July 23, 2012
The "Stuckee" Revisited
July 23, 2012
Those of you who have heard me speak (forced or by choice), have no doubt seen my PowerPoint slide on the “stuckee.” The picture, a foot stuck in tar, is intended to represent an automotive supplier who ignores the “fine print” or “boilerplate” purchase order terms or sales terms posted on their customer’s or supplier’s website.
These terms, many of which in 12-point font would run on for 20 pages or more, attempt to deal with every situation we lawyers can think up (or have had the privilege or misfortune to litigate) that will impact the supply or price of automotive parts. Some of the terms, like provisions dealing with Intellectual Property rights, obligations in a recall or service action or indemnification rights, are obvious in their impact. Other terms, like those labeling the supplier as the “expert” in the selection and manufacture of the parts may impose less obvious but equally damaging liability. The lesson is obvious . . . what you don’t know or chose to ignore may be deadly to your business and profitability.
Reading and understanding the terms of your customer’s purchase orders and your supplier’s terms are, of course, just the beginning of the equation. The “art” of automotive contracting is putting this information to use in negotiating automotive supply contracts. Understandably, many suppliers are reluctant to incur the expense of involving counsel at the front end to assist in drafting a "fairer” contract; those suppliers will also view this blog entry (as well as my speeches) to be shameless marketing of our legal services. True enough, but as a litigator as well as business lawyer, I can assure you that the fees incurred in one or two months' work in a breach of warranty case dwarf the billings for contract negotiations, just as the liability for breach of warranty in one program can instantly eliminate the profitability of all the others combined.
An example: How is the breach of warranty determined?
The vast majority of suppliers would not disagree with the concept that they should be held accountable for shipping a non-conforming part. However, the manner of determining whether a part is non-conforming is of critical importance. Is your customer obligated to perform a root cause analysis? Are you legally entitled to participate in the root cause analysis? Are fault and damages allocated based upon objective testing of every part of the assembly, including the process used in manufacturing the assembly? Worse yet, is the ultimate decision on the allocation of liability left to the buyer?
Though whether a part is non-conforming cries for an objective test, politics plays a huge impact in the real world assessment of liability. We have been involved in situations where an OEM has attempted to allocate liability among the tier suppliers based upon nothing more than its whim or, more precisely, an attempt to keep the peace with its favorite Tier One supplier. In other situations, Tier One suppliers may have every incentive to impose liability downstream rather than try to negotiate with its OEM customer on issues for which the OEM is responsible. There are any number of reasons which would incentivize an upper tier supplier to allocate liability on a basis other than an objective root cause analysis.
One of many reasons to involve Warner Norcross & Judd in the negotiations.