NCNDA discipline: why the documents matter more than the deal

Of the documents that pass across my desk in a typical month, the one I take most seriously is also, by some distance, the one least respected by the parties who sign it. The non-circumvention, non-disclosure agreement — the NCNDA — is the document that defines the relational architecture of a commodity-trade origination engagement. It establishes who the parties are, who the introduced counterparties are, who is owed what for what, and what the consequences of breach are. Yet it is routinely treated as a procedural step to be passed through rather than as a substantive document to be drafted, reviewed, and observed.

I have come, over thirty years, to the view that the discipline with which an originator handles the NCNDA is the single most reliable predictor of whether they will close their mandates or whether they will not.

What the NCNDA actually does

The function of the NCNDA in a commodity-trade engagement is several-layered, and the parties who treat it as a single-purpose document tend to undersign its implications. At the simplest level, it prevents one party from going around the other to deal directly with the introduced counterparty, which is the protection that originators have most clearly in mind when they sign. The more substantive layers, however, are about relational accountability.

An NCNDA establishes that a real relationship exists between the parties, that the introduction has commercial value, and that breaching the relationship has consequences. The document is, in effect, the formalisation of trust between people who may not otherwise have a basis to extend it. In a market where the deal flow depends on extending trust quickly across distances, the document that formalises that trust is not procedural detail. It is the structural underpinning of the engagement.

An NCNDA also establishes the chain of accountability for what follows. If the deal is later disputed, the document is what allows each party to demonstrate the introduction, the basis for it, and the commercial expectations attached. Without it, even legitimate commercial claims become difficult to assert, and disputes that should have been resolved cleanly become protracted and expensive.

The discipline of drafting it properly

The first place where the discipline either holds or breaks is in the drafting. The standardised templates that circulate in this market are, in many cases, inadequate to the engagement they purport to govern. They have been generic for so long that they no longer capture the specific structure of any particular deal, and the parties who sign them have often not read them carefully enough to notice the gaps.

I have made it a practice, when I am the originator, to redraft the NCNDA from a starting template into something that is specific to the engagement. The redraft is rarely extensive — perhaps a dozen substantive amendments to a four- or five-page document — but it is necessary because the engagement is specific and the protection I require is correspondingly specific. The parties who push back on this redraft are, in my observation, the parties who are least comfortable with the substance of what they are agreeing to. The ones who engage with the redraft constructively are the ones I will go on to do business with.

The specific points I attend to in the redraft include the definition of the introduced parties (which counterparties exactly are covered, including their subsidiaries, affiliates, and successors); the definition of the commercial benefit owed (whether commission only, or commission plus consideration, and the specific calculation method); the definition of what constitutes a breach (in particular, what happens if the introduced party approaches one of the original parties through an intermediary that was not present at the introduction); and the duration of the obligations, which I generally extend beyond the standard year-or-two to a term that matches the actual lifecycle of the relationships at stake.

The discipline of observing it

The second place where the discipline either holds or breaks is in observation. I have watched many NCNDAs signed by parties who, having signed, proceeded to behave in ways that were inconsistent with what they had agreed. The breaches were rarely dramatic. They were small accumulations: the introduced party copied on a communication they should not have been copied on; a follow-up meeting arranged without the originator present; a related opportunity pursued without disclosure to the parties who had introduced the counterparty.

Each of these small breaches, taken alone, is the kind of thing that an originator can choose to overlook. The cumulative effect, taken across many engagements, is the erosion of the relational architecture that the document was supposed to protect. The originators who survive in this market over decades are the ones who do not let the small breaches accumulate. They raise them at the moment they happen, in a way that is firm but not adversarial, and they document the exchange. The result is that the breaches stop, and the engagement proceeds on the terms that were agreed.

The originators who do not raise the small breaches find themselves, over time, in engagements that have drifted considerably from what was originally agreed, with an accumulated record of unspoken violations that makes correction harder the longer it is left. By the time they do raise the issues, they have lost the moral standing to do so cleanly, and the relationship has become unrepairable.

The discipline of the long memory

The third place where the discipline either holds or breaks is in the long memory. An NCNDA does not end when the deal it was originally drafted to govern is closed. The introduced parties remain introduced; the relationships remain in scope; the obligations continue. An originator who treats the document as expiring when the first deal closes is treating the engagement as transactional rather than relational, and is missing the longer-term value that flows from sustained accountability.

I have, more than once, returned to a counterparty after several years to re-engage on a related opportunity, and the basis for that re-engagement has been an NCNDA signed years earlier whose obligations had not lapsed. The introductions made under the original document were still under it, and the conversation about the new opportunity proceeded on terms that reflected the original agreement. This is what the long memory looks like. It is not the standard pattern in this market, but it is the pattern that produces durable engagement.

What this means for the originator

The practical implication for an originator considering how to handle the NCNDA in their own engagements is clear enough. Treat the document as substantive, not procedural. Read it carefully before signing, redraft it where it is inadequate to the engagement, observe its terms in your own conduct, raise breaches at the moment they happen, and remember its obligations long after the original engagement has closed.

The originators who have done this consistently across decades are the ones whose phone rings, whose introductions are sought, and whose mandates close. The originators who have not done it consistently find themselves, after a few years, having to explain to their counterparties why the previous engagement ended badly, and finding that the explanation does not always land.

What the templates leave out

The standardised NCNDA templates that circulate in this market have several common omissions that are worth identifying explicitly. The first is the absence of a clear definition of what constitutes circumvention by an intermediary. A counterparty who has been introduced under the document may, several months later, be approached by another party who claims a relationship of their own with the introduced counterparty, and the question of whether that subsequent approach is covered by the original document is rarely answerable from the text alone. Tightening this language at the front of an engagement saves substantial dispute resolution later.

The second is the absence of a clear definition of what constitutes a related transaction. The introduced parties may, in subsequent dealings, transact in categories that are arguably related to the original engagement and arguably not. The question of whether the originator has a continuing claim under the document depends on how 'related' has been defined, and the templates that circulate are almost universally vague on this point. Defining it specifically — by sector, by geography, by transaction type — produces a document that is enforceable in cases where the templates are not.

The third is the absence of an exit mechanism. An NCNDA without a clear termination process binds the parties indefinitely on terms they may not, in practice, want to remain bound by. A working document includes a defined termination procedure, the conditions under which it can be invoked, and the obligations that survive termination. Without these elements, parties whose engagement has run its course remain technically bound by a document that no longer reflects their commercial reality, and the document loses its operational weight as a result.

The arbitration clause

The dispute-resolution clause in an NCNDA deserves particular attention. The majority of NCNDAs that come across my desk default to the courts of one or other jurisdiction, often the jurisdiction in which one of the principals is incorporated. This default is rarely the right choice for a commodity-trade engagement, where the counterparties are typically in multiple jurisdictions and the substantive transactions cross several borders.

The arbitration clause that produces the best operational outcomes specifies a neutral seat, a recognised institutional arbitration body, and a defined procedure that does not require either party to incur disproportionate cost in the early stages of a dispute. The specific institutional choice is less important than the discipline of having engaged with the question. The originators who have allowed the dispute-resolution mechanism to default to whichever court the templates happened to nominate find that their disputes, when they arise, are conducted in venues that suit one party considerably more than the other.

A closing observation

The work I do depends on the documents that govern it being taken seriously by the people who sign them. The NCNDA is the most under-respected document in the trade, and the discipline of treating it properly is, more often than not, the factor that distinguishes the originators who close from those who do not. After thirty years of watching this work, I have come to the view that the documents matter more than the deal, because the deal is what the documents make possible.