Umbrella Agreement / Umbrella Agreement is a term often found in international corporations that operate in many different local markets. Despite the obvious differences and the need to adapt to the specificity of individual markets and local legal regulations, companies create umbrella agreements so that the framework of the signed contracts is relatively the same.

Business negotiators usually reach an agreement and want to secure it with the best contract. This contract must:

• specify the rights and obligations of the parties,
• contain provisions that are consistent with the ever-changing business reality,
• comply with contract standards applicable in given organizations,
• comply with applicable regulations.

Such conditions are often met by the so-called umbrella agreement.

The umbrella agreement sets out the general rules applicable to subsequent, future agreements.

For example, in the case of a global contract for the supply of components for the production of cosmetics, the umbrella agreement will regulate the following issues:

• exclusivity,
• cooperation timeframe,
• profitability,
• quality,
• territorial ranges,
• confidentiality.

On the other hand, executive agreements signed locally will define such areas as:

• delivery / transport,
• shipment insurance,
• ordering standards,
• billing,
• discounts / promotions.

Umbrella agreements are most often signed with long-term contracts and multi-dimensional cooperation (different markets, different delivery locations, various cooperation configurations).

Of course, this solution is not without its drawbacks. The pitfalls of the umbrella agreement are primarily:

• lack of flexibility resulting from the long-term and global nature of the agreement,
• maladjustment to market conditions on local markets (micro markets).

Umbrella Agreement / Umbrella Agreement is a certain standard that certainly facilitates, formalizes and unifies the issues of contracts in terms of the entire company and at least several years of operation. The Umbrella shapes future agreements and holds in check the sometimes overly relaxed approach to agreements prevailing in different local markets or in different divisions of the organization.

On the other hand, an umbrella agreement is a certain limitation, especially in a situation that requires a quick response, considerable flexibility or adaptation to the specificity of individual markets or partners.

Source:https://poradniknegocjatora.pl/umbrella-agreement-umowa-parasolowa/

Supported by Norway through Norway Grants 2014-2021, in the frame of the Programme “Social Dialogue – Decent Work”.