Since the outbreak of the Covid 19 pandemic, the associated disruptions in supply relations have been an ongoing issue. As already reported in our previous news, such disruptions can be countered – at least in part – with smart, forward-looking contract design. The text below provides examples of how suppliers can prevent typical crisis situations in the supply chain through contractual arrangements.
Contractual design options
One possibility is the so-called “self-delivery reservation”. Such a reservation grants a contracting party the right to withdraw from the contract if it is not supplied by its supplier. In supply relations, the seller may unilaterally withdraw from a contract in such a case.
In addition to a contractual provision, however, this presupposes that the contracting party concerned has concluded a “congruent hedge” and is “left in the lurch” by its supplier, i.e., is not itself supplied. It should also be noted that, in the absence of any agreement to the contrary, cases in which the supplier can only obtain the goods at an increased price are not encompassed.
The requirements for the admissibility of such clauses in general terms and conditions are lower in the B2B area than in the B2C area. In both cases, however, a reservation of self-delivery is generally permissible if correctly formulated (cf. Federal Supreme Court, Ruling of 14 November 1984 – Case VIII ZR 283/83; Higher Regional Court of Stuttgart, Judgement of 16 February 2011 – Case 3 U 136/10).
Price scales tied to volumes
Customers’ contracts often do not provide for long-term binding volumes that the customer has to purchase. In these cases, the supplier must expect that a customer’s call-ups will be lower than expected or even fail to materialise altogether. This is often problematic because the supplier has usually based its price calculation on a certain purchase quantity.
This can be remedied, at least in part, by agreeing on a pricing structure that is scaled according to the sales volume. The price per unit can depend on the actual quantity called up by the customer within a certain period. As a rule, the price will then increase for each product with lower call-up volumes.
Since this is a main price agreement, it is not subject to control in the GTC and is only subject to transparency control in accordance with § 307, Paragraph 1, Sentence 2 and Paragraph 3, Sentence 2 of the Civil Code.
Price escalation clause
If there is a risk for the supplier that the procurement costs of any input products will increase, these increased costs can be “passed on” to the customer with the help of a price escalation clause.
Price escalation clauses are usually designed in such a way that the supplier is granted a unilateral right to determine performance in the terms of § 315 of the Civil Code. The supplier is thereby entitled to fix or adjust the prices subsequently and/or for the future.
In the B2C sector, such clauses are only possible under the narrow prerequisites of § 309(1) of the Civil Code. In the B2B area, they are only to be measured in terms of § 307 of the Civil Code and may not unreasonably disadvantage the contractual partner. In order for there to be no unreasonable disadvantage, the supplier must have a legitimate interest in passing on the cost increases to the customer. Furthermore, the requirements and the scope of the right to determine performance must be sufficiently specified in the provision. Clauses that allow the user to increase the price beyond just passing on the cost increase without any limit are not permitted.
In addition, clauses may also be considered which, although not establishing a right to adjust prices, oblige the contracting party to negotiate new prices at least in certain situations. This can also be an expedient mechanism for making mutually agreeable adjustments to prices.
Provisions on capacity reservations
In long-term supply relations, the supplier is often obliged to ensure permanent production capacity. This can become problematic if the customer does not subsequently use these capacities.
To avoid such a situation, arrangements for holding certain capacities in reserve should be examined and, at best, avoided. However, it is often not possible to delete these outright during contractual negotiations. In these cases, it makes sense, for example, to agree on contractual compensation for unused capacity with the customer.
The above explanations represent only some of the possibilities for preventing risks from being realised through contractual provisions and thus averting damage to one’s own company as far as possible. If typical supplier risks are not covered in a contract, the supplier has no or few rights in times of crisis, or only rights that are difficult to justify, to enforce its own claims against the customer or to ward off (damage) compensation claims by the customer.back