Leadership Voices: Demystifying Partnership Agreements with Chunnie Wright

17 June 2019

Why do partnership agreements matter in the adventure travel industry? What is the best way to establish a partnership agreement, and what are the best practices for creating one? Adventure Travel Trade Association (ATTA) members have been asking, so we sat down with long-time ATTA member, advisory board member, and lawyer Chunnie Wright to ask her about creating partnership agreements between outbound tour operator buyers (or resellers) and inbound tour operator suppliers.

Disclaimer: The information in this article is intended for informational purposes only. The information is not intended to be, nor should it be interpreted as, advertising, solicitation, legal advice, or opinion.

ATTA: Is it absolutely necessary to have a signed written agreement when partnering with an inbound or outbound company to serve a client? What are the risks of not having one in place?

Wright: Written agreements serve an essential role in business relationships, especially in the adventure travel industry where companies, often on different continents, engage in business together. A written contract not only makes the agreement between the inbound and outbound operators legally binding and enforceable in court (provided legal requirements are met), it serves as a vital roadmap for the relationship. Written contracts set out the rights and obligations of each company and reduce the risk of uncertainty. While verbal agreements can be enforceable depending on the circumstances, they are often subject to disagreement. That is why I recommend written agreements.

Developing a legally binding partnership agreement specifically identifies the terms under which the partnership will operate.

The contract drafting process itself can help companies crystallize their views on terms and illuminate the areas where the parties need to do more work to reach “a meeting of the minds.” Down the road, the companies can refer to the agreement if questions arise or memories are unclear regarding the respective expectations and responsibilities of the parties. The agreement also serves as proof of the parties’ agreement should a dispute or misunderstanding arise in or out of court.

In practice, the use of written agreements between inbound and outbound companies varies greatly. Some companies use agreements as part of their standard operating practice while others shy away from doing so, relying instead on emails and conversations. Although most companies see the value of having a formal written agreement in place, in reality, they do not always get around to memorializing their verbal or informal understandings due to lack of time, money, or concerns about offending their partner with a formal, legal document. While it can be difficult to obtain a written agreement when working with partners and suppliers in other countries, it is especially important to obtain one for those relationships to ensure there is a meeting of the minds on key issues. Difference in language, customs, and laws will have an impact on the companies’ respective understandings of the relationship.

ATTA: What are the risks of not having a partnership agreement in place?

Wright: The risk of not having a clear written and signed agreement is that if a misunderstanding develops and the companies’ expectations and understandings differ, which is often the case when a relationship breaks down, costly and protracted disputes can arise. If the dispute goes to court, a judge has to sift through the evidence to decide the terms of the agreement. Often one side wins, while the other loses.

In short, an agreement not only strengthens business relationships but increases the chances of a clean separation if a relationship sours. When conflict arises, companies will be able to avoid a verbal “he said, she said” battle to sort out the facts about the relationship. Creating a written agreement gives companies better protection, certainty, and peace of mind.

ATTA: What are the main issues that an outbound tour operator buyer needs to consider when creating a partnership agreement, contract, or purchase order with an inbound tour operator supplier?

Wright: The written contract should address several different matters including:

  • The purpose of the relationship,
  • The services that each company will provide,
  • The allocation of responsibilities,
  • How disagreements (including customer complaints and disputes) are resolved,
  • Payment terms (such as commissions, advance payments, payment schedules, and payment methods)
  • How waivers will be handled (for example, will one or both companies’ waivers be signed?),
  • Insurance requirements,
  • Indemnification obligations (for example, will the supplier indemnify the outbound operator if the latter is sued due to the supplier’s sole actions and vice versa),
  • How the relationship can be terminated,
  • Where disputes will be resolved (for example, if the tour operator is in the United States and the inbound operator is in Sweden, will the dispute be resolved in Sweden or the United States and before which tribunal), and
  • In the case of a partnership or joint venture, buyout and dissolution processes if conflicts cannot be resolved.
The agreement should address any responsibility or obligation that is important to one or both of the parties. For instance, if having a consistent and responsive point of contact is essential to the success of the relationship, an operator (or supplier) may consider specifying this in the agreement and clearly state that they can terminate the agreement for breach if the other party fails to meet this obligation.

In the adventure travel industry, inbound and outbound companies working together are often on different continents with different rules, laws, and expectations regarding contracts. It is important for companies to understand those differences and to have open and honest conversations about their expectations, customs, practices, and laws. This allows the companies to draft an agreement that is appropriate for the relationship with the level of detail and flexibility to tailor their contracts to their business size and level of risk.

While companies might shudder at the notion of a “contract,” the agreement does not necessarily have to be long or filled with legalese. Short and simple can be effective, depending on the relationship. The key is to ensure the terms of the agreement are not vague or ambiguous and, therefore, subject to later interpretation by the parties or a court.

ATTA: How can an outbound tour operator buyer ensure insurance information and safety management protocols are in place with the suppliers they are working with?

Wright: Outbound tour operators can include a provision in the agreement that sets forth:

  1. The types and amount of insurance coverage that are required, and require that the supplier provide the operator with written proof of coverage from the supplier’s insurance company.
  2. Representation and warranty that the supplier has the requisite safety management protocols in place.
Regarding the latter, in conducting its due diligence, the tour operator should discuss these protocols with the supplier and request to see any materials that prove the existence of the suppliers’ protocols (such as safety handouts and videos, safety certifications, and documents provided to customers) to assure itself that the supplier has safety management protocols. The operator can also ask for references.

ATTA: What are some key points for inbound travel suppliers to consider when negotiating the terms of an agreement with an outbound tour operator?

Wright: Many of the same points above apply to inbound travel suppliers. In negotiating with an outbound tour operator, an inbound travel supplier should make sure they understand the key terms of the relationship — the services the supplier is expected to provide, the service timetable, the payment obligations, insurance requirements, the dispute resolution process, and so forth.

It is also important to consider whether travelers will be able to sign the supplier’s waiver in addition to the tour operator’s waiver. This issue can get tricky, especially in private label scenarios, so it is essential the supplier and tour operator agree in advance on the waiver process. It is important for suppliers to carefully read any agreement that an operator provides and negotiate the terms, as necessary. The operator may have drafted the agreement based on customs, practices, and laws in their country, leading to some requirements or terms that simply do not apply in the supplier’s country or that a supplier does not understand.

It is worth taking the time to read any contract before signing it and negotiating for more favorable terms as necessary. Also, consult your attorney, accountant, or other relevant professional for guidance.