So Happy Together?

In the February 2013 issue, Michele was experiencing extreme distress as her company got nailed for a lead violation on one of her products by a California Proposition 65 private enforcer (i.e., a “bounty hunter”). She survived that ordeal in pretty fair condition, just as she had persevered through her previous challenges in handling a product safety recall, a disastrous shipment of defective golf towels, and having to urgently partner with a test lab to verify compliance of a large rush order of drawstring sportpacks for an important customer.

Without a frantic crisis-of-the-month to monopolize her time in the past few weeks, Michele has been thinking of some ways to improve and document the understandings and expectations between her company, Golfster Promo, and its many suppliers. From her painful ordeals, Michele has realized that all of her quality, safety and compliance problems have stemmed from her company’s failure to establish, communicate and memorialize (in writing) its expectations with its suppliers. Michele knows that a written supplier agreement would be a valuable and necessary tool to hold her suppliers responsible for fulfilling their duties to provide her company with safe and compliant quality products. But, being a reasonable person, Michele does not want to use the supplier agreement as a “hammer” over her suppliers’ heads, but more as a document that will mutually benefit Golfster Promo and its suppliers by accomplishing the overall goal of reducing product safety and compliance risks in the supply chain. Thoughtfully, she has jotted down the following objectives and components for her supplier agreement:

  • Set expectations for performance by both parties to avoid misunderstandings and disagreements that can result in finger-pointing, conflicts, product safety claims, recalls and lawsuits;
  • Establish basic business terms such as pricing, payment terms, discounts and packaging and shipping requirements;
  • Ensure a clear understanding of product safety and other regulations that must be met by the supplier, such as Consumer Product Safety Information Act (CPSIA), Federal Drug Administration (FDA), Cal Prop 65, Health Canada, customs and other applicable regulations that govern product compliance;
  • Provide for requirements of product safety testing, test reports and other conformity documents upon request;
  • Describe suppliers’ requirements for social responsibility and environmental compliance, including a requirement that suppliers meet the PPAI Code of Conduct, and the company’s rights to audit suppliers’ factories to verify compliance; and
  • Include basic legal protections, for both parties, in the areas of indemnity, insurance, confidentiality, intellectual property protection and conflict of interest.

Even though Michele understands that, as a distributor, her company would have greater negotiation powers than her suppliers when she submits her new supplier agreement to them, she also realizes that the “hammer” approach to vendor relations would not be helpful if her company wants to form long-lasting, mutually beneficial partnerships with her suppliers. Does she want to use her new supplier agreement to serve as a set of mutual, hopeful promises to take care of each other, to provide support and to strengthen their relationship ‘til death do us part? Or does she envision the agreement as a hard-and-fast document that spells out the parties’ legal obligations and remedies after a bad event that causes the parties to part ways and sue each other? Michele understands that a balanced and fair agreement will serve her and her vendor partners the best.

What are Michele’s next steps? Who can help her with this agreement? Golfster Promo is too small of a company to have an in-house lawyer to prepare such an agreement for her. Can an outside law firm draft the supplier agreement for her if she explains what she needs? Michele’s boss doesn’t want to spend thousands of dollars for a lawyer to start a contract from scratch, so are there more practical alternatives that can give her a head-start on this important project? Yes! Here are some of the alternatives she can use to get started on the preparation of her agreement:

  • A Little Help From Friends: Michele can call on a few friends and colleagues in the industry and ask for templates of supplier agreements they may have in their files. She can use these as “inspiration” on how to set-up her agreement and to learn of the basic boilerplate provisions that are used in our industry. Michele must be sure to have her friends black-out any confidential information contained in those samples to avoid any breaches of confidentiality obligations by the parties involved in those agreements. There is also the potential for “duplicating” too much from these sample documents that can be embarrassing down the line or pose some legal issues for plagiarism.
  • “Free” Online Templates: Many websites offer free contract templates but most of those “freebies” are often too basic for serious business applications. Most of the free templates are incomplete and you must sign up and pay a fee to get the full version of the template. Let the buyer beware when using the internet for templates.
  • Hiring A Consultant: Hiring a consultant who specializes in the field of Vendor Relations and Compliance would be a smart way to go for most companies that don’t have the in-house expertise or simply want a turnkey package that can be implemented within a short window. A skilled vendor relations consultant can provide valuable assistance for customized templates, compliance requirements and other vital components for a robust, semi-custom vendor package that won’t break the company’s budget. If Michele brings on a consultant to help her, she understands the importance of making sure that the consultant is experienced in the promotional products world so that the agreements and other documents are specifically tailored for (1) the way business is conducted in our industry and (2) the unique business practices at Golfster Promo.

Michele is really excited about this project. For the first time in her new career as a newbie compliance manager, she is able to take a deep breath and think about taking a proactive course of action to improve the processes at her company. She knows with certainty that a practicable and balanced supplier agreement for her vendors will serve as an excellent tool toward reducing risks and liability to her company. Just as important, she envisions that the supplier agreement will work in a positive way to help her vendors learn how to meet production and compliance expectations so they can be long-term partners for Golfster Promo.

So, do supplier-distributor contracts act as (1) a set of optimistic wedding vows and promises for good behavior ‘til death do us part, or (2) do they serve as a distasteful, but sometimes necessary, prenuptial agreement to keep the parties from brutally suing each other over the doomed marriage’s debts and obligations? Michele thinks it’s both. As the old English proverb says, “Hope for the best but prepare for the worst.

Leeton Lee has been in the product safety and compliance industry for more than 18 years, starting as in-house legal counsel at The Walt Disney Company where he worked for seven years and helped to form Disney’s industry-leading Corporate Product Integrity Department and managed the company’s legal matters for its worldwide product safety and liability program. As an attorney for approximately 25 years, he has extensive experience in regulatory compliance and product safety, namely in toys, children’s products, promotional products and apparel. In addition to working at Disney, he has performed associate general counsel duties at industry leaders Sega Gameworks and Equity Marketing (aka EMAK Worldwide). He is currently vice president of regulatory compliance and general counsel at drinkware supplier ETS Express, Inc. in Oxnard, California. He is also a member of PPAI’s Product Responsibility Committee.

 

>>An Eye-Opening Two Days

How does a newbie, a junior or even a senior compliance manager keep up on the latest developments in product safety and other important aspects of responsible sourcing? How can account managers and salespeople who work with major brands impress their prospects with confident and articulate compliance knowledge to close the big deals? If your company is a supplier and wants to get on major distributors’ preferred supplier lists, how can you learn about key issues in product safety and compliance in two days? Attend the PPAI 2013 Product Safety Summit, August 14-15, 2013, in Chicago, Illinois.

Held in conjunction with the North American Leadership Conference, the PPAI Product Safety Summit is designed to provide excellent resources to help you explore the latest developments in product safety regulations and best practices for greater success in your business.

Register for the PPAI Product Safety Summit today—seats are limited. Visit www.ppai.org/summit for more details.

 

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