Careful thought must be given to a request for variation because it can alter the very arrangements which made the relationship attractive in the first place.
The motivation behind such a request is most likely to be economic - eg. your supplier’s costs have increased, their ability to source the necessary raw materials has been compromised - and they are asking to pass on at least some of those charges or changes to you as a customer.
Ultimately, whether or not you accept this sort of change is a commercial decision.
There are other reasons for variation, however, which have implications beyond those of commerce for your relationship with your supplier.
These could range from a modification of representations and warranties your supplier is prepared to make, a change in the type or amount of security they provide, removal of time being of the essence in the process, a change to the events which trigger termination, even the replacement of your supplier with an affiliated company.
If you find yourself in receipt of a request for a variation of the terms of your contract, have a look at the steps set out below and don’t hesitate to speak with our commercial solicitors for quick, clear advice on all your options.
What shall I do first?
- Note your own reaction to the request. This will be relevant for negotiation later.
- Find the contract.
- Check that there is a clause or paragraph which permits variations. It might be headed “Amendments” or “Variations” and usually appears towards the end of the main contract.
- Note what is required practically to proceed; usually, any variation will require written consent from both parties. It may also state that consent is not to be “unreasonably withheld” which means you will need to be prepared to marshal your arguments against if you decide not to accept the request.
- Notify your team and professional advisers as appropriate.
- An acknowledgement of receipt of request promotes goodwill. However, don’t commit to respond within a certain period because you need time to make a proper assessment of the implications - say you will respond “..as soon as reasonably possible…”.
- Analyse the effect of the variation - is it a variation of commercial or legal terms e.g. calculation of price or delivery times changed or the replacement of your supplier by a subsidiary? This is where our commercial lawyers can really help by analysing with you the implications and coming up with a fully-informed response.
- Do you have sympathy with the request or not (eg. proposed change is in order to improve sustainability)?
- What is the knock-on effect on you and your customers? What will you need to change (eg. level of service, charges passed on) as a result?
- Do new delivery complications arise (eg. additional paperwork, the need to change transport network).
- Are there tax or other accounting implications?
- Is there a time pressure ie. by when does your supplier want the variation to take effect? If prior written consent is required by your contract, what is to happen in the meantime? Is your supplier proposing to adopt changes now and allow documentation to catch up? This would definitely not be advised!!
- Assess the negotiating power of the parties. How fundamental to your business are the services or products provided by this supplier? How easy is it to obtain these elsewhere and what would they cost?
- What might happen if you refuse to vary and insist on the current terms as they stand? It is highly unlikely that the supplier would be able to terminate the contract if you refuse to agree to the variation, but are there other grounds on which they could terminate? Do you want to terminate the contract? If so, is there a required notice period and would you be liable to pay early termination charges if you do terminate? Could you agree mutual termination with the supplier?
Having analysed the effect of the requested variation as above, you should have a clear view of its likely effect on you. You then need to consider how to couch your response in terms likely to be accepted, while at the same time being clear on those points which are non-negotiable for you - and why that is the case. Honest communication always bears fruit and strengthens goodwill and cooperation.