Are large companies exploiting suppliers?

Commercial agreements are the life blood of business.  They govern the relationships between businesses, allowing for the production, distribution and supply of a myriad of goods and services.

Despite the fact that much legislation exists specifically to protect consumers where they are parties to a contract, very little protection is afforded to businesses engaged in commercial contracts.  As a result, business contracts are often regarded as being grossly unfair and can generate much comment and opinion especially when brought to the attention of the public.

Premier Foods

The recent decision by Premier Foods, one of the UK’s largest manufacturers, to request payment from suppliers in order to retain their contracts, known as “pay and stay”, is one such example.

Yet, whilst Premier Foods maintain that their decision does not breach any competition law, it has drawn stinging criticism from various sources including the Business Secretary Vince Cable.  As a result the company has backtracked from its decision, but are still refusing to apologise to suppliers.

2 Sisters Food Group

A further example is that of 2 Sisters Food Group, which has reportedly set unreasonable payment terms with its suppliers.  The company require up to 90 days to pay suppliers for goods and services, with a 3% discount if payment is made within this period.

If the supplier rejects the above payment terms, the period for payment is extended providing 2 Sisters Food Group with a staggering 120 days to pay its suppliers.  These proposals should be viewed in light of the EU Late Payment Directive, which stipulates that businesses should pay their suppliers within 60 days unless it is explicitly agreed otherwise.  This would suggest that anything over 60 days is unreasonable and contrary to good commercial practice.

2 Sisters Food Group have said that its proposals are merely a starting point for negotiation and that they have since updated their terms and conditions.  Despite this, the company has received severe criticism from many quarters including the Business Minster, Matthew Hancock.

Conclusion

Despite the condemnation the reality is that the bargaining strength that large companies have around the negotiating table can often mean that small suppliers are faced with the ultimatum of complying with wholly unreasonable terms or risk losing their contracts.

However, with the right legal support suppliers can often negotiate a better deal even with large companies and achieve a fair and equitable contract.David-Paterson-55510-BW

David Paterson
Partner
Corporate Commercial Department
DPaterson@LawBlacks.com
0113 227 9341
 

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