Contract negotiation · Partnerships

How to handle contract negotiation with vendors in countries where exchange rates fluctuate a lot?

Ellen Raynor

November 3rd, 2014

I have obtained a fixed price bid for some contract development on a project expected to take 4 months.  I believe that they have done a very good job of estimating the effort required to deliver the project.  The work will be done in a country whose exchange rate has weakened relative to the dollar over the past year.  

For example, in Ukraine the exchange rate has ranged from 8.2 to 13.9 Hryvnia to the Dollar in the last 12 months.

The best overview I have seen for contractually dealing with this issue was this CIO article from 2009.

How do you recommend building a win-win contract that takes currency fluctuation into account?  



Anonymous

November 3rd, 2014

The article outlines best practices. Price out the contract in US dollars or Euros to hedge your risk, or base the contract on a 12 mo average. jake

Lawrence Lerner Digitalization and Transformation Coach

November 3rd, 2014

My experience has been the same as @Jake. I've been doing this for many years. Have the vendor price the work in your home currency, where you pay taxes. 

Tim Kilroy Analytics - LTV - Boosting Profits - Digital Marketing

November 3rd, 2014

Just pay them the equivalent of fixed US dollars - that should keep your costs fixed and pay them more in a declining currency... 

Marvin APM Problem Solver at Sanns, LLC

November 3rd, 2014

Look into futures contracts on the currency exchange (fixes your exchange rate so you don't have to worry about it in the contract) or use foreign currency exchange options.  Either will hedge your risk.

Ernest Ebio CEO at WOD toys LLC

November 4th, 2014

I think a win win is a great idea but there are some economic issues that maybe out of your control. I've been outsourcing for over 10 years & as some individuals here have said it's best to use USD.