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

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?



5 Replies

Jake Moritz
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Jake Moritz Entrepreneur
Lead - Sales Partnerships at Square Inc.
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 I Lerner
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Lawrence I Lerner Entrepreneur • Advisor
Digitalization and Transformation Coach
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
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Tim Kilroy Entrepreneur • Advisor
Analytics - LTV - Boosting Profits - Digital Marketing
Just pay them the equivalent of fixed US dollars - that should keep your costs fixed and pay them more in a declining currency...
Marvin Schuldiner, MBA, APM
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Problem Solver at Sanns, LLC
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 Haekel Ebio
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Ernest Haekel Ebio Entrepreneur
CEO at WOD toys LLC
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.
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