Risks of Acting as a Local Agent

[Shadowhawk]

Hi everyone,

One of my foreign clients has asked me to market their services to local companies. There is one local company which is interested, but they have a restriction that they may only work with locally-registered companies, which disqualifies my foreign client. My foreign client has dealt with this restriction in the past (in other countries) by partnering up with a local agent. In this case, they naturally suggested that my company be the local agent.

The work is consultancy, specifically engineering studies and risk assessments on oil and gas pipelines. I have worked for this foreign client before (as an employee) and trust the people there, but I want to know if I would put my company, or its directors/employees at risk by acting as the local agent. My company would essentially invoice the local customer, make payments to my foreign client, and coordinate work between the two if necessary.

One risk I can foresee is if something were to happen, say a critical error in the engineering work, the angry local company may sue my company as it would be the local agent. In the worst case, my company goes bankrupt and shuts down which is undesirable but tolerable. However, are the employees/directors of my company at risk for something my foreign client does incorrectly? Assuming there is no financial hanky panky, I think that the employees/directors are safe because the engineering certification for the work will come from my foreign client. But are there other risks that I've missed? I would like to know your opinions.

Has anyone done this kind of local/foreign partnering before and is there any advice you could offer? I'd appreciate it.

[Strong Eagle]

You have asked a complicated question. There are several areas of risk, but that risk can be mitigated.

First, as the provider of services in Singapore, it really doesn't matter how you source the services... you are technically providing the service, and thus, at risk if the services are not as advertised. You could be sued. Therefore, I would require the foreign client to agree to sign a contract which indemnifies you from any of their actions. At a minimum, they pay all legal fees, all fines, all costs, and agree to hold you harmless in any way. They would agree to keep you whole and absorb all costs, thereby removing the threat of bankruptcy from your firm. You'd have to determine in which country the contract would be enforced if you had to enforce the provisions of the contract.

Second, it is unlikely that any individual person in your company would be sued, should things go sideways. It would be the company. However, be aware that directors can be sued as individual persons if it can be demonstrated that they failed to exercise proper fiduciary responsibility. This risk can be mitigated by the director certifying the expertise of the company based upon past experience and by performing a study of the foreign company attesting to their competence, financial strength, etc.

Finally, I would write any contract with the Singapore client as a "back to back" contract. What this means is that you write a contract/SOW with your Singapore client defining services, scope, SOW, etc. Then, you write a nearly identical contract with your foreign client such that they agree to exactly the same conditions as you specified to your Singapore client. And then, you get the Singapore client to sign off on the back to back agreement, essentially stating that if there is a performance failure, the Singapore client will pursue the foreign client and not your company. Just make sure that the back to back contracts match.

[Shadowhawk]

SE, thanks for the thoughtful reply. These plans have been put on hold at the moment, but I understand your post and think it makes sense.