- How do you secure you are legally covered with your suppliers?
- What legal risks are you exposed to and how could they impact you?

Sufficient legal support
Many sourcing organizations do business and handshake their agreements with a “gentlemen’s agreement”. To skip to have written agreement in place, constructed by a lawyer, seem to be quite common, especially in mid and small sized companies. Why is that?

If you don’t have a legal agreement in place you don’t really know the risks you are exposed to. Neither do you know what you as a buyer are responsible of and what the seller should be responsible for if something goes wrong in your relationship.

Many companies argue that the importance of a strong relationship is far much better than a legal agreement. We don’t say those companies are wrong. The importance of strong business relationships are extremely important, especially when doing business in Asia. We argue that having sorted out different scenarios and how to act on them, if something goes wrong, will strengthen your relationship and reduce the risks for both parties. Reduced risks normally mean lower total cost.

We advise you to meet with your lawyer and discuss how you can build up your legal contract structure. Normally it is done according to the following model:

1. Non-Disclosure Agreement – could be in place per product or per supplier regulating what information you could share to other parties

2. Frame agreement – an agreement that you have per supplier regulating the general terms and conditions

3. Product agreement – an agreement for a specific service or product. Often the purchase price is regulated in this agreement

Common pitfalls

- Companies don’t invest in getting professional expertise to develop agreements or agreement templates. This could lead to that the agreements are useless if they need to be applied

- Companies forget to review and renegotiate agreements. Sometimes when the agreement is in place, they are put in the drawer and then forgotten

- Companies do not have an agreement database where you could easily track and follow the status of all your agreements. This means you risk having agreements that are no longer valid