PROVISION |
SUMMARY OF CHANGES |
STRATEGIC IMPLICATION |
STRATEGIC CONSIDERATION/RESPONSE |
Applicability; Effectiveness; Entire Agreement; Acceptance
N.A. § 1
|
There are three major changes to this section: (1) increased role
for the Supplier Portal; (2) "course of dealing" cannot
modify the North American Terms; and (3) FCA can issue Purchase
Orders that are non-binding until the vehicle program is approved
and the non-binding clause of the Purchase Order is removed. |
FCA is seeking to avoid claims that the parties' course of
dealing modifies the terms of the contract.
The ability for FCA to issue "non-binding" Purchase
Orders presents a novel issue. It remains to be seen whether FCA
will utilize such non-binding Purchase Orders purely for
administrative purposes or whether FCA will use this as a tool to
unilaterally decide whether an order is binding or not given the
lack of objective criteria for determining when a program is
considered "approved." |
If there are investments and capital expenditures that a Supplier
must make, then it will need firm, binding purchase orders before
it begins incurring expenses. |
Delivery; Scheduling
N.A. § 2
|
FCA clarified the type of damages it can collect from its
Suppliers and the timeframe for payment of those damages.
|
This obligation generally aligns with the damages that FCA
otherwise is entitled to by law in most cases. However, these
are not expressly referenced in the contract. |
Suppliers should be mindful of the potential damages for which
they may be responsible if they are found to have breached an
obligation concerning delivery.
|
Volume Projections, Capacity, Requirements, and Release
Authorization
N.A. § 4(a)
|
If FCA's peak requirements ever
exceed a Supplier's capacity, FCA has the right to decide
between making capital improvements with the existing Supplier or
sourcing from a third party (without penalty). Any capital
improvements made will be FCA's property.
|
Although this provision purports to provide FCA with ownership of
any capital improvements necessary to increase capacity, it is
silent as to who pays for such improvements. |
In the event that a Supplier is
required to make capital improvements necessary to increase the
Supplier's capacity, if the Supplier is paying for any
improvements or any portion thereof for which the Supplier expects
to have ownership, the Supplier must take care to obtain a clear
agreement regarding ownership.
Any agreed capital improvements must be made without disruption to
the Supplier's other operations and lines running for other
customers. |
Volume Projections,
Capacity, Requirements, and Release Authorization
N.A. § 4(c), 6
|
If FCA "believes that Seller's future ability to timely
provide goods could be impacted..." FCA may require a Supplier
to maintain "safety stock," in a certain quantity
specified by FCA in the country where FCA takes delivery of the
good. |
This provision potentially gives FCA the right to force its
Suppliers to provide a warehousing function and maintain an
inventory of components larger than they otherwise would have
desired to carry with significant carrying costs. |
Suppliers will want to factor in the cost of compliance with this
new obligation when negotiating contracts and setting prices. |
General Warranty
N.A. § 7(a)
|
FCA has revised the warranty terms to significantly expand the
scope of the warranty. For example, the Supplier warrants that it
"has performed and will perform all testing necessary or
appropriate to ensure that the goods are not defective in any
way." Suppliers are also required to acknowledge that
"FCA will rely on Seller's expertise in the design of the
goods."
Additionally, Suppliers and their affiliates warrant that they
"shall conduct themselves at all times, whether or not in
connection with a Purchase Order, in a manner that is not
prejudicial or harmful to FCA's interests, products, services,
image, goodwill, or reputation (as interpreted by FCA)."
FCA extends the applicable warranty period to include "the
longer of (A) two (2) years from the delivery of the last good
under a Purchase Order, (B) the longest warranty extended to
FCA's end user customers by FCA on the date of the Purchase
Order for the applicable good, (C) the period set forth in the
Source Package (including the quality and durability
specifications), (D) any other period agreed upon by FCA and Seller
in a Purchase Order or other document, (E) the period set forth in
any Warranty Policies (as defined below), or (F) the period of any
Recall or similar period."
Finally, FCA purports to extend its time for asserting a warranty
claim, stating that "[n]otwithstanding any Law, the period in
which FCA may bring a warranty claim will be the longer of any
period provided by applicable Law and eight (8) years" from
the date FCA had actual knowledge. |
For many Suppliers, FCA's proposed expansion of the scope of
the warranty, including with respect to testing, is directly
contrary to the usual course of business in which the parties agree
upon a specific validation plan and testing to be conducted at the
component or assembly level. The OEM is responsible for
vehicle-level testing. Given Suppliers' limited access to
a complete vehicle and the integration of other relevant
components, these provisions effectively put Suppliers in an
impossible position of making warranties for which they have
limited or no ability to ascertain compliance.
FCA's proposed extension of the warranty period is significant
and, as written, appears to afford FCA the ability to extend the
period unilaterally. As written, a Supplier arguably must warrant
the first products supplied under the Purchase Order for the entire
life of the contract, plus two years, a provision that easily could
extend to nine or ten years in some cases. On the other hand,
provisions tying the warranty to FCA's "Warranty
Policies" and the period of any "Recall" potentially
open the door for FCA to extend the applicable warranty by revising
other documents.
FCA's effort to expand the statute of limitations period for a
claim for breach of warranty is not allowed under the Uniform
Commercial Code. Section 2-725 of the Uniform Commercial Code
provides that "[b]y the original agreement the parties may
reduce the period of limitation to not less than one year
but may not extend it." (Emphasis
added). |
Depending on how they are applied by
FCA, these provisions potentially are among the most significant
detriments to Suppliers in the new North American Terms. Suppliers
should consider whether they can agree to these provisions as
written. At a minimum, Suppliers should consider pushing for a more
specifically defined warranty period and limitations on FCA's
ability to unilaterally extend the warranty period. Suppliers
selling products based on FCA designs should consider pushing back
on warranties concerning testing and fitness for
purpose.
By providing additional warranties and assuming additional
risks, Suppliers will now be providing Goods and services of
greater value. As such, Suppliers should consider leveraging this
greater value in contract negotiations.
|
Prices
N.A. § 8
|
The North American Terms state that if a Supplier's direct or
indirect costs decrease, a Supplier shall immediately pass along
any cost savings to FCA, but provide no corresponding ability to
raise prices when costs increase. The pricing provisions also
require that Suppliers charge FCA no more than the lowest price
that a Supplier charges any person or entity for the same or
similar good. If a Supplier reduces the price to any person or
entity, the Supplier must pass on similar savings to
FCA. |
The North American Terms seek to
create a one-way ratchet with pricing in which Suppliers are
obligated to pass through any savings to FCA but retain the risk
for any cost increases.
The requirement that Suppliers not
charge FCA more for goods than Supplier charges to other customers
is concerning because it lacks the typical caveats that the goods
must be sold in substantially similar quantities and substantially
similar terms.
|
Suppliers should carefully consider
whether they can agree to FCA's proposed pricing model and
consider the associated risks when quoting business to FCA.
Suppliers that provide products to FCA that they also sell to other
customers must be mindful of this provision and consider whether
they are at risk of violating this provision. Suppliers should
consider pushing for exceptions to any retroactive application and
consider pushing to limit based on comparable volumes and other
terms. |
Property and Tooling
N.A. § 9
|
A Supplier provides the same warranties for tooling as it does for
goods under N.A. § 7, and FCA may bring a tooling warranty
claim two (2) years past the last use of Buyer's property by a
Supplier or the last payment made by FCA.
If a Supplier's cost to manufacture or acquire FCA's
property is less than the order price, the Supplier will pay FCA
the difference.
FCA may purchase a Supplier's tooling that is exclusively used
to produce FCA's goods at the Supplier's cost less any
piece price recovery. |
The requirement that Suppliers warrant any tooling for two years
beyond last use potentially is in conflict with the realistic life
of the tooling, particularly given that Suppliers cannot predict
the life of the program. This is particularly concerning for
perishable tooling.
Consistent with the approach taken by FCA elsewhere in the North
American Terms, Suppliers are obligated to pass through any savings
to FCA while retaining most of the risk for cost increases.
|
Suppliers will want to factor in the cost of compliance with this
new obligation when negotiating contracts and setting prices. |
Insurance
N.A. § 10(a)
|
A Supplier is now required to carry
$5 million per occurrence in commercial general liability
insurance. Under the prior Terms, a Supplier only was required to
carry a total of $5 million in commercial general liability
insurance.
|
For some Suppliers, this change may require substantial increases
in their insurance policies, which will result in increased
costs |
Suppliers will want to factor in the cost of compliance with this
new obligation when negotiating contracts and setting
prices. |
Indemnification
N.A. § 10(b)
|
The North American Terms concerning
indemnification are more detailed and have an expanded scope. For
example, a Supplier is now required to indemnify FCA's
Suppliers, dealers, and distributors, whereas, under the prior
terms, a Supplier was only required to indemnify FCA and its
subsidiaries.
Potential damages are also clarified
to include: "lost business, lost opportunity, loss of use
[and] costs associated with business interruption."
|
FCA is seeking to expand the indemnification obligations for its
supply base. |
Indemnification obligations include potentially significant risk of
liability for Suppliers. Suppliers should carefully review
these provisions to understand their risk. Suppliers that have
negotiated for limitations or exceptions to other provisions in the
North American Terms should take care to ensure that broad
indemnity obligations do not provide an alternative avenue for FCA
to pursue claims that the Supplier had sought to
avoid. |
Indemnification
N.A. § 10(c)
|
A Supplier waives any claim or defense that FCA provided the
specifications or that the claim arose out of the Supplier's
compliance with the specifications or directions from FCA, its
dealer, or any subcontractor or supplier to FCA or its
dealers.
If loss liability is allocated in an Authority Definition Plan
(ADP), FCA may unilaterally change the allocation if it determines
that the Supplier's responsibility is higher than the agreed
allocation, and payment will be due 30 days from receipt of
notice. |
This is an attempt to combat the defense that many Suppliers have
to third-party claims where FCA was involved in the specifications
and/or design. This is particularly concerning for a build-to-spec
part. |
Where FCA's engineering team is providing direction or input
regarding product design and validation, Suppliers must conduct
their own due diligence and adopt these recommendations/input as
their own. If Suppliers are simply building part pursuant to an FCA
drawing under a build-to-spec arrangement, then this provision
should be removed. |
Indemnification
N.A. § 10(d)
|
FCA reserves the right to either defend a claim itself or require a
Supplier to do so. |
This gives FCA the flexibility to
decide whether it will tender the defense to the Supplier or take
over the defense, but both will be at the Supplier's cost.
|
Suppliers that receive a demand from FCA for indemnity need to
account for the potential impact of this
provision. |
Changes
N.A. § 11
|
The new North American Terms clarify FCA's right to make
changes and a Supplier's possible responses to those changes.
As before, FCA can unilaterally make changes, including engineering
changes, to any aspect of a Purchase Order and to the term. The new
North American Terms now clearly state that a Supplier's only
rights are to (1) make a claim for a change of price based on
direct, net increased, out-of-pocket costs actually incurred or to
be incurred, or (2) make a claim for extension of time for
delivery, as a direct result of the FCA change.
|
These provisions potentially operate to limit the increased costs
that Suppliers can claim in connection with a change required by
FCA.
|
Suppliers faced with a change request should take care to calculate
their anticipated additional costs and ensure that such costs are
stated in a manner that complies with FCA's
requirements. |
Parts; Service
N.A. § 12
|
Under the new North American Terms, Suppliers have increased
disclosure obligations. Now, for purchased parts, upon FCA's
request, a Supplier must disclose its Supplier and the price
paid.
Additionally, an entirely new subsection, entitled "Third
Party Part Buyer" was added. This subsection permits FCA to
delegate the ability to purchase parts directly from the Supplier
to third parties. The direct purchase shall be under similar terms
to FCA's Purchase Order, including price. |
These changes are consistent with FCA's overall approach of
seeking greater transparency into, and ability to take the benefit
of, any reductions in Suppliers' costs. |
Suppliers will want to factor in the cost of compliance with this
new obligation when negotiating contracts and setting prices. |
Payment; FCA's
Commitments; Claims Adjustment
N.A. §13
|
There are two additional terms regarding the timing of payment.
First, the North American Terms specify that payment is due 90 days
after FCA has received a proper and timely undisputed invoice.
Second, except as set forth in a contract or agreement, all amounts
due from Suppliers to FCA are due immediately.
The North American Terms no longer include language that Suppliers
are entitled to periodic information about FCA's financial
condition and ability to fulfill payment terms.
When FCA exercises its right to set-off or recoupment, FCA is no
longer required to substantiate the offset within fifteen (15)
days. Additionally, if FCA's set-off or recoupment was
improper, a Supplier's only recourse is that the Supplier can
require FCA to pay the original amounts due to the Supplier. FCA
will not be liable for any damages as a result of deduction,
set-off, recoupment, or other action.
This section now specifically states that Suppliers have no right
to take a set-off against FCA. |
This provision potentially may operate as a significant change to
payment terms for many Suppliers.
Although FCA no longer is required to automatically provide
certain information, such as support to substantiate a debit,
Suppliers are not necessarily precluded from requesting such
information in appropriate circumstances. |
Any Supplier currently operating on
payment terms less than 90 days should consider objecting and
pushing back on the proposed attempt to change payment terms.
Suppliers will want to factor in the cost any extended payment
terms when negotiating contracts and setting prices.
|
Customs; Export Controls
N.A. § 14
G.A. § 15
|
The Global Terms now require
Suppliers to guarantee the accuracy of "made in __"
labeling.
The North American Terms require all
goods and services supplied by companies in North America to
satisfy the requirements of the US-Mexico-Canada Agreement (USMCA),
unless FCA provides a written exception.
|
While most Suppliers in North
America likely are already compliant with the USMCA, any who are
not will need to take steps to become compliant.
Increased focus on this area in the new North American Terms may
signal an increased focus on these issues within FCA, including
possible future audits |
To the extent not already compliant,
Suppliers will want to factor in the cost of compliance with this
new obligation when negotiating contracts and setting prices.
|
Use of FCA's Name
N.A. § 15
|
The North American Terms add a
requirement that Suppliers refrain from publishing derogatory or
disparaging statements about FCA or its affiliates.
|
While following this rule previously was a good business practice,
publishing such statements now, even if true, will constitute a
breach of contract exposing the Supplier to potential liability and
termination for breach. |
Suppliers should review their internal policies regarding
statements concerning customers to ensure that any such statements
go through an appropriate review and approval
process. |
Data; Software; Security;
and Privacy
N.A. § 16
G.A. § 19 (e), (g), (h)
|
The North American Terms expand
"FCA Data" to include: (1) Development Data (all data
produced or collected from an FCA branded vehicle); and (2) all
improvements and derivatives made by FCA, its Suppliers, and
sub-Suppliers.
The North American and Global Terms expand Supplier obligations and
restrictions. Suppliers, among other things, (1) must monitor
software for defects and vulnerabilities, (2) must implement
measures to protect personal data against unauthorized access, and
(3) may not use open source software absent written consent. |
These changes represent a large and potentially open-ended
definition of what constitutes "FCA Data." These
also give FCA greater ownership and rights in the data. |
Suppliers will want to more carefully track their use of
Buyer's data to ensure Suppliers do not inadvertently run afoul
of the Terms. If Suppliers wish to use Buyer's data more
broadly, Suppliers may need to negotiate rights to the data
separately. |
Financial Reporting
N.A. § 17
G.A. § 20
|
FCA's right to disclose the
confidential information of its Suppliers has been expanded from
"any reason related to or in connection with its risk
management functions" to "any business reason."
The period during which Suppliers must update the information
required to be provided in the Supplier Portal has been shortened
from an annual to a quarterly basis. |
The expansion of FCA's right to disclose a Supplier's
confidential information effectively renders any such protections
meaningless. |
Suppliers that are required to
disclose significant confidential information may want to consider
negotiating a separate confidentiality or nondisclosure agreement
to supersede the default provision in the Terms and Conditions.
Suppliers should take steps to ensure that they are compliant with
these new reporting obligations and will want to factor in the cost
of compliance with this new obligation when negotiating contracts
and setting prices. Ensure that there is a contract manager
responsible for tracking these deadlines and updates. |
Cancellation/Termination for
Default; Termination at FCA's Option
N.A. §§ 18, 19
|
The North American Terms expand FCA's power to terminate
contracts for cause. For example, the conditions for default have
been expanded to include unauthorized changes in control and
situations in which "in FCA's reasonable judgment,
Seller's financial or other condition is such that it threatens
or could reasonably threaten Seller's ability to fully and
timely perform under and installment of or an entire Purchase
Order."
FCA may also compel Suppliers to terminate or use different
subcontractors immediately.
The time by which FCA may cure breaches is expanded from 30 to 60
days; but the time by which a Supplier may cure a breach is
shortened from 30 days to 10 days, and the time by which a Supplier
may submit a termination claim is shortened from 60 to 30
days. |
While FCA retains for itself the
right to terminate for convenience, a termination for default
further restricts the payments to which the Supplier can claim. In
addition, the Supplier may be liable for damages resulting from any
breach.
|
Suppliers should be mindful of the applicable notice and cure
deadlines in the case of any alleged breach. |
Remedies
N.A. § 20
G.A. § 21
|
The North American Terms expand FCA's remedies for default.
Upon default, FCA may terminate all other Purchase Orders with the
Supplier and may designate representatives to be present at a
Supplier's facility at the Supplier's cost.
The North American Terms also expand FCA's IP rights: if FCA
suspends or terminates a Purchase Order for breachor at
FCA's option under Section 19 of the North American
Terms, FCA will receive a perpetual license to use
and exploit the Supplier's goods and IP associated with the
Purchase Order.
Finally, the North American Terms provide that upon the
termination of a Purchase Order, FCA may require the Supplier to
develop a transition plan to ensure continuity at no cost to
FCA. |
The provision allowing FCA to cancel all Purchase Orders with a
Supplier, including any Purchase Orders for which Supplier is not
actually in default, enhances FCA's ability to engage in a
punitive resourcing of business away from a Supplier. While FCA
previously had the right to terminate other Purchase Orders for
convenience, the ability to terminate other Purchase Orders for
default further restricts the payments to which a Supplier will be
entitled and implicates other remedies that may be available to
FCA.
Although buried in a purported "remedies" provision, the
North American Terms provide that FCA will obtain a perpetual
license to exploit a Supplier's goods and IP whenever FCA
terminates or suspends a Purchase Order for any reason, including a
termination at FCA's option under Section 19, or a termination
based on Supplier's failure to comply with one of many
competitiveness and pricing obligations throughout the North
American Terms. This potentially is an extraordinary
expansion of FCA's rights to Supplier intellectual
property.
|
Suppliers should consider pushing back on FCA's ability to
obtain a license to Supplier intellectual property for any reason
other than to facilitate an alternative source of the goods in the
event that the Supplier is unable or unwilling to continue
supply.
Suppliers that are engaged in a dispute with FCA must account for
FCA's enhanced ability to terminate other business with the
Supplier that is not directly involved in the dispute on a more
punitive basis for default. |
Required Compliance;
Cooperation
N.A. § 21
G.A. §§ 11
G.A. §§ 22
G.A. §§ 24
|
The Global Terms now require that
Suppliers provide advance warning and notice of any part of any
goods that could become dangerous or hazardous. They also require
Suppliers bear all costs necessary to achieve compliance with
existing or new laws.
|
This provision substantially shifts the risk to Suppliers if there
is a change in applicable law governing Supplier's
products.
|
Suppliers should take steps to ensure that they are compliant with
these new obligations and will want to factor in the cost of
compliance with this new obligation when negotiating contracts and
setting prices.
Suppliers providing products to FCA based on FCA's designs
should consider further negotiation and pushback on this
obligation. |
Dispute Resolution;
Governing Law
N.A. § 23
G.A. § 30
|
The North American Terms now include
an express waiver of jury trial rights. Additionally, all
claims must be brought within one year of the date such claim first
arises, regardless of actual knowledge.
The scope of arbitration has been
expanded to include injunctive relief, enforcement of
Suppliers' delivery obligations, and the enforcement of
FCA's rights and remedies associated with competitiveness.
|
The reduced limitation period for Suppliers to assert claims is a
significant change in the Supplier's ability to seek
relief.
|
Suppliers must be mindful of the reduced time in which to assert
claims. Suppliers that wish to preserve claims without being
forced to assert them in a manner that may damage their
relationship with FCA may consider the possibility of a tolling
agreement. |
Compliance with Requirements;
Formula and Information Disclosure; Emissions
N.A. § 25
G.A. § 23
|
The Global Terms require Suppliers to comply with applicable
safety and emissions laws.
The North American Terms added additional requirements, including
(1) mandatory defeat device training, (2) accurate emissions
documentation, and (3) written confirmations that Suppliers do
not utilize defeat devices. |
This provision adds a number of additional compliance and reporting
obligations for Suppliers. While not necessarily onerous on
their face, they add a further burden on Suppliers.
|
Suppliers should take steps to ensure that they are compliant with
these new obligations and will want to factor in the cost of
compliance with this new obligation when negotiating contracts and
setting prices. |
Right to Audit
N.A. § 26
G.A. § 12
|
The North American Terms expanded the scope of FCA's audit
rights from information deemed "reasonably required" to
all information deemed "necessary or helpful."
Additionally, the audit and record retention period is expanded
from 4 to 10 years. Any errors of at least 3% constitute breaches
that trigger damages and audit costs. |
This provision adds a number of additional compliance and reporting
obligations for Suppliers. While not necessarily onerous on
their face, they add a further burden on Suppliers.
|
Suppliers should take steps to ensure that they are compliant with
these new retention requirements and will want to factor in the
cost of compliance with this new obligation when negotiating
contracts and setting prices. |
Competitiveness
N.A. §29
|
When a Supplier fails to be competitive solely due to its costs,
the North American Terms now permit FCA to immediately terminate
the contract for default (as opposed to issuing a cure
notice). In addition, Suppliers must represent and warrant
that the pricing offered to FCA is equal or better than the pricing
offered to or enjoyed by any other person or entity. |
While FCA retains for itself the
right to terminate for convenience, a termination for default
further restricts the payments to which the Supplier can claim. In
addition, the Supplier may be liable for damages resulting from
breach of the warranty regarding pricing.
Although "most favored
nation" pricing provisions are not uncommon, the price
warranty provided for in Section 29 is unusual in that it does not
include limitations for similar volumes or similarly situated
customers.
|
Suppliers that are providing any products to FCA that the Supplier
also sells to other customers must be mindful of this provision and
consider whether it is at risk of violating this provision.
Suppliers should consider pushing for exceptions to any retroactive
application and consider pushing to limit based on comparable
volumes and other terms. |
Equitable Relief
N.A. § 30
|
The North American Terms broadened the scope of equitable relief
from material breaches regarding delivery and FCA's property to
breaches regarding labor disputes, the use of FCA's name, data
and trade secrets, audits, taxes, and compliance with applicable
laws.
|
While the right to equitable relief in any dispute (including a
preliminary injunction) will be determined by the court (or
arbitrator if applicable), courts often will consider contractual
acknowledgments of the right to equitable relief when making that
determination.
|
Any Supplier involved in a dispute with FCA involving potential
claims for equitable relief should be aware of this provision and
review the impact of the provision with its legal
counsel. |
Cost Savings Programs
N.A. § 32
|
Suppliers must use "best efforts" to reduce costs as
much as possible and pass on all savings to FCA. By October 1 of
each year, the Supplier must provide a written plan for
implementing cost savings and productivity improvements. Such
plans are deemed binding on the supplier.
|
The obligation to pass through any
cost savings creates a one-way ratchet effect in which the Supplier
is forced to pass any cost reductions through to its Supplier
without the corresponding ability to pass through any cost
increases.
|
Suppliers should take steps to ensure that they are compliant with
the obligation to provide an annual cost-saving and productivity
plan. Suppliers may want to consider pushing for revisions to
the obligation to pass through cost savings without a corresponding
ability to pass through cost increases. |
Seller's Contracts with its
Suppliers and Subcontractors; Seller Acting as a Directed Component
Supplier
N.A. §§ 33, 34
|
The North American Terms expand
FCA's regulation of the relationship between Tier 1 Suppliers
(referred to as "Assemblers" in the context of a directed
supply relationship) and directed component Suppliers. For
instance: (1) Assembler agreements must contain terms at least as
beneficial to FCA as those in FCA's contract; (2) any benefits
reaped by Assemblers resulting from changes in the Supplier
relationship automatically pass on to FCA; (3) FCA may compel
assignment and directly enforce the contracts against directed
component Suppliers.
|
While it already is best practice to
flow down a Supplier's customer obligations to its
sub-suppliers, these changes impose a contractual obligation to do
so. Any failure to do so will leave a Supplier at risk of liability
to FCA. It also will further impede a Supplier's ability to
seek relief from FCA due to failures by a FCA-directed
sub-supplier.
The obligation to pass through any
benefits creates a one-way ratchet effect in which the Supplier is
forced to pass any cost reductions through to FCA without the
corresponding ability to pass through any cost increases.
|
Suppliers should review their own
contracts with any FCA-directed sub-suppliers to ensure that they
adequately flow down the updated FCA Terms and Conditions to those
sub-suppliers.
Suppliers may want to consider pushing for revisions to the
obligation to pass through cost savings without a corresponding
ability to pass through cost increases.
|
Term
N.A. § 35(b)
|
The duration of FCA's agreements is expanded even further. The
North American Terms provide that FCA may unilaterally extend
Purchase Orders across multiple vehicle programs, FCA may extend
vehicle programs more than once, and agreements with no clear end
dates last the life of their respective program. In addition, FCA
has added clarifying language providing that any Purchase Order
that does not specify an end date, or has an end date of
"9999" is considered to have a term for the life of the
program. |
This is a highly significant change. As written, it effectively
permits FCA to lock Suppliers into a perpetual contract for as long
as FCA wishes to continue purchasing from the Supplier with minimal
ability of the Supplier to update pricing or other
terms.
|
Depending on how it is applied by FCA, this provision potentially
is among the most significant detriment to Suppliers in the new
North American Terms. Suppliers should consider whether they can
agree to this provision. At a minimum, Suppliers should consider
pushing for additional language requiring price adjustments if FCA
extends the contract to additional programs or extends additional
programs. |
Disposal of Scrap
N.A. § 36
|
To avoid rendering cancellation claims null and void, Suppliers
must now obtain approval from FCA before disposing of any goods,
assemblies, subassemblies, or other "materials related to a
Purchase Order."
|
While it remains to be seen how this provision will be interpreted,
as written, failure to obtain approval before disposing of material
will void all cancellation claims, not
just claims related to the material in question.
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Suppliers should take steps to ensure that they obtain approval
from FCA before disposing of any material. |
FCA Computer Network; Access;
Confidentiality
N.A. § 37
G.A. § 19(f)
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The Global Terms prohibit Suppliers from reverse engineering
FCA's property.
The North American Terms entitle FCA to specific performance and
injunctive relief without needing to post bond if a Supplier
violates FCA's confidentiality requirements.
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This obligation generally aligns with most Suppliers'
expectations and general confidentiality obligations under the
current Terms.
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Suppliers should take steps, including reviewing their policies and
training, to ensure that their employees are trained in using
confidential customer information appropriately. |
Taxes
N.A. § 38
G.A. § 16
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The North American and Global Terms clarified that each party is
responsible for paying their respective income, indirect, and
withholding taxes.
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This obligation generally aligns with most Suppliers'
expectations. However, any failure to properly account for such tax
obligations will also constitute a breach of a Supplier's
contractual obligations.
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Suppliers should take steps, including consulting with a tax
attorney if necessary, to ensure that they are compliant with all
tax and withholding obligations. |
Construction; General
N.A. § 39(b)
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The North American Terms add an express waiver of any indirect,
incidental, special, or consequential damages arising out of a
Purchase Order, even if FCA has been advised of the possibility of
such damages.
|
Although several provisions in the
current Terms included similar limitations on a Supplier's
right of recovery, the new North American Terms add a global waiver
of indirect, incidental, special, or consequential damages. In some
cases, this may represent a potentially significant limitation on a
Supplier's ability to recover damages.
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Suppliers must be aware of this damages limitation when assessing
their risk associated with certain provisions. |
Construction; General
N.A. § 39(c)
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The North American Terms outlined the order of precedence for
agreements with FCA: (1) Policies; (2) National Terms; (3) Global
Terms; (4) Purchase Orders; (5) other documents that constitute the
contract.
"Policies" include raw material and steel guidelines,
instructions, documents, and procedures applicable to the
Supplier's obligations under a Purchase Order. See
N.A. § 1 (g).
In addition, the terms specify that any conflict "will be
resolved in a manner that is most favorable to FCA."
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This provision represents a
departure from the traditional rule that ambiguity in a contract
should be resolved against the drafter (FCA). Further, it reverses
the traditional order of precedence in which a specifically
negotiated Purchase Order generally controls over more general
terms and conditions.
FCA's decision to elevate its
"Policies" to the prime position is particularly
concerning as FCA reserves for itself the "right to
unilaterally revise any Policy at any time by publishing such new
Policy on the Supplier Portal. Seller shall be responsible for
periodically checking the Supplier Portal for updates to the
Policies." N.A. § 1 (g). This effectively permits FCA to
unilaterally revise the Policies in ways that may contradict the
North American Terms and/or a specific Purchase Order.
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Suppliers that seek to negotiate variances or other terms that are
different from the North American Terms cannot rely just on having
those terms added to the relevant Purchase Order. Additional
steps likely are needed, including language expressly stating that
the provision controls, notwithstanding Section 39(c) of the North
American Terms. |