Disclaimer: I am not an attorney and cannot give legal advice. This series is from a supply chain practitioner’s perspective on negotiating contracts and is simply offering my perspective on common contract clauses. Seek professional legal advice for your own contracts.
In our continuing series on contract clauses from a supply chain perspective, last week we talked about indemnification and termination, and I gave a metaphor explaining limitation of liability clauses (in a debatably over-dramatic way). This week we talk about some very miscellaneous clauses, which will tend to fall in different places in different contracts. Specifically we’ll talk about supplier manual, party relationships, contract assignment, notices, headings, waiver, severability, and disputes clauses.
The example contract clauses and discussions of them below are separated by horizontal dividers to help you switch between them.
Miscellaneous Clauses
21. SUPPLIER MANUAL
Seller acknowledges that the provisions of Buyer’s Supplier Manual, as may be amended from time to time, provides guidelines, processes and procedures under which Buyer and Seller will transact business pursuant to this Agreement. In the event of a conflict between the Supplier Manual and this Agreement, the terms of this Agreement shall govern.
This clause is not particularly common, but can be helpful to reinforce the presence and importance of a supplier manual if you have one. The supplier manual is a very one-directional set of instructions from buyer to supplier, outlining supplier expectations. This is also the first time we’ve seen governance guidance on whether this Agreement or the Supplier Manual shall govern, there is more of that to come in the last clause of the contract. I rarely see redlines here, although some suppliers would prefer the supplier manual be incorporated in the contract as an exhibit to lock it down into the terms.
22. RELATIONSHIP OF THE PARTIES
The relationship between the Buyer and Seller is that of independent contractors. Nothing in this Agreement or the course of dealing between the Parties shall be construed as creating any partnership, joint venture, agency, or other form of joint enterprise, distributor, employment or fiduciary relationship between the Parties, and neither Party shall have authority to contract for or bind the other Party in any manner whatsoever. No relationship of exclusivity shall be construed from this Agreement, or the Purchase Orders issued hereunder.
This clause on the relationship of the parties usually appears in a contract in some form or another. It simply defines that the parties are not partners, are not merging, and are not creating joint enterprise. The roles in this agreement are buyer and supplier/seller, and are not intended to be more. I don’t think I have ever seen a redline to this clause, and I’m not sure what would be redlined here.
23. ASSIGNMENT
Seller’s rights and obligations under this Agreement cannot be assigned, delegated or transferred, by operation of law or otherwise, without Buyer’s prior written consent. Any purported assignment or delegation in violation of this Section shall be null and void. Seller may procure materials and/or services from third parties or otherwise subcontract its obligations pursuant to this Agreement, provided that Seller shall remain liable for all acts, omissions, delivery and quality requirements of its subcontractors and all obligations set forth herein.
The assignment article simply stops the contract from changing hands between suppliers without written consent. This is another standard clause where I seldom see edits. That being said, if a supplier is acquired or merges with another, the contract will get reassigned to the new entity. Typically this is done with a short amendment changing the relevant Agreement parties and effectively replacing the party with the changed name anywhere their name appears in the agreement. This is another reason agreements use Supplier and Buyer instead of the names of the buyer and seller, because it makes editing the agreements simpler.
24. NOTICES
All communications and notices required to be given pursuant to this Agreement shall be made in writing and shall be deemed to have been given when personally delivered or when sent by first class registered or certified mail, return receipt requested, with proper postage prepaid, or by electronic transmission containing an identifiable verification of receipt, in which case notice shall be deemed delivered when received. All notices shall be sent to the addresses of the Parties, as shown in the first paragraph of this Agreement. Either Party may change its address for notice by giving written notice to the other Party.
This notices section is a little lighter than I usually see. It’s very common for there to be a space with “who to contact” in the case of formal notice, where the supplier would put their own name and contact information. In more recent agreements to prevent fraud, I’ve also seen this clause require certified mail to change billing/invoicing information.
It is very helpful, if possible, to have names of people in this clause. That way if a request for a billing change comes through, it is easier to verify it is coming from authorized people. Especially if their direct office phone numbers are in the contract, verifying a banking change is simple and can save a company from a costly fraud issue. If you are ever called by a supplier who says they are changing their banking information, be very suspicious and follow every precaution to ensure it is really that supplier you are talking to and they are truly changing their banking information.
25. HEADINGS
The captions or headings included in this Agreement are for convenience only and in no way affect the scope or intent of any provisions or sections of this Agreement.
This clause is also common in contracts, but is typically a little longer. It frequently refers to clerical errors, and is intended to cover small issues where both parties understood the intent but a typo has confused the meaning. It also covers when one clause refers to another by number, but the numbering changed without changing the reference. This is part of why it’s better to replace a removed clause with “intentionally omitted” than to simply remove it and renumber the contract.
26. WAIVER
Failure or delay by either Party to assert any of its rights or remedies arising under this Agreement shall not operate or be deemed a waiver of such rights or remedies, nor shall any waiver be implied from the acceptance or payment for Products. No single or partial exercise of any right, remedy, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. No waiver by any Party of any of the provisions of this Agreement shall be effective unless explicitly set forth in writing and signed by the Party so waiving.
The waiver clause is intended to reinforce the rest of the contract and the ability of the parties to exercise it. This clause seems a bit redundant, but is common in full contracts. This is another clause that is seldom redlined.
27. SEVERABILITY
If any provision of this Agreement is determined by a court of competent jurisdiction to be illegal, invalid, void or unenforceable, then such provision shall be deemed stricken for purpose of the dispute in question, but only to the extent necessary to make the remaining portion of the provision legal, valid and enforceable, if possible. All other provisions of this Agreement shall remain in full force and effect.
The severability clause is in place in the event that outside laws or rulings change, and saves the parties from having to modify the contract in the event of a change. For example, there might be a law passed that limits the annual percentage rate that can be charged in interest for a late payment, but perhaps the contract has an exhibit or clause with a higher interest rate. This nullifies that clause (presumably having the pricing fall to the maximum rate allowed by law), but does not nullify the entire contract. If that happens to a contract, I recommend getting an amendment in place as soon as is reasonable to replace the nullified clause, if applicable.
28. DISPUTES
The Parties shall promptly attempt in good faith to resolve any dispute relating to this Agreement through negotiation between each Party’s authorized representative(s). All negotiations pursuant to this Section are confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence. In the event such discussions are unsuccessful, the Parties shall have the right to pursue resolution of such controversy or claim through mediation administered by the American Arbitration Association (“AAA”) under its Commercial Mediation Procedures. Prior to resorting to arbitration, each Party agrees that it will attend no less than one full day of mediation conducted by the mediator. If the Parties are unable to settle the dispute by mediation within forty-five (45) days after the Parties resort to mediation under this Section, then the dispute shall be promptly submitted to binding arbitration in Des Moines, IA in accordance with the Commercial Arbitration Rules of the AAA. The prevailing Party shall be entitled to recover reasonable attorneys’ fees, costs and expenses, including any costs or expenses incurred in pretrial investigation, at trial, or on appeal, all of which shall be made a part of the award or judgment.
This clause is an interesting one and variations of it do get a lot of redlines. Many contracts have an additional clause that waives the right of the supplier to a jury trial and requires mediation and arbitration to resolve disputes instead. This clause is in place because jury trials are hugely expensive and often last for years, with multiple appeals and many attorneys. Typically companies do not want the negative publicity or hit to their reputation that comes with a jury trial, even more than they do not want the expense. Jury waiver clauses are often in all caps and changes to them typically involve the head legal counsel of both the buyer and supplier. This clause is probably the most contentious between attorneys when the supplier decides to fight it, and I try not to get into that fray. I leave this one to the legal pros. That wraps up this week’s deep dive into contracts. Next week we’ll talk about the last few clauses of the “main” contract with governing law, force majeure, and the “Entire Agreement” clause that determines which documents are part of the contract and which govern in a dispute. If you’d like to talk to me about your company’s contract clauses, let’s chat.