INTERNATIONAL CONTRACTS

AND MEMORANDA OF UNDERSTANDING

Informa University Relations in the Asia Pacific

Cairns, 19-20th November 2009

Professor Dean Forbes

Deputy Vice-Chancellor (International)

Flinders University

I am not a lawyer.  I don’t give legal advice.  

My presentation centres on insights accumulated over the course of working in the Asia-Pacific region.  It’s bolstered by the knowledge that I have so far never been sued or sacked as a result of problems with an international contract.  (I haven’t been sued or sacked for any other reason, either).

In universities we enter into international agreements for a range of purposes: agent contracts; student funding agency contracts (eg AusAID, ADB, foreign governments); TNE agreements; student exchange agreements; contracts for the licensing of curricula; MOUs for collaboration; and so on.

The dictionary definition of a contract is ‘a formal or legally binding agreement’. A legally binding contract includes obligations that may have legal consequences if they are not fulfilled.  It could be a printed document, a letter, or something orally communicated.

Non legally binding agreements don’t specify obligations in the same way.  For example, they may express intent.  Memoranda of understanding, heads of agreement, or letters of intent are generally not legally binding.  It can be stated that an agreement is not legally binding, but it needs to be unequivocal and indicate the reason eg it will be followed by a legally binding agreement.

In this presentation my focus is on three key aspects of contracts.

•    Contract management frameworks

•    Contracts and the resilience of culture

•    Communication, negotiation and disputation, and brief China case study

CONTRACT MANAGEMENT FRAMEWORKS

Managing international contracts…requires process, documentation, the determination of Nelson Mandela and Rainman’s focus on detail.

Managing international contracts is a subset of the management of contracts in general.  Universities have a lot of them.  At Flinders we sign about 7-800 contracts per year.  Of those, about 100 are international contracts.

Central to university procedures is a contracts management framework with a number of key elements.

•    Documented policies and processes applicable across all of the university

•    University templates for efficiency and consistency

•    Rigorous processes for assessing whether to enter into an agreement 

•    A transparent connection with a university’s risk management strategy

•    A consistent approach to IP (an extraordinarily difficult issue)

•    An appropriate form of legal review, either internally or externally

•    A formalised set of delegations for signing contracts

•    A contracts register to record the existence of the contract and key information eg expiry dates

•    A system for storing contracts so they can be easily found

•    A periodic assessment of performance under the contract

Contracts attract the attention of the various audit teams that scrutinise university activity: internal auditors, state auditors’ general, and the five yearly visit by AUQA auditors.  The latter might seek answers to questions such as:

•    Are contracts current, or out-of-date?

•    Are the signatories authorised to do so?

•    Is there a close relationship between the contents of the contract and the actual activity?

•    Does it cover the main areas that would be expected (eg finance, student numbers etc)

•    Are the staff involved, and the partners, familiar with the content of the contract?

How well do universities do contracts?

The reports resulting from AUQA audits provide a useful insight into how international contracts are managed in Australian universities.  Most of the comments in the report on Cycle 1 audits by Antony Stella and Colleen Liston (2008) focused on agent contracts and contracts for TNE programs.  The main problems identified included:

•    No formal mechanisms to monitor or measure the performance of agents

•    Insufficient due diligence on offshore agents

•    Insufficient use of model contracts for TNE programs

•    Significant variation between similar contracts and agreements with TNE partners

•    Inappropriate arrangements with third parties in TNE programs

•    Insufficient review of partner performance in TNE programs

Thus far I have focused on the contract framework from an Australian university’s perspective.  A competent contract management framework is essential for any university, and will from time-to-time fall under the scrutiny of AUQA (or TEQSA in the future), internal auditors, and the State Auditors General.

The most complex aspects of international contracts are the soft issues that centre on culture, and hence language, jurisdiction, negotiation, relationships and disputation.  In other words, about reaching and sustaining an agreement with international collaborators or partners.

THE RESILIENCE OF CULTURE

The preparation of international contracts requires…an understanding of the significance of cultural resilience, the building of relationships and a well-chosen dinner venue.

Let me explain.  A few years ago I supervised a PhD thesis by a woman by the name of Roberta Ren.  She was interested in the interplay between business and culture, particularly in China and Vietnam.  Her thesis was centred on the concept of autopoiesis and the institutionalisation of contradictions.  Autopoiesis is a biological metaphor; I acknowledge this in case there are any biologists in the room.

The specific focus of Roberta’s thesis was the contract.  We in the West, and in Asia, believe a contract is critical in an agreement to do business.  But contracts are meaningful for different reasons.  The meaning of a contract can differ in different cultures. 

In the West, it is a fundamental component of business, because it is something that is enforceable (generally speaking) through the Courts.  However, in many Asian contexts, China and Vietnam included, business is relationship-based.  Agreement is reached, and maintained, between the individuals involved.  The relationship establishes a bond of trust. 

We in the West are generally aware of this different cultural context, but we tend to take the view that globalisation has reduced the differences between us.  That is, we are inclined to think that many years of successful international business agreements, along with economic instruments such as the WTO, the GATS negotiations, Australia’s FTAs (Free Trade Agreements), and so on, are all moving us steadily towards a universal business culture which gradually will eliminate the different interpretations of the instruments of trade such as contracts.

Universities are, of course, highly engaged in the production of this global cultural circuit of capital.  The vast number of Asian students studying for western MBAs and BBusiness are absorbing the current rules for international business and are a major force in propagating a global business culture.

By contrast, the autopoiesis argument is that particular elements of culture are resilient, and though it may appear that global – ie western – business principles have been adopted, this is often not the case. 

Thus many Chinese regard the contract as important because westerners regard it as important, and they appreciate the need to keep their partners happy.  The content of the contract is meaningful more as we regard a letter of intent.  After it is signed, its content gradually loses its meaning, as business circumstances change.

This paraphrases an argument, which builds upon Willem Wertheim’s concept of the institutionalisation of contradictions.  It means that ultimately we don’t have, nor will we ever achieve, a seamless integration of business cultures and ways of thinking.  We simply come to expect and accept the differences between us and our foreign partners.  The real skill of operating in culturally diverse situations comes from knowing how to manage institutionalised contradictions.

This does not mean that contracts are meaningless.  Rather it highlights our need to be aware of, and understand, the different meanings that contracts have in different cultures, and the fundamental importance of relationships in business.  And that’s where choosing a good dinner venue is critical.

COMMUNICATION, NEGOTIATION AND DISPUTATION

In negotiating and managing international contracts…cultural sensitivity, the appropriate language skills, a sustainable framework and good karma are pivotal to successful engagement.

The first two parts of the presentation have navigated between formal contract management frameworks and the cultural context of doing international business, particularly in the Asian Pacific region. I think there are four particular cultural sensitivities that underpin good karma.

The first is ‘face’.  The importance of not appearing to contradict, or openly challenge, the people with whom you are dealing, in a way that will cause them to lose face (self respect).  It is critical to remain polite in all situations. 

Second, in a postcolonial environment business relationships generate a transient third micro-culture that demands sensitivity and the ability to read a situation and adapt.  The most profound cultural skills are built around the ability to learn and modify behaviour to meet circumstances. 

Third, each city, region and country is different.  And there are things that need to be understood. Fundamentals include knowing how to address people using their correct names and honorifics, respecting gender differences, and avoiding sensitive political issues. 

Fourth, when English is the medium of communication (which it increasingly is), plain English is essential.  That means simple sentences that are free of jargon, acronyms and colloquial expressions.  It means speaking at a pace that is suitable for the audience and not like the dialogue in an episode of the West Wing.  And, of course, listening!  More misunderstandings arise from the lack of care in the use of English than in any other aspect.

These are the four essentials for the cultural sensitivity backpack.

CHINA CASE STUDY

In finishing off I want to focus briefly on China, drawing on my experience in building Flinders programs in China.  Our longest, most successful, and enduring relationship is with Nankai University in Tianjin. 

Negotiations commenced early in 1999 as a result of both universities offering a program in the China Development Institute in Shenzhen.  The initial contract was signed in 1999, and the first cohort in the collaborative Masters program started in Tianjin and Beijing in 2000.  A second Masters program commenced in 2004.  The eleventh and sixth cohorts respectively commenced this year.  China’s Ministry of Education has included the two degrees in the top ten pilot programs to be used as models for further development of foreign degree programs in China.

I have almost always found Chinese to be good negotiators to deal with, if there is a genuine mutual interest in reaching agreement.  The pitfalls often come down to misunderstandings, either due to language, or a complete lack of knowledge of the circumstances of each other’s university.

On the subject of disputes, it is very rare for Chinese law courts to uphold the foreign side in a dispute over trade, if indeed the issue ever gets to court. Tim Clissold’s Mr China is one of many good books to illustrate this.  The Chinese government favours formal mediation in the event of a dispute, but expect it to be conducted in China, not in a third neutral country, as would be expected in the West.

Although there have been many disagreements between Flinders and Nankai, particularly about financial issues, there has never been any need for formal dispute resolution. 

The Flinders-Nankai contract was initially drafted in English, and has remained in English.  The same template has been used since the programs were established, even though Flinders has a much more detailed standard template it now uses.  Chinese courts only recognize contracts in Chinese, but it has not been an issue in the partnership.

What have been the critical elements of a sustainable contract and relationship framework? The contract itself has been a useful method of recording some key points.  Sustainability, however, has come about through the management of the relationships.

•    Identifying, and keeping up-to-date, details of the hierarchy of key participants in negotiations and their counterparts (this ranges from DVCs to Executive Deans, Program Coordinators and various other staff)

•    Talking formally every year around an agreed agenda with an agreed amount of time available for discussion, concluding with a banquet in a local restaurant

•    Flinders staff, especially the Program Coordinator, visiting regularly, and hence sustaining important relationships

•    The employment of stable, very effective locally-engaged staff with academic and administrative roles to perform as ‘go-betweens’.  In some Australian programs this function is undertaken by an Australian-based Overseas Chinese person 

A FINAL WORD

Australian universities have, generally speaking, been good at doing international business.  There have, of course, been some significant failures as well.  International higher education is expanding in size and turnover, and becoming deeply embedded in the fabric of Australian universities. 

It is maturing in both academic and commercial terms. Central to maturity is the ability to tolerate ambiguity. It is essential therefore that universities increase their focus on relationships and collaborations that are both nuanced and sustainable, and, yes of course, contracts that capture this spirit.

Thank you for your attention.

ACKNOWLEDGEMENTS

I want to acknowledge Michael Harry’s advice on contracts which was very helpful in the course of writing this paper. 

REFERENCES

Antony Stella and Colleen Liston 2008 Internationalisation of Australian Universities: Learning From Cycle 1 Audits, Australian Universities Quality Agency Occasional Publications 14, Melbourne.

Blackman, Caroline 1997 Negotiating China: Case Studies and Strategies, Allen & Unwin, Sydney.

Clissold, Tim 2004 Mr. China, Constable & Robbins, London.

Ren, Roberta 2005 The Quest for Harmony: Trading Norms, Contracts and Dispute Resolution in China, Vietnam and the West, Thesis for the degree of Doctor of Philosophy, Flinders University, Adelaide.