Supplier Alert: Key Changes in Stellantis/FCA New Terms and Conditions

26 January 2022 Dashboard Insights Blog
Author(s): Vanessa L. Miller Nicholas J. Ellis Regina M. Gilmour Amir E. El-Aswad

FCA US LLC and Stellantis N.V. (“FCA”) issued new purchase order terms and conditions, including Global Terms and Conditions – Direct Materials (Common to all regions) and a North America Exhibit A to Global General Terms and Conditions (together, “Terms”).  FCA’s revised Terms include numerous changes, many of which may have a significant impact on Suppliers and their business with FCA.

Identifying the changes and differences from prior versions of these Terms is only the first step. Suppliers to FCA need to understand the implications of the various changes to their businesses. The second step will require Suppliers to think strategically about how they will respond to the Terms that FCA now seeks to impose, including: (a) whether these terms are acceptable for existing business or whether certain objections should be raised; (b) implications of these terms to future business awards; and (c) any corresponding changes that may be needed to the Supplier’s contracts with its own supply base.

Foley & Lardner LLP prepared the chart below to help Suppliers navigate the changes by not only identifying the most significant provisions and changes, but explaining the possible implications and strategic considerations for each of these changes.

 

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 breach or 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. 
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)

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.

This obligation generally aligns with most Suppliers’ expectations and general confidentiality obligations under the current Terms.  
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

The North American and Global Terms clarified that each party is responsible for paying their respective income, indirect, and withholding taxes.

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.   
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)

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.


Suppliers must be aware of this damages limitation when assessing their risk associated with certain provisions.

Construction; General

 

N.A. § 39(c)

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.”

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.


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.

To read Foley's full analysis, click here.

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