Balance or Bias—Seeking Equilibrium in Representative Agreements

Manufacturers’ representatives and manufacturers often seek to gain advantage over their partner by incorporating a bias into the representative agreement favoring the author, placing the other party at a disadvantage. This technique rarely enjoys the benefits intended. The best agreements maintain the objective of “balance” between the manufacturers’ representative and the manufacturer. If the relationship begins with a biased agreement, that bias works against development of a solid relationship. Since the agreement is the foundation of the partnership, its author must be craft the agreement with words and phrases that elicit trust.

Each clause of the agreement should seek to strike a balance between the power of the rep and the power of the manufacturer. If there is a clause on indemnification, that clause should be written such that the supplier holds the rep harmless and the rep holds the supplier harmless. If there is a paragraph outlining the duties and obligations of the representative, there should also be a paragraph outlining the duties and obligations of the manufacturer. A unilateral phrase only works to the ultimate distrust of one party by the other. Distrust always works against development of the relationship and ultimately against sales and sales growth, the original purpose of the relationship and the agreement.

Prepare for the future. Partnerships are born during a phase of euphoria. They develop during a phase of expansion and excitement. They mature during a long period of hard work. They come unraveled for a number of reasons and ultimately must be terminated. Spell out clearly the conditions under which the agreement may be terminated and what happens to both parties after notice of termination.

Termination may be for cause or for convenience. The agreement must allow both the manufacturer and the representative to terminate the agreement for cause and for convenience. Sometimes termination for cause achieves instant agreement between the parties, as in cases where the representative or manufacturer acquires a competing line.

In too many cases however, getting both parties to agree that a particular cause is valid is extremely difficult. Termination for convenience eliminates an unnecessary argument.
Mature manufacturers and manufacturers’ representatives don’t allow themselves to be treated as the junior partner in a representative agreement. When a partner is able to insert a biased clause into the agreement, it must be because the other partner is less seasoned. Remember, junior partners, with time, ultimately become seasoned. They will ultimately understand that a biased agreement works to its disadvantage.

This article first appeared at in December 2002. Glen Balzer is a management and forensic consultant involved with marketing and sales. He advises parties involved with relationships and contracts between manufacturers’ representatives, suppliers, customers and industrial distributors. He promotes conflict resolution between parties involved in representative and distribution agreements. He has integrated divisions of companies upon merger and acquisition. He has been involved in establishing and managing marketing and sales organizations throughout America, Europe and Asia.

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