Projects have different magnitudes requiring specific skills, manpower, and equipment. When a business is handling a project that has a limited timeframe, it may request another business to assist. It could be the other business owns the required equipment or skills for the project.
Table of Contents
- 1 Collaboration Agreements
- 2 What is a collaboration agreement?
- 3 Collaboration Agreement Templates
- 4 How businesses benefit from collaboration?
- 5 Limitations when searching for a collaboration partner
- 6 Is a collaboration agreement legally binding?
- 7 Collaboration Contracts
- 8 Considerations before signing a business collaboration agreement
- 9 What should a collaboration agreement include?
- 10 Business Collaboration Agreements
- 11 How do you write a collaboration agreement?
When companies work collaboratively, teams from each company benefit. They learn several skills from each other, and the project runs well without challenges. They give each other feedback and share perspectives and ideas. To make the collaboration binding, the two companies must sign a business collaboration agreement.
What is a collaboration agreement?
When two entities are working for the good of the same project, they require a project collaboration agreement. It is a document that details the terms under which the entities will work. The two or more entities bring their skills, manpower, and equipment into one pool.
The document details the responsibilities of each party. It details how the work will be shared, including the profits. If the project is co-owned, the project collaboration agreement provides details on how it will be managed. All the entities involved must sign the agreement before the project commences.
Collaboration Agreement Templates
How businesses benefit from collaboration?
No matter the size of a company, collaboration can help a business in many ways. It brings together two or more businesses for a single purpose or project. The combined efforts help the project to move fast. The companies bring on board their skills, innovation, and competitiveness for the good of the project. Every business involved benefits as follows:
- Monetary benefits. Some projects are too large for a single company to handle. The company may have all the skills and tools required but lack money. Big projects are capital intensive and companies take a long time to recover their investments. By signing a collaboration contract, the two companies pool their finances together. They can apply for financing and they receive a huge loan to effectively complete the projects.
- Human resource benefits. Human resource is important for the success of any project. The company needs people to run the machines, use their skills, and make the project run. One company can be lacking in terms of human resources. Hiring experts can escalate the cost of the project or cause delays. Most companies sign a business collaboration agreement because they want to benefit from the skills of the other company’s human resources.
- Equipment and facilities. Another reason why businesses sign a project collaboration agreement is due to a lack of equipment and facilities. The other company might have better access to raw materials or may own the equipment required for the work. If one of the companies doesn’t own a spacious facility for research, it can sign a research collaboration agreement with the company that owns a wider space. This will enable the research work to go on smoothly without hitches.
- Intelligence. Intellectual capital is necessary with large projects. Many times, it happens that a business may have a large project but it lacks intellectual capital. The business needs to design a collaboration agreement template that will help it bring experts from the other company in terms of intelligence/knowledge.
Limitations when searching for a collaboration partner
A business may undergo several limitations when identifying a collaboration partner. Many times, it happens that the intelligence or physical capital the company is looking for is not available locally. In this case, it means the company has to source internationally, which can be a complex process.
For example, the company might have a project for the installation of solar panels that will generate 3 megawatts of electricity. This is a huge project whose cost could go to billions of monies. It requires super experts that will be involved in building the infrastructure and architecture.
If no business has the required experts and equipment locally, the only option is to source abroad. The process of sourcing, agreeing, and signing the project collaboration agreement can take months to complete. The project cost will increase due to staff relocation, accommodation, and other processes. The main limitation the business could face are as follows:
Lack of proper equipment: Some types of equipment will require to be transported overseas or manufactured. After the project completes, the equipment will have to be transported back.
Importing intelligence: The cost of importing intelligence can escalate the cost of a project significantly.
Communication limitations: There are situations where language becomes a problem. These are situations when the collaborating businesses are from regions that speak different languages.
Is a collaboration agreement legally binding?
A collaboration contract is an agreement between two entities. No law requires businesses to collaborate. No law guides businesses on how they should collaborate. The entities only need to design a collaboration agreement template and agree on the rules. However, the parties need to make the agreement legally binding. There are two ways to make it legally binding.
- Sign the project collaboration agreement. The collaboration agreement template contains a place for signatures. After the parties write all the details in the template, both signs at the bottom. Once they sign, the document becomes legally binding.
- Sign the collaboration agreement template before an attorney. The second option is for the entities to download the collaboration agreement template and fill it out. After this, they may opt to go to an attorney and sign it before them. The attorney will also sign and stamp the agreement. Whichever way they choose, the business collaboration agreement automatically becomes legally binding once it is signed.
Considerations before signing a business collaboration agreement
There are several things a business entity should consider before they sign a business collaboration agreement.
- The risks. Every large project has significant risks. For example, if it is a research project, the entities may not get the results as it was initially hoped. That means the entries will spend money but gain nothing. Before signing the research collaboration agreement, the organization should consider the risks involved. Some risks are too much to take, while others may not have any significant effects on the project outcomes. Risks can also be in terms of government policies, wars, hostility from interested stakeholders, or financing.
- Time. The duration of large projects can range from a few months to several years. The more the time a project will take, the more the investment is required. In the same way, it will take a longer time to recoup the investments. Some large projects may take more than five years to complete. The client might take 30 years or more to make full payment. If the entity is willing to wait for that long to recover its money, it may consider signing the project collaboration agreement.
- Money/Costs. The cost of a project can be from a few million to several billion. The two companies might be required to contribute equally in terms of money and expertise. If they seek financing from a financial institution, they will be required to make payments equally. The business owner must first ask themselves if they are willing to invest billions into the project.
- Resources. Resources can be measured in terms of human, physical, and intellectual capital. Both companies may contribute equally, but if one is lacking, the other business will be required to provide sometimes 100%. If the business is to export its equipment and human capital abroad, the management must first consider what that would mean to the company. It might mean they have to buy new equipment or hire new experts. Without such an action, the business may no longer work on its projects back home until the project overseas is complete. If the business person is not willing to take such a risk, they should not agree to sign the collaboration contract.
- Gains. Business is about profits, without which it cannot thrive. The gains must be reasonable or proportional to the investment. The business person must look into it in terms of monetary gains, skills, contacts, and referrals. The gain must be looked into in terms of short term and long term.
- Local and international laws. If two jurisdictions are involved, the business owners must consider the applicable local and international laws. For example, when signing a research collaboration agreement, the business person must consider what kind of research is at hand. For example, if the research involves testing products on animals or people, some countries have strict laws about how this should be done. Some countries may terminate the research project due to law requirements or based on ethics.
The details of the agreement help to mitigate risks, manage resources, and protect the stakeholder’s interests. The agreement can be used to obtain financing or to solve disagreements in court.
What should a collaboration agreement include?
Here are the key components of a collaboration agreement:
- Definitions. Definitions means the key terms or phrases that will be used throughout the collaboration agreement template. During the agreement writing process, some terms and clauses will be used repeatedly. For example, digital networks, systems, software, strategic plan, intelligence, etc.
- Purpose. State the reasons for the collaboration. Be specific on the objectives/goals that the parties want to accomplish. Once the goal is accomplished, the collaboration term ends.
- Expectations. State the expectations of each party from the project. Define the obligations of each party for the success of the project. Detail the responsibilities each party must fulfill for the success of the project.
- Timeframe. The project must have a starting date and a completion date. It must have phases under which it will run. Some projects, especially research projects, do not have end dates. Their end date is tagged to the success or failure of the research project
- Representatives and Warranties. These are statements of facts that define the business of the company. What the company engages in becomes the foundation of the agreement structure.
- Scope. The scope of the project must be defined in the collaboration agreement template. It must provide a detailed description of the project from the start to the end.
- Gains. Gains are described in terms of payments, financial contributions, and profits. Gains can be target-based, project-based, commission, deal, or milestone-based.
- Data privacy. All data must be protected and a high level of privacy maintained. All information contained in the agreement must be given the confidentiality it deserves.
- Rights and licenses. Every project requires licenses. The parties must agree on which licenses are required and how they will be obtained. After the project completes, there must be an agreement about who will keep rights.
Business Collaboration Agreements
How do you write a collaboration agreement?
There are several approaches you can use when writing a collaboration contract. The best one is to look for a collaboration agreement template and use it as your guide during the writing process. Check for a website that contains different types of business collaboration templates and choose one that will best serve your interests. The template will contain the following details to follow.
- Ownership clause. You must first agree on what percentage each business will own in the project. State the percentage in this clause.
- Sharing of profits. Provide details about how the profits will be shared. The details must include losses. Sometimes the project may end up in losses instead of profits. Both parties must accept liability. In many cases, profits or losses are shared according to the contributions each party makes to the project.
- Duration. State the duration of the project. Provide details on what will happen in each project’s phase.
- Decision making and dispute solutions. There must be a mechanism for making decisions to avoid confusion. Agree on how decisions will be made and the hierarchical order that must be followed. In the case of disputes, let there be a way to solve them.
- The final authority. A business CEO is the final authority in such an entity. In the case of a project collaboration agreement, decide who will be the final authority in any matter touching on the project.
- Withdrawal. One of the parties may decide to withdraw from the project. If such an issue occurs, provide details about what happens next. Think of it in terms of getting a new entity, costs already incurred, and penalties. Think about the fate of the project and whether it would stop or continue. In the worst scenario, death might occur. Describe in detail what happens next after one partner dies.