Contract - Shake

Contract vs. Agreement

The 2nd in an 8-part series titled:  “The View from the Other Side”

 

It’s vital to know your obligations before signing a legal document!.  No distributor can provide everything you will need. You will need - and expect - the flexibility to buy products from other vendors.

 

A contract is restrictive.  An agreement is often worded to appear restrictive, but is really a statement saying we are going to give you certain concessions and, in return, you agree to utilize us as your primary supplier.

 

There is a big difference between the above and the lines are frequently blurred.  Distributors may wine-and-dine you in an effort to win your business have a legal team.  One of their main functions is to enforce contracts. Do NOT think this won’t happen to you!

 

Likewise, many customers believe that because they have signed on to a group agreement, such as the Bio/Biocom agreement, that they are under contract and that it is “illegal” to shop elsewhere.  This is not only false but a big mistake. Agreements almost always have a “pledge clause” which asks nicely for the person utilizing the agreement to pledge 80% of their business. This is simply an arbitrary target that would be impossible to verify.


 

Recommendations

 

  1. 1:) Avoid sole source contracts if your spend is <$1,000,000 per year.

  2. 2:) Know and understand any contract language that pertains to restrictions from buying from other vendors.

  3. 3:) Pay no attention whatsoever to the “recommended spend” percentage in agreements.  It cannot enforced. If you can do better elsewhere, go elsewhere.

  4. 4:) Always verify compliance with routine audits or by spot checking invoices.

  5. 5:) If you are challenged by the distributors legal representative, hire an attorney.  If you are challenged by anyone else (i.e., regarding compliance) then don’t. Most sales and marketing people know very little about the agreement specifics but are very eager to convince you that you are obligated to buy only from their company.

 


 

What we will discuss in this series:

  1. 1.) Contract Terminology 101 - what are the components and what do they mean to you?
  2. 2.) Contact vs. Agreement - What’s the difference?  Do you have the right to shop elsewhere?  What about a “generic” or group contract?
  3. 3.) The Hot List and Price Caps - The pros and cons.
  4. 4.) Guaranteed Cost Savings - Hard vs. soft cost savings.  Metrics. Penalty clauses.
  5. 5.) Cost Plus Pricing - Depends a lot on how you define “cost.”
  6. 6.) Rebates and Prebates - Sound too good to be true?  Most likely it is.
  7. 7.) Profitization - How it’s done and how you can protect against it.
  8. 8.) LPS On Your Side - The LPS approach.  How it addresses these issues and is a better fit for many lab