Interesting Discussion The legal aspects of Customer Specific Requirements (Contract Law).

[Billy B.]

I would like to have the input regarding the legal aspects of the Customer Specific Requirements (CSR).

1. The IATF requires us to implement the CSR:s into or quality management system. If not, it would require a waiver from the customer.
   
   
2. As you probably know the industry are putting in new bulletins on regular basis, and also placing new requirements on the sub-supplier. This is done after the initial agreement is done, and probably during the life time of the business. From the customer side this is now a part of the agreement.
   
   
3. Contract law do not accept unilateral additions to an already existing agreement (to my knowledge), without the acceptance from the other part (active or passive acceptance).

So, to my question; is the CSR legally binding and a part of the agreement? Or is the sanction to refuse the CSR only the risk of losing the IATF certification at an audit (when the 3rd party auditor is auditing the system).

 

[Sidney Vianna]

So, to my question; is the CSR legally binding and a part of the agreement?

The overwhelming majority of the participants in this forum are quality management system professionals without profound legal knowledge. So, be aware of the answers, including the possible lack thereof.

 

[Jim Wynne]

I would like to have the input regarding the legal aspects of the Customer Specific Requirements (CSR).

1. The IATF requires us to implement the CSR:s into or quality management system. If not, it would require a waiver from the customer.
   
   
2. As you probably know the industry are putting in new bulletins on regular basis, and also placing new requirements on the sub-supplier. This is done after the initial agreement is done, and probably during the life time of the business. From the customer side this is now a part of the agreement.
   
   
3. Contract law do not accept unilateral additions to an already existing agreement (to my knowledge), without the acceptance from the other part (active or passive acceptance).

So, to my question; is the CSR legally binding and a part of the agreement? Or is the sanction to refuse the CSR only the risk of losing the IATF certification at an audit (when the 3rd party auditor is auditing the system).

A public internet forum is a terrible place to ask for legal advice. You, don't I presume, have a single contract, but at least one with every supplier. Those contracts will each have their own requirements, so there is no one-size-fits-all answer. Add to that the fact that this is an international forum, and contract law might be different in one jurisdiction than it is in another. In general, any changes to a contract that a customer might want to make are negotiable. For the best advice, ask a qualified attorney.

 

[Ninja]

FWIW, I have never seen it go to a "legally binding" level.

In my experience, both sides have enough "our terms rule, yours are meaningless" verbiage on the paperwork that it comes down to a negotiation between vendor and customer (where it should be IMO).

Granted, I've only seen it from two companies being vendors to auto...and fairly specialty materials at that...but when the term "legally binding" enters the conversation, I figure you've pretty much trashed the customer relationship already.

I realize I haven't answered the question you asked...but I'm not a lawyer, so I wont try to...

 

[Golfman25]

Ok so I am both in manufacturing management and a lawyer. All I can say is that it is a great law exam question. Which means, it depends.

In general our contracts and the uniform commercial code cover the sale of goods as opposed to the manufacture of those goods. There are certain warranties and representations which could be applicable to CSR. Generally anything added after a written agreement could be a problem unless otherwise agreed to. But reality gets in the way. Agreements are signed and filed and then day to day actions rarely comply with the agreements. Customers come up with all sorts of demands during the course of business which aren't addressed in any agreement. The real answer to your question is it is fact specific.

 

[Billy B.]

This topic is only to discuss the principles of CSR vs. Contract.

I find it interesting due to the fact you often have a discussion with customer, and the common view from the customer side (ie SQ) is that the CSR by automatic is a part of the agreement and must be followed without discussions. This is mostly a problem if the new CSR:s combined with high costs or muda.

I find it important to know the basics when I initiate a dialog and a negotiation with my customer. It makes my statement more robust and I can feel comfort in what I know. It is also important if you negotiate from a weak or strong position.

As I understand it, the main rule is that the new CSR:s is not a part of the agreement, and all new CSR:s must be agreed by the supplier.

 

[supadrai]

As to your broader legal point regarding unilateral amendment of contracts - as a general principle of contract law, you are correct. But the broader principle that controls is the "freedom to contract" - which means the parties can agree to disregard some principles of contract law.

So while a party is not free to amend the written terms of a contract unilaterally, additional conditions may be imposed unilaterally: (i) provided the contract allows it, and (ii) provided there are some bounds on what the other party may impose, and/or (iii) there are remedies available to the party being imposed upon if the burden is too onerous.

For us in the medical devices realm, our customers may unilaterally dictate labeling changes for private label products, for example, provided that the labels are compliant in our estimation. On the other hand, we produce standard products so if the customer wants altered specifications, we can say no. So I don't know where that leaves CSRs - but I would be very surprised if some mechanism wasn't build built into the contracts to provide for CSRs.

 

[Marc]

the main rule is that the new CSR:s is not a part of the agreement, and all new CSR:s must be agreed by the supplier.

Question is, where is that stated, or is it? It would be my position, but it's been a while since I've seen any automotive contracts so it could be a standard clause in their contract(s) these days.

I used to have a few 'standard' contract provisions lists that addressed issues like this. I made them over the years as I saw failure modes come up. I certainly would not have allowed new CSR's or any other 'new' requirement(s) to be acceptable without a new contract review at the very least. I would have specifically stated that in the original contract: All changes require a new (or revised and agreed to) contract.

 

[Miner]

Most automotive OEMs operate from a position of fear. The tier 1 supplier is afraid that if they don't acquiesce to the CSR, that they will lose current/future business. Very few will stand up and say no.

 

[Billy B.]

Thanks for the input. I find this topic very interesting.

I have the feeling the Tier 1 and below do not operate from the position of fear only, but also by lack of knowledge. This could lead to quite serious consequences for the business relationship. If we do not know what is wrong and what is right then there could not be a discussion based on facts. It will be a discussion based on beliefs, intuition and gut feel. This type of discussion will, eventually, lead to a bad relationship. We are all professionals, and the discussion and decisions should be based on facts.

I know that contract law is dispositive and there will probably be situations were new unilateral requirements will be valid. Normally the argument is that the supplier has in the past signed the “Supplier Quality Manual”, and therefor is bounded by all new CSR:s in the future. What is your input regarding this type of argument?