Negotiating contracts in the supply chain are certainly challenging.  As a lawyer, there is a temptation to want to change every term that is not to your liking.  And, for that reason, a lot of lawyers will receive a contract to review from their client and immediately red-line every provision.  Now, if your client is on the top of the supply chain, such an approach might work.  But, for many of our clients, who are in the middle or even towards the bottom of the supply chain, such changes are often not effective or well received.  Because of this reality, some manufacturers /distributors will simply sign the supply chain contracts without seeking legal advice because it is a “take it or leave it” situation.

The ultimate question then is whether there are ways that a manufacturer/distributor can attempt to minimize or eliminate risks even if the company has no leverage and the typical risk shifting clauses cannot be used (e.g., indemnification).  The answer is Yes.

For example, assume that you are selling a component part that is then being incorporated into a larger product or apparatus.  The contract states that you are responsible for any alleged problem with the component even if the installation by the OEM into the larger product was faulty.  I often encourage clients to ask as part of negotiations that it be allowed to offer training guidance about how installation should be done.  Something as simple as a few on-site sessions a year can help minimize risk.

I also often tell manufacturers/distributors to be mindful of the contract term.  While Long-Term Agreements (LTAs) are often sought after and surely are better from a business perspective than a purchase order by purchase order arrangement, shorter terms are often preferable in a “no leverage” situation.  Simply stated, it allows a manufacturer/distributor to assess what types of liabilities are being created in the marketplace.  This information allows for potential tweaks in the contract the next time it is renewed.  It is often easier to negotiate changes when there is concrete evidence to support them.  This is in contrast to the situation I described above where legal counsel changes every term in a contract without assessing business realities.

Are there ways that you have addressed “no leverage” situations?  If so, email me at jwhite@rc.com and I will share them in my next post.

 

 

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Photo of Jeffrey White Jeffrey White

I am a partner at Robinson+Cole who handles corporate compliance and litigation matters for both domestic and international manufacturers and distributors that make and ship products around the world. My clients have ranged from publicly traded Fortune 500 companies to privately held and/or…

I am a partner at Robinson+Cole who handles corporate compliance and litigation matters for both domestic and international manufacturers and distributors that make and ship products around the world. My clients have ranged from publicly traded Fortune 500 companies to privately held and/or family owned manufacturers. For those looking for my detailed law firm bio, click here.

I am often asked why I have focused a large part of my law practice on counseling manufacturers and distributors. As with most things in life, the answer to that question is tied back to experiences I had well before I became a lawyer. My grandfather spent over 30 years working at a steel mill (Detroit Steel Company), including several years in its maintenance department. One of my grandfather’s prime job duties was to make sure that the equipment being used was safe. In his later years, he would apply those lessons learned in every project we did together as he passed on to me his great respect and pride for the manufacturing industry.

Because of these experiences, I not only feel comfortable advising executives in a boardroom, but also can easily transition to the factory floor. My experience has involved a range of industries, including aerospace and defense, chemicals, energy, pharmaceuticals and life sciences, nutritional and dietary supplements, and retail and consumer products. While I have extensive experience in litigation (including product liability and class actions), I am extremely proactive about trying to keep my clients out of the courtroom if at all possible. Specifically, I have counseled manufacturers and distributors on issues such as product labeling and warranties, product recalls, workplace safety/OSHA, anti-trust, and vendor relations, among other things. I always look for the business-friendly solution to a problem that may face a manufacturer or distributor and I hope this blog will help advance those efforts.