One of the key aspects of any supply chain contract is the section regarding pricing.  Nothing is more important in a business deal than determining how much one manufacturer might pay another in a B2B transaction.

In situations where one party has more leverage, that party often includes pricing language that can really impact the economics of any deal.

One type of provision often reads as follows:

Notwithstanding anything in this Agreement to the contrary, the price of each Product will not exceed the lowest price at which Seller sells the same or substantially similar product in the same or lesser quantities to any other customer.

When I see these provisions, the first question I ask any client is whether such a provision is feasible from a business perspective.  We then talk about whether the products being sold are custom or “off the shelf” as that will impact whether this provision has been triggered.

Another provision that I am seeing more often is as follows:

Seller shall notify Buyer of cost savings implemented by Seller (e.g. Seller manufacturing productivity improvements) which do not result in a change in drawings, materials, design, fit or function of the Products.

This type of provision is becoming more common as buyers attempt to contractually drive down prices over time.  The issue here is that, over time, manufacturers often improve their margins by reducing the overhead associated with making a particular product.  In other words, manufacturers become more efficient and hence make more money.  Sellers often know this and demand notice of such cost savings so that they can be passed on.

For that reason, I often tell clients to scrutinize these types of provisions as they can jeopardize a company’s margin long-term.

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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.