A customer who pays in advance assumes a risk of non-delivery and/or liquidity problems while the supplier who only receives payment upon delivery confronts the risk of non-acceptance of the product and cash flow problems.
Oftentimes, the solution may be installment payments upon partial deliveries or upon the attainment of measurable milestones.
Like other aspects of the supply agreement drafted by and submitted by large companies to suppliers, negotiating fair payment terms may be challenging, but transactional attorneys have learned that most of the time nothing is written in stone. The more desirable a supplier’s products and services are to the customer, the likelier it is that it will be able to negotiate a viable arrangement.
Appointment of a Relationship Manager
Because working with a large customer may entail a multitude of issues that could result in changes in how the supplier performs, the supplier should consider appointing a Relationship Manager to help manage the larger customer’s expectations, or he may be requested to appoint such manager.
To this end, it is important to assign the position to a responsible person or group of persons who can gain the trust and confidence of the customer while being able to convey to the customer the supplier’s own concerns about the project.
Changes in the Product to Be Supplied or Work to Be Performed During the Contract
A customer may notify a supplier that it wants changes to be made to the product or scope of the work. A larger contract with a multinational is likely to be the subject of a Master Service Agreement, with each individual phase of the project itself covered by a “Statement of Work.”
A large customer may attempt to use their bargaining leverage to extract more work under a Statement of Work than is specifically provided for in that document. Suppliers should be prepared to resist this pressure by insisting that changes to the scope of work be contained in a Change Order to be executed by both parties, with provisions that will allow the supplier to be compensated for the extra costs such changes may entail.
Coexistence with the Customer’s Other Suppliers
Large customers, generally, have a host of other existing and new suppliers under contract with them for similar or other services. The new supplier may be required to work in collaboration with them.
Working with other suppliers collaboratively may involve important issues of respective liability, confidentiality, and intellectual property rights.
If two or more parties are involved in the performance of a collective project, the contribution and responsibility of each party should be clearly defined in writing.
All parties must protect their respective trade secrets and proprietary information, and access and use should be limited to what is strictly necessary to be able to complete the collective project. Likewise, intellectual property rights of all parties should be protected and enforced.
The Take Away:
The deal of a lifetime needs to be scrutinized with care as many of its anticipated advantages may end up being illusory and even detrimental to the fortunes of the business. Small companies need to realistically appraise the benefits, costs, and opportunity costs of taking on a much larger customer.
About the author
Louise Martin-Valiquette was born in Montreal, Canada. She is an attorney who, primarily, advises clients concerning cross-border transactions, corporate structure, and international distribution and trade. She is admitted to practice law before the courts of the State of New York and the Province of Quebec, Canada. She is, currently, adjunct Professor of International Trade Law at Pace University, Westchester, New York, and was the recipient, in 2008, of the Averell Harriman International Trade Award for Service Provider of the Year, and, in 2009, the Apex Award for outstanding service provider in the International Business category, awarded by the Westchester County Association. Ms. Valiquette has a national and international practice based in Ossining, New York. She is fluent in English, French, and Italian, and has a working knowledge of Spanish.