Supplier Alert: Key Changes In Stellantis/FCA New Terms And Conditions

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.		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.		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.
Volume Projections, Capacity, Requirements, and Release Authorization   N.A. § 4(c), 6
General Warranty   N.A. § 7(a)			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 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.
Property and Tooling   N.A. § 9
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.
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."
Indemnification   N.A. § 10(c)
Indemnification N.A. § 10(d)		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.
Changes   N.A. § 11
Parts; Service   N.A. § 12
Payment; FCA's Commitments; Claims Adjustment   N.A. §13			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.	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.
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.
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."		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.
Cancellation/Termination for Default; Termination at FCA's Option   N.A. §§ 18, 19		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.
Remedies   N.A. § 20 G.A. § 21
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.
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.
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.
Right to Audit   N.A. § 26 G.A. § 12
Competitiveness   N.A. §29		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.
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.
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.
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)
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."
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.
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.
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.
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.

To read Foley's full analysis, click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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