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Distribution Agreements

What is a Distribution Agreement?

A Distribution Agreement goes by many names, often dependent on industry, but is broadly a contract which exists between a producer of goods or services and a seller of those goods and services. That is, they set out the terms and conditions under which one party can sell the goods and services of another

Distribution Agreements are used in:

  • retail, to manage the relationship between a supplier and the retail outlet;
  • information technology businesses, to allow for the resale of code libraries, website themes and other software;
  • service providers, to cater to the provision of training programs, software development and even legal services (often termed Reseller Agreements in the services context); and
  • wholesale businesses to manage the relationship between the manufacturer of goods and the distributor.

Distribution Agreements may also be referred to as or take on the characteristics of:

  • Reseller Agreements;
  • Licence Agreements; and
  • Supply Agreements,

However, importantly the terms and conditions of a Distribution Agreement should not go so far as to control how one party must run its business. Otherwise it is at risk of becoming an accidental franchise agreement, at which point the supplier becomes subject to the franchise code.

What terms are included in a Distributor Agreement?

Given the wide array of uses of Distributor Agreements the terms and conditions included in them are equally wide.

In fact, the breadth of variation in these agreements make them some of the most challenging agreements to put together. For the consumer that usually translates to increased cost. Free hint here, if you want to save money on a distribution agreement, or even just obtain a reliable quote, write down a description of your business and a list of commercial terms before contacting a lawyer.

The points below will give you a starting point:

  • What is your pricing model?
  • Will you use a price list? How and how often will this price list be updated?
  • What are your payment terms?
  • How will the product be delivered? And who is responsible for its delivery?
  • Will you be providing any marketing material?
  • Will there be any limitations associated with the sale of your product?
  • Can sub-distributors be appointed?

Common pitfalls

People try and cut corners on Distribution Agreements and download templates off the web.

Out of all the templates available on the web Distribution Agreements are probably the worst type to use.

Anti-competitive behaviour – The Australian Consumer law prohibits anti-competitive behaviour, such as price fixing. Commonly people want to include minimum retail sale prices. See ACCC website article on Price Fixing.

Franchise code – Licences, Distribution Agreements and the like a prone to the inclusion of terms which push the business model into franchise territory. Granted this is far more common with intangible products than tangible ones. However, operating a franchise is a substantially more significant undertaking.

Insufficient detail – Distribution Agreements are complex documents. Seemingly simple concepts like delivery of goods it wrought with pitfalls. Consider, who is responsible for delivery, who is responsible for the payment of couriers, when does the ownership of goods change hands, what happens if goods are damaged in transit and who takes the goods if a party becomes insolvent before they are paid for?

Consumer Guarantees – the Australian Consumer Law contains the Consumer Guarantees which apply to a very wide array of products. Consumer Guarantees cannot be contracted out of and it is unlawful to purport to do so. That means, just about every US based template we have ever seen is unlawful.

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Need a software development lawyer, with IT, business and accounting qualifications? One who spent over a decade running their own management consulting firm? The sort of commercial lawyer that can translate IT to business, business to law and law back to IT? Contact us today and speak to a multi-disciplinary commercial lawyer.

Make no mistake, Distribution Agreements are complex and require expert attention.

Don't worry, it won't cost you a cent to chat to us.

Need a contract to set out the terms and conditions associated with the distribution or resale of your goods and services?

Contact us today and speak to a Commercial Lawyer about your needs.

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