Dealers should pay attention to critical issues in supplier agreements. Among those are performance and data-protection provisions.
When you sign a contract with a supplier, you know you must make a down payment, make any monthly payments and not let others know what you are paying.
But what does your supplier have to do? That is a basic contract question dealers should ask. What is it you are to get, and what will happen if you don’t get it?
These issues often arise in connection with dealer-management-system services.
DMS contracts typically say the supplier will provide a server or Cloud-storage access, some software, equipment, follow-up service if you pay for it and that’s it.
It is your obligation to get more specifics. Here are some things to consider:
- Warranty. DMS vendors generally disclaim all warranties except those that come with equipment. Make sure you have a means of measuring that representations made to you in the sales process are met.
- Downtime. What percentage of the time will your system be up?
- Response time. If something goes awry, how long will it be before you get a response?
- Off-hours. If your problem is afterhours, what can you expect?
- Relief. Performance provisions are useless unless there is something to make up for lost time and profit opportunity as a result of a vendor’s failure to comply. Know the extent of the supplier’s liability in the event of non-compliance.
These sorts of performance criteria are important for many types of supplier agreements. For example, are you negotiating a contract for Internet sales leads? What quality or qualities will each lead have? Will each be qualified or just a contact, and you are not even sure you are reaching someone?
Other questions to ask: How many qualified leads will you receive and when? If the supplier does not perform, what do you get?
Ask for similar sorts of specifics in other types of supplier agreements.
Let’s look at data protection. Your customer information and other transaction data are a significant part of the goodwill value of your dealership. Zealously guard these, especially when suppliers are given access to your data.
When a dealership raises the issue of data protection, a supplier’s answer usually is carefully worded, both verbally and in writing.
Such as: “We provide safeguards to protect the non-public personal information of your customers from misuse as required by federal and state laws and regulations for safeguarding such information.”
Some dealers may view the supplier’s commitment to comply with the law as enough. It’s not.
A supplier does not have to provide the personal identifying information of your customers to make your data valuable. Key pieces of information such as transaction prices for particular models, terms of sale and financing or leasing terms can be valuable without any reference to the buyer’s identity.
You are paying the supplier for the contracted services. The ability to sell the details of your transactions, even without identifying customers, should not be an added bonus for the supplier.
So what should you have in your agreement? Here are some suggestions:
- Your data remains yours. It does not become the property of the supplier, either individually or as part of compilations the supplier may make.
- Not for sale. Your data may not be sold to others, whether individually identifiable to your dealership or part of compilations.
- To serve you. Your data may only be used to provide or improve service to you.
- Certification. The supplier should give you an annual certification of use of your data. You may even want the agreement to say the supplier will cooperate with any auditor you seek to use to ensure the supplier’s compliance with the contract.
Michael Charapp is a lawyer who represents auto dealers. Based in McLean, VA, he is at (703) 564-0220 and [email protected].