The Perfect China Contract.

My clients know way more about their businesses than I do. My job as their international lawyer is to tell them how I perceive the legal risks and rewards of whatever they are doing and then work with them to help them decide how to proceed. I contribute on the legal side; they handle the business side.

Every so often, my law firm gets a client who has the “perfect” agreement it has been using forever and they want us to make it work for China. Okay, no problem. Most of the time.

Other times though we face a real battle and that battle rests on how one defines “perfect.” Sometimes our clients consider the perfect contract to be one that protects them in every single way possible. Late delivery? Chinese company has to pay a massive amount in liquidated damages. One item out of one one hundred not quite up to snuff? Again, the Chinese company has to pay liquidated damages well beyond any possible harm to our client. Payment by our client? Ten percent now, the rest upon delivery and confirmation of quality. Oh, and the Chinese manufacturer must not make anything even remotely for anyone else.

All of the above is well and good, but the reality is that the only Chinese companies that sign such agreements are doing so for Wal-Mart or are doing so, knowing full well they will never abide by it. So when confronted by clients that insist on these “perfect” contracts and refuse to listen to our advise regarding the realities of the Chinese market, we go ahead and write the contract per their instructions and then wait a few months for them to return to us to write a brand new contract that their Chinese counterpart will actually sign. Or sometimes, the client comes back to us and tells us they no longer want to try to do business in China because nobody there is reasonable.

The best contracts are usually not perfect for any one side. The best contracts are those that provide the most protection possible, while actually working in the real world.

What are you seeing out there?