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Ahead of the Curve Auto Supplier Blog

March 29, 2019

Mind your Ts & Cs (Terms & Conditions)

Terms & Conditions are often overlooked as “standard” or “universal,” but they can be the heart of a supply contract; the determining factor in any future dispute. So it’s advisable to rigorously consider T&C’s on new contracts, and it’s probably worth revisiting the T&C's in your existing contracts, too. Don’t wait until a dispute arises—that could be too late.

Understanding the entire contract is obviously the only way to run any successful business, but there are some key, reoccurring issues in the T&C's that require particular attention.

To start, what actually is the agreement? You may think you are entering into a long-term agreement dictated by a single document, but the T&C’s might say differently. It is important to know what documents govern, and for how long. If a dispute arises, the very first step to assessing liability is a review of the contract documents, and the governing T&C’s will often dictate the “rules of the game” (or at least try to). For example, what documents form the contract: Quotes? SOWs, RASICs, Long Term Agreements or Master Supply Agreements,  Purchase Orders? Releases? What about the other party’s T&C’s? The answers are usually in the fine print.

Next, consider pricing. How firm are those purchase order prices, really? Under what terms can pricing be adjusted? We've seen many recent cases where the impact from government tariffs needed to be considered against contract T&C’s. What about significant and unforeseen commodity price fluctuations? What are the terms relative to cost changes or force majeure events?

Depending on the parts being supplied, it can also be critical to understand who owns and controls the underlying intellectual property. Are upstream partners responsible for protecting your trade secrets and IP? Beyond the specific contractual applications, can partners use your IP in different, unexpected ways? What if your customer enters into a JV with another entity to produce the same or similar products which would include your product?

Finally, while contract termination is rarely on the parties’ minds when they enter into a new supply agreement, it's wise to plan for it up front. What’s the length and scope of the agreement? Is it tied to the length of the OE contract? Can either party get out sooner, if necessary? And how can the agreement be terminated? Are there fees or penalties? It’s critical to understand how you, or your partner, could potentially exit.

Not all of these issues will be on the table or should be negotiated every time. In fact, suppliers know that most parties just attach or reference their T&C’s in all of their contracting documents without any discussion. But in these cases it is still important to be familiar with the specifics, as they will inform your long-term strategy. It might also be the case that something buried in paragraph 32 of the T&C’s makes it worth walking away from the deal.

Warner attorneys have broad experience in drafting and reviewing supplier contracts that avoid the pitfalls and enhance the opportunities for successful long-term supplier relationships. On a daily basis we also litigate disputes that frequently turn on one line in the T&C’s. Make sure you understand all the Terms & Conditions before you sign the wrong deal. We can help.

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