MANNING LEAVER LEGAL LANE Dealership Vendor Agreements Roadmap By Joseph Berberich, Manning, Leaver, Bruder & Berberich LLP This article covers some general concepts about managing dealership vendor agreements and provides suggestions on areas to cover when negotiating these agreements. In the normal course of operations, an automobile dealership is a party to many types of vendor agreements, such as those relating to dealer management systems (Reynolds, CDK and others), uniform and laundry services, janitorial services, credit card services, employment management systems, environmental health and safety compliance, privacy compliance, warranty processing, customer relationship management, copy machines, postage machines, information services, key tracking, alarm services, telephone systems, Carfax, landscaping, body shop agreements, signs, content providers for websites, website maintenance, digital marketing, advertising and F&I products. These are just some of the many vendor agreements dealers have. Dealers are sometimes surprised to discover how many agreements they have, and their cost. What is sometimes even more surprising is the length of time many contracts run. Dealers can determine what vendor contracts they have by looking at their payables general ledger or subledger, which should identify the agreements. The dealer should have a complete signed copy of each agreement. For ease of access, it is good to have all vendor agreements in one file or computer folder. Often, dealers cannot locate complete, signed copies of the vendor agreements. In that case, it is best for the dealer to contact the vendor and ask for a complete copy. Dealers are often reluctant to do this, believing that vendors will speculate that a buy-sell is being considered. To alleviate this concern, dealers sometimes tell vendors they need copies of the agreement because they are doing an audit of all existing agreements and establishing a contract management system. Each agreement has a specific term showing how long the agreement is effective. It is very common for vendor agreements to contain an “evergreen clause.” An evergreen clause means the agreement automatically renews for a specific period (often the same period as the initial agreement, or longer) unless the dealer gives notice to the vendor within the time specified in the agreement that the dealer is terminating the agreement. Unless a dealer has a system that flags the time when the dealer must give this advance notice, such an “evergreen” renewal may occur. It is very easy for a dealer to miss the advance notice and be stuck for a long term, thus the term “evergreen clause.” Most vendor agreements also have a notice provision that describes to whom notices are to be given and the way they are to be given, such as by overnight delivery, certified mail or another method. It is important that any notices required by the agreement be given in the manner prescribed in the agreement. In a buy-sell of a dealership, vendor agreements are always a somewhat difficult issue. The seller will have agreements with terms that sometimes extend for years beyond the close of the buy-sell. If they are not assumed by the buyer, the seller 28 California New Car Dealer Quarterly
RkJQdWJsaXNoZXIy MTg3NDExNQ==