Saturday, February 12, 2011

Negotiation - Thoughts on the Legal Parties in the Negotiation

In every contract you negotiate certain commitments the Supplier is obligated to provide. The important aspect of the parties to a contract is whether the party signing the contract has both the assets and resources to make good on their contract obligations. When you purchase through a Supplier affiliate or Channel, what you are really doing is creating a contract between that Company and you, not between you and the Supplier. Companies that may have the Supplier name in their title may be owned in part by the Supplier, but they are legally independent companies for which the Supplier is not legally responsible. Many companies sell through affiliates or channels that are independent of them as a way of managing potential liability. Suppliers want you to purchase from affiliates or channels to either reduce the negotiation you can do.  They may also want you to purchase from certain affiliates for tax reasons. In any of these cases, the purchases shouldn’t be to your disadvantage or provide you with any less protection than if you purchased it from them directly.

Always verify that the party can meet all the obligations of the contract, especially from a financial perspective. Many affiliates and many channels may not be able to meet all commitments. If the Supplier wants you to purchase from affiliates demand that you get no less protection than if you purchased from them directly. If you need a Supplier’s parent company involved to provide the necessary protection you can either make them a party to the contract where they agree to be jointly and severally liable, or you can have them execute a form of company or parent guarantee in which they assume financial responsibility for their affiliates performance. 

If the Supplier is forcing you to purchase from a Channel getting protected is a little more difficult.  Suppliers won’t agree to be liable for breach of the agreement by their Channels as 1) they have no control over the Channel’s actions and the Chanel could be making commitments independent of the Supplier and 2) they have no financial interest or stake in the Channel and don't want to be liable for an independent company. If you must buy through a Channel, the best approach to get protection would be to get a separate agreement with the Supplier where they agree to provide certain protections directly to you for purchases through their channels. Most of the time what you would need the to provide is a commitment to provide certain warranties and indemnities directly to you.Those are things they do have control over so they should be passing them on to you. Without it you can't make a claim against the Supplier as you would have no "privity of contract" on those purchases.

In your contract always make sure that you include the correct legal name for the party that you are dealing with and where they are incorporated and the location of their principal business address. 

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