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Bulletin | Covid-19

Beyond COVID-19: A Different World and Improved Collaboration Between Businesses and Within Networks

Fasken
Reading Time 6 minute read
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Franchising Bulletin

As we approach the end of the first (hopefully the only) acute phase of the COVID-19 pandemic crisis, we need to recognize that business will not be the same as before, at least for many months.

Among many others, we will likely experience the following changes:

  • Maintenance of high levels of sanitation, which will benefit businesses operating in the health, hygiene and sanitation sectors, but will also compel most businesses to enhance their procedures for hygiene, sanitation and protection of the health of their employees and customers;
  • Acceleration of e-commerce and online transactions in the wake of new consumer habits adopted during the containment period;
  • Growth of telework, again in the wake of the habits adopted during the containment period, especially in the context of the multiple traffic impediments and increased travel time we are experiencing in several major cities;
  • For several industries (including restaurants, hotels, air transportation, conventions, shows, exhibitions, sports activities), there will be a number of significant challenges in maintaining physical distancing requirements in order to avoid a further acceleration of the pandemic;
  • Important reduction of the labour shortage problems that affected many businesses before the crisis;
  • Definitive closing of several businesses that will not have been able to survive the period of closure or the sharp drop in their revenues, and the greater fragility of several other businesses which, although they will have survived the acute period of the crisis, will have significantly fewer resources than before;
  • Increase in the number of bankruptcies of both individuals and businesses;
  • Fewer closures, bankruptcies and failures among businesses operating within a network (i.e. franchise network, group, dealership, cooperative, etc.) than among independent businesses;
  • Gradual recovery in consumer spending (which, after a good increase in the first week of the crisis, have fallen dramatically thereafter, even when taking into account online purchases), the importance and duration of which will vary by sector of activity and will also depend largely on consumer discretionary income (which will have declined during the crisis) and on changes in consumption and travel habits;
  • Greater emphasis on contingency and business continuity plans in the event of a crisis or unforeseen event in business plans and budgets;
  • Some growth in local purchasing, as well as in local manufacturing in some sectors of activity, particularly in order to acquire the autonomy needed to fill some of the supply gaps and weaknesses identified during the acute period of this health crisis.

Beyond these initial changes, this crisis will have highlighted the great advantages of better collaboration between businesses.

With or without the support of our governments, many businesses have managed to reduce the impact of this crisis through various collaborative initiatives.

Among others, let us mention the collaborative efforts and initiatives made by several restaurants and retailers to promote online sales and the delivery of their products.

In a context where many businesses will have lived through at least several difficult months, improved collaboration between businesses will now, without a doubt, be one of the keys to success in several sectors of activity.

This will involve the design and implementation of new models of collaboration and relationship management between businesses in order to derive greater synergy from these collaborations.

To this end, the agreements on which these collaborations are based will have to be designed and negotiated in a very different way than in the past in order to improve the quality of the relationship and to increase the synergy sought.

In this new economy, agreements that focus only on the mutual rights, obligations and commitments of the parties will no longer suffice.

Indeed, the COVID-19 crisis clearly demonstrated that, during the course of a collaboration, it is quite possible (indeed, even certain) that unforeseen events will arise that the initial agreement could not adequately cover.

As well, as presently drafted, most collaboration agreements encourage the parties to do only what is necessary to meet their obligations, even when they are often able to make a much greater contribution to the relationship in order to increase its benefits for all parties.

Why do more when the agreement does not provide any form of compensation for any additional input or contribution?

Research conducted in 2015 by the International Association for Contract & Commercial Management (IACCM) showed that such collaboration contracts that do not encourage the parties to do more than the minimum necessary to meet their contractual commitments resulted in value leakage estimated at approximately 9.15% of the annual income of the parties to such contracts. This value leakage translates into increased costs, lost savings and potential income losses. The IACCM data did not even attempt to put a price on missed opportunities, the impact of non-renewals and the costs of disputes and litigation, which therefore increase this value leakage.

Is it possible to design and draft a collaboration agreement that instead opens the door to a fuller and more proactive collaboration in order to maximize the benefits of this collaboration for all parties involved?

The answer is yes.

For a few years now, a number of researchers, lawyers and management experts have been pooling their efforts to develop a new approach to designing and drafting long-term collaboration contracts that they have named relational contracts.

In contrast to the transactional contracts that we know today, which, as mentioned above, stipulates the rights, obligations and commitments of the parties while attempting to achieve the impossible goal of covering all contingencies that may arise during the course of the contract, the relational contract focuses instead on:

  1. The purpose and objectives of the collaboration;
  2. Shared values (such as, for example, reciprocity, autonomy, transparency, honesty, equity, integrity and, in a network, the primacy of the interests of the network as a whole over the individual interests of its participants), which guide the parties throughout their collaboration, both in interpreting their mutual commitments and in modifying or supplementing the contract when circumstances arise that were not initially provided for in their agreement or in the event of new contributions by either party;
  3. Means of ensuring a healthy alignment between the interests of each party throughout their collaboration;
  4. Collaborative governance mechanisms that include processes for (i) ongoing communication, (ii) amending the initial agreement to reflect changing circumstances (or input from either party), and (iii) preventing and resolving disagreements and disputes.

This innovative approach to designing, drafting and implementing collaborative agreements is not just theoretical. It has been successfully experimented with in recent years by several large businesses (including the renowned McDonald's restaurant chain), particularly for the purposes of manufacturing and supply agreements.

In addition to agreements between manufacturers, suppliers, distributors and retailers, this new approach is also particularly suitable for (i) franchise agreements, (ii) group, concession and banner agreements, (iii) agreements between a cooperative and its members, (iv) joint venture agreements, (v) shareholders' agreements, (vi) partnership agreements, and (vii) agreements between members of families in business.

If you are interested in learning more about this innovative approach to designing and drafting collaborative agreements, its benefits and methodology, we invite you to read the book Getting to We: Negotiating Agreements for Highly Collaborative Relationships by researchers Jeanette Nyden, Kate Vitasek and David Frydlinger, as well as the recent white paper Relational Contracts: The New Generation of Franchise Agreements by researchers Kate Vitasek and David Frydlinger and our Counsel Jean H. Gagnon, which is available (free) online.

Fasken is a pioneer in the field of relational contracts and has all the expertise and resources necessary to help you draft agreements which are complete, adequate and, even better, well adapted to your objectives, needs and resources, in order to well protect your rights while avoiding potential pitfalls.

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