Over the past several years, I have seen more manufacturers and distributors formalize their relationships through written distribution agreements. While there are still companies that operate on a handshake, that type of arrangement has become riskier in light of the increase of litigation generally. As you might imagine, the complexity of the distribution agreements vary greatly depending upon the relationship, industry, etc.
Recently, I have also seen distributors move from agreements that might be one or two pages to ones that are upwards of 20-30 pages. I am not convinced that longer agreements provide significantly more protection. At the same time, I am always concerned that the introduction of such an agreement will actually hinder business development.
So you may ask, where is the line? I always start by coming up with a short list of what I am trying to accomplish in the agreement. Three primary questions you might consider (among others) regardless of whether you are on the distribution or manufacturing side would be: (1) when and how do I get paid?; (2) what happens if there is a problem in transit?; (3) what happens if someone gets sued because of the product?
More and more, I see attempts to skip negotiation and present a “take it or leave it” contract. The long-term problem with signing a distribution agreement without attempting to negotiate any critical terms is that many agreements don’t ever expressly end and thus, you might be stuck with it for a long time.
For that reason, I suggest that companies review their contractual agreements at the beginning of each year to see what is on the horizon and what can be changed. If there are specific issues that you would like me to address regarding distribution agreements, please feel to contact me at email@example.com.