Situation: A company wants to add off-shore manufactures to its supply chain. This is a new experience and the CEO seeks guidance on how to negotiate supply agreements. They want win-win agreements with their new suppliers. How do you optimize supply agreements?
Advice from the CEOs:
No supplier relationship is risk-free, especially if you are a small company. Be sure to cover ownership of new IP developed during the relationship. For example, assure that the supplier adds no new developments without communicating these to you in writing. You may want to fund new developments selectively to assure protection of your IP. This is essential if you need to switch or add suppliers rapidly to maintain adequate supply.
A service agreement is not always about cost. It’s about deliverables, and quid pro quo is important.
Manage your key supplier relationships as diligently as you manage your key client relationships. They are equally critical.
In a contract negotiation between supplier and OEM or customer, both sides need to clarify customer needs and supplier capabilities. The greater the transparency on expectations, deliverables, and contingencies, the better the agreement and contract.
In negotiating an agreement with a Chinese company, make the enforcement jurisdiction either Hong Kong or Macao. Why? So that courts can enforce terms of the agreement on the Chinese party in the case of a dispute.
Post-termination obligations are a key to any negotiation – you want this clarified in advance.
Contracts serve two purposes: a legal tool, and a way to drive behavior. They provide an opportunity to assure that both parties are on the same page and, under the best circumstances, serve as process documents.
Special thanks to Bijan Dastmalchi of Symphony Consulting for his contribution to this discussion.
Situation: A company has received RFPs from two companies who regularly do business with each other, but who are also competitors. The projects specified by the two RFPs might compete with each other. Under the terms of the two RFPs, the company can not disclose the existence of either RFP to the other company. Can you do business with competing companies, and how do you protect the company if you do?
Advice from the CEOs:
The principal concern for the Company will be assuring that there is no violation of the CDAs that you have with each company.
Assign the RFPs to two different groups within the Company, with strict instructions that they must maintain their respective client’s confidentiality both internally and externally.
Emphasize the importance of confidentiality in responding to the RFPs to the Project Manager responsible for responding to each RFP.
Respond to both RFPs, but do so such that if both projects are contracted you can disclose this to both companies.
Prepare a set of talking points – the same talking points – to both companies and disclose the situation to both immediately after the project has been contracted.
Let them know what happened, share the timeline, share your obligations under your CDAs with both companies, let them know what you did internally to preserve their confidentiality, and that as soon as you were able – i.e., as soon as both projects was contracted – you informed them of the situation.
Companies commonly get involved in similar situations. The beauty is that you get business under either scenario. The challenge is that you must take all steps necessary to assure that the interests of both potential customers are preserved.
If you can successfully demonstrate to both companies that you have acted in an honorable fashion, they are more likely to trust you to do the same in the future.