Supply chain issues grabbed headlines during the pandemic as questions continue to arise involving it.
Law Week Colorado recently caught up with a legal expert in the field, to find out about some of the key issues he faces.
Bryan Rose, a partner at Stinson LLP whose practices include manufacturing, aviation and aerospace, explained one of the major issues he deals with involves original equipment manufacturers and its relationship to suppliers. For context, an OEM is the original designer and manufacturer of a product while a supplier would be the one providing the parts to build the product. For example, a computer would be the OEM while the microchips it uses would be from the supplier.
Between the two sides there should be a master supply agreement, explained Rose, as problems could arise. For example, an automobile manufacturer seeks out a company to design mufflers for its vehicles using certain specifications.
Rose noted what if the muffler ends up causing fires in vehicles? The auto manufacturer might point the blame at the muffler business, while the muffler business might ask what their obligation is under the contract and how they can protect themselves, which leads to some tricky situations and questions that need to be answered.
“If you haven’t done a master supply agreement, it can make those decisions a lot more difficult in the heat [of] the moment,” Rose said, who represents suppliers more often than OEM’s. Rose noted master supply agreements are great for on-going relationships and they aren’t necessary for one-off agreements.
Rose added a lot of times companies use their invoice and purchase orders and refer to the terms and conditions on them. Rose explained instead of having a bunch of different invoices and purchase orders to look through, a master supply agreement would be essential rules of engagement dealing with intellectual property rights, what happens if a product fails, etc.
When representing a business that is much smaller than a corporate giant, Rose said the key is to know his client’s business, while having experts he can rely on to determine what happened, even if there’s a master supply agreement in place, adding the agreement makes the rights and obligations of the parties clearer and more thorough. He would also work with the executives at the company to figure out how to navigate the situation on the business side.
“There are times where getting in there early, looking at it with an expert, we go ‘you know what, there’s something here, you may have screwed up,’ and that helps them make decisions to save the relationship,” Rose said. “There’s been other times I’ve had the same client with two different issues; one was their fault and the other was not. … Sometimes you find out it has nothing to do with the part [and] sometimes you find out they’ve been trying to find a replacement for you.”
In some cases there isn’t a master supply agreement where both sides have dueling terms and conditions, leading to the question of which one controls.
“If you negotiated a master supply agreement … you can really suss out all the different details that can be an issue,” Rose said. “And it can also help as a supplier. With a master supply agreement you can get better terms for guarantees that they’ll actually buy your product for a certain time. You can have more certainty on your production line.”
Some of the major issues Rose sees a lot between the supplier and OEM include intellectual property, price, quality and not being able to provide the proper supply.