Suppliers have been routinely “signing away their rights” by agreeing to small-print terms that allow supermarkets to hit them with lump sum demands running into the tens of millions.
That is the warning of Groceries Code Adjudicator Christine Tacon, who has revealed she is launching a probe into how supermarkets are getting around GSCOP by using the phrase “unless provided for in the supply agreement” in their contracts.
Tacon said she feared the practice could amount to “something potentially huge”, and industry insiders said in some cases suppliers were coughing up yearly sums of up to eight figures.
The Adjudicator, who said the way suppliers continue to be hit with demands for lump sums was among her most urgent priorities, accused retailers of exploiting the Code, and suppliers of bringing the situation on themselves.
“Much of the Code attempts to strike a balance between providing protection and ensuring freedom in negotiations. I’ve spoken to Code compliance officers about the provision in the Code where retailers are using the phrase ‘unless provided for in the supply agreement’.”
Tacon added the tactic was being used across a whole raft of areas, all requiring lump sum payments from suppliers. “As well as artwork and design, this covers suppliers’ provision for things like buyer visits, refurbishing a store, hospitality for the retailer’s staff and also several relating to payments for wastage and compensation for forecasting errors,” she said.
“I do have concerns that what was intended to be permissive wording for parties to use in negotiating terms that suited them both has become a way for retailers to effectively require suppliers to sign away their rights. This form of wording was never intended to provide retailers with blanket opt outs form these provisions. it’s a big issue because many of these things are standard practice with a retailer in many of their supply agreements. So were going away to work through this.”
One legal source claimed the practice was rampant.
“I’ve heard lots of the major suppliers say what is the point of the Code outlawing lump sum payments when retailers can just get round this using the small print. I was talking recently to a major food manufacturer who has millions of pounds of tied up in disputed payments stemming from this sort of practice. We’re talking about seven-figure, or even eight-figure, sums in some cases.”
Negotiation expert Ged Futter added: “Supply agreements are very much biased in the retailer’s favour whereas the intention is that they are there to protect the supplier
“I’ve seen supply agreements for ever single retailer and some of them are pretty much a list of payments that suppliers are expected to make . They are not a two-way piece of paper at all.”