Problems with distribution agreements are often identified after negotiations and agreements have been signed, even if agreements have been verified by corporate or outside lawyers. How did we get to this point? Too often, lawyers remove incriminating clauses, but are simply not aware of industry standards. They do not understand the most common agreement problems. It is a good practice to have the agreement verified by a lawyer and an industry professional. If your company lacks an industry expert who knows the distribution agreements, such support should be sought. A legal technical review is necessary for the creation of a large distribution agreement, but it is never sufficient. Distributor franchises may be exclusive, where there will be no other franchised distributor in the territory; or not exclusively if the new distributor could be one of the distributors of several franchisees in the territory. Distributors sometimes use exclusive territory to argue that, without an exclusive area, the distributor is not encouraged to provide adequate resources to the producer to develop sales. As soon as a vendor accepts an exclusive domain, it loses the ability to franchise an additional distributor for a certain period of time. The allocation of an exclusive distribution in an area is an unnecessary leap of confidence on the part of the supplier.
An alternative to the allocation of exclusive territory is to design the distribution agreement so that the distributor is not exclusive, but is only a distributor. An oral agreement would indicate that if a supplier`s objectives were met, no additional distributors would be allowed into the non-exclusive territory. Such an agreement encourages the distributor to promote it without restricting the manufacturer`s options. Most distribution agreements involving experienced dealers and manufacturers allow termination for reasons and conveniences (or not at all). Less experienced partners sometimes try to allow the dismissal of a limited number of specific cases. Termination for reasons is sometimes simple and undisputed, such as when a partner declares bankruptcy. However, partners sometimes disagree on the presence of the cause. Partners often disagree on the responsibility of the cause. Distributors and suppliers prefer durations of several months to decades. Most agreements now set an initial term of one or two years, with semi-automatic renewal, which continually adds a new year to the duration of the agreement.
The program is semi-automatic because the renewal is automatic, unless one of the parties sends a letter of intent not to renew within 60 days of the end of the current agreement. A period of one or two years is just waiting. Beyond the initial duration, the actual performance of the sale determines the duration of the relationship. When a lawyer (not an experienced sales manager) reviews a contract, the resulting document may be legally acceptable but commercially ineffective.