Suppliers may be concerned about potential liability under express or implied warranty provisions in supply agreements. Such warranties are often contained in purchase orders, terms and conditions and statements of work, and can, under the appropriate circumstances, shift liability for part defects from an OEM to a supplier (regardless of tier), and from one supplier to the next.
A supplier may be able to better manage exposure to warranty liability by understanding how such liability may be allocated among the parties to a supply relationship. Here are some points a supplier may want to keep in mind when evaluating the parties’ individual roles under a supply relationship:
What are the supplier’s responsibilities under the project?
Understanding the scope of each project allows a supplier to be aware of how much risk it might be assuming. It helps if the parties work to clearly define each parties’ responsibilities and come to an agreement on those responsibilities.
How will the customer’s expectations affect the supply chain?
OEMs (and suppliers) typically try to hold suppliers to the same standard required by its own customers and expect that parts received from a supplier will meet its customers’ demands and expectations. Suppliers may find it beneficial to see that its own suppliers are aware of and aim to meet any such demands and expectations also in order to limit its own potential warranty liability.
Is a lawyer necessary?
Any time a supplier feels like warranty may become an issue, it may be time to contact counsel to work though any questions or concerns a supplier may have with respect to warranty.
In the end, it helps to keep warranty liability in mind and to learn to manage it in a proactive manner, so as to avoid liability later down the road.