Home Columns Respecting business contracts, large or small, demonstrates a favorable and low risk...

Respecting business contracts, large or small, demonstrates a favorable and low risk investment environment

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A contract is defined as a binding agreement between two or more persons or parties.  Contracts are important because they provide clarity in business relationships, agreements, and rights of parties; they help to minimize potential disputes and litigation; they prevent misinterpretation of communications and agreements, they protect intellectual property, real property, and asset values and they provide security and peace of mind by having the terms of the agreement down on paper where parties can be assured of the legitimacy of the terms.

Contracts also reduce risks to both parties, especially where finances are involved.  In the context of investments in developing countries and Guyana in particular, contracts are important because they encourage investors to risk their capital to gain some benefit or return.  That risk, often in the form of a business opportunity, provides some benefit, like jobs, transfer of technology, education, or other, to the host country.

Developing countries lose favor and increase investor risk when they take actions to break contracts; large or small.  It therefore becomes all the more important for those who negotiate on behalf of developing countries to seek talented advisors or even better to seek expert representation when negotiating contracts so as to avoid a push for undoing contracts later found to be disadvantageous.

While some might believe that breaking contracts made with perceived powerless individuals and companies is a shrewd approach to penalizing enemies or redistributing opportunity, history is replete with stories about why this approach is a singularly bad idea.  The idea of breaking contracts is especially alluring when subjects are perceived not to be able to afford adequate legal representation or when it is perceived that one party’s influence over the legal system might offer predetermined and favorable outcomes; but taking advantage of such perceived benefits is a short-term, ill-conceived approach.

Adhering to the terms of contracts across governments is especially critical because it reflects to the world a strong democracy, improves equal access to opportunity for all people regardless of ethnicity or political affiliation and demonstrates to the world that investing in developing countries is a relatively low risk exercise which offers significant rewards to those who decide to take the leap.