, must have actual authority to contractually bind the company. These individuals, especially in larger organizations, may not be the best person to talk to about day to day performance issues.
Both parties should designate a party representative close enough to the work to know how to fix problems and yet have authority to make decisions and manage the scope of work. In the construction industry project managers are often named party representatives.
When drafting the party representative clause include the individual’s full name, job title, mailing address, email address, direct telephone number, cell number, and fax number. The function and obligations of the party representative should be clearly defined. Also require both parties to immediately appoint a new party representative to replace any outgoing representative.
When dealing with international commercial contracts communication breakdowns can be exacerbated by time zones, differing languages, and contrasting business cultures. Preferably both party representatives will be physically located near the place of performance. At minimum they must be accessible, responsive, and understand the role of the party representative.
As with type of human relationship, communications in contract relationships tend to get worse as problems grow. Also, commercial risk arises when there are multiple communication channels with inconsistent instructions and advice.
By carefully identifying party representatives and defining their purpose, parties can build accountability and certainty into their commercial contracts.
Lead Attorney & Owner
InSource Law LLC