Tips on contract negotiation for non-lawyers (Part 2)

The biggest advantage for the customer in a scenario without a written framework agreement will almost always be that in that case the supplier's liability is not limited, i.e. it is unlimited as provided for by law and also covers the customer's loss of profit due to production downtime. While the supplier will almost always insist on a limitation of liability (e.g. to a maximum amount and/or an exclusion of liability depending on the form of fault, e.g. in cases of slight negligence) when negotiating a framework agreement, without such a contractual agreement, the supplier is generally liable without limitation: This is because while the supplier's general terms and conditions included in an order process will regularly provide for a limitation of liability, the customer's general terms and conditions, which will also be included, will regularly contain a deviating clause on this point, so that there will generally be no agreement between the general terms and conditions of both parties on this point. Legally, this means that neither of the two provisions in the respective terms and conditions is agreed upon and the supplier's unlimited liability as provided for by law applies.

The second important advantage from the customer's point of view is that, without a framework agreement, there will generally be no obligation on the part of the customer to place orders. While the supplier will regularly insist on agreeing certain minimum order quantities per month/year or other purchase obligations when negotiating a framework agreement, without such an agreement the customer is generally comparatively flexible in terminating the supply relationship (with the exception of already binding individual contracts/individual orders) and switching to another (cheaper) supplier with short notice. (This may differ depending on the specific circumstances, e.g. if the customer provides the supplier with a rolling preview for a certain period of time, possibly with a "frozen zone", and/or material release. Depending on the exact circumstances, this may be seen as an obligation on the part of the customer to purchase for this time period. In addition, in exceptional cases a notice period may also have to be granted when terminating a long-term supply relationship that is not documented by a written framework agreement). 

From the supplier's point of view, a decisive argument against concluding a framework agreement will often be that framework agreements usually contain an obligation on the part of the supplier to accept the customer's orders/call-offs and to supply him with the goods, but at the same time also provide for a mechanism for price fixing and adjustment that restricts the supplier in its pricing. As a result, suppliers are often unable to adjust the prices agreed in a framework agreement in the event of an increase in their own production/material costs, or can only do so with difficulty or (too) late. If, on the other hand, there is no framework agreement, the supplier is usually free to set its own prices. And even if this will often be a question of the individual case, in particular how the parties have conducted their supply relationship, the supplier will not normally be subject to any obligation to accept orders outside of cases of particularly close cooperation. As a result, the customer is generally not legally entitled to demand that the supplier continue to deliver at the previous prices in the future, but must either accept the supplier's price adjustments for the future or find another supplier at short notice.

In addition, the law provides for further provisions that are generally favorable to the supplier but are regularly adjusted in a framework agreement, whereas in a "contract-free" situation they cannot be overcome by the customer's general terms and conditions alone (provided that the supplier refers to its own general terms and conditions when concluding the contract and that these contain a defense clause, see above). These include, among other things, the fact that the customer is obliged by law to inspect the products immediately upon receipt and to report any defects (buyer's obligation to inspect and notify). Otherwise, the customer loses its warranty rights with regard to defects that it could have detected through careful and immediate inspection. Since case law does not allow the customer much time for this (although it depends on the individual case, 1 – 3 days are generally considered a reasonable timeframe) and the customer's inspection of incoming goods may not meet the requirements of case law for inspection, the supplier often has good arguments, despite defective delivery, for not having to provide a warranty or be liable due to formal omissions on the part of the customer when inspecting the goods. If, on the other hand, the parties conclude a framework agreement with a supplementary quality assurance agreement, this will usually contain a provision that is more favorable to the customer.

Even if the reasons in favor of a framework agreement generally outweigh the reasons outlined in this article for refraining from a framework agreement in exceptional cases, every negotiator should be aware of what they are giving up with certain provisions compared to a "contract-free" situation and how good their own legal position (without a framework agreement) would be regarding certain aspects. In many cases, a precise knowledge of one's own starting position makes negotiations on a framework agreement considerably easier. This applies, of course, to the particularly important aspects outlined in detail above. But it also applies to many other points not even discussed here. It is not necessarily the task of commercial negotiators to analyze their own legal position with and without a framework agreement in detail at the outset. Rather, it is to recognize that such an analysis will improve their own negotiating position and improve their own decision-making. To this end, sound legal advice should be sought from outside legal counsel or legal department.