Distribution and Supply Contracts in Bogotá

Why these contracts end badly

A distribution or supply contract is signed while both sides are happy and the business is just starting. Over the years one of them invests —warehouse, fleet, staff, advertising, customer base— and the other discovers it can sell direct or switch partners. On the day of termination the questions the contract never answered surface: who keeps the customers, what happens to the inventory, how much notice was owed, whether anything has to be compensated.

Those answers are either written at the start or decided by a judge later. Our job is to have them written.

Distribution

We draft and review distribution contracts with the real operation in view: how orders are placed, who sets the resale price, what happens with returns and who owns the relationship with the end customer.

• Territory and exclusivity. Reach, channels in and out, online sales and direct sales by the supplier.
• Purchase targets. How they are measured, what happens if they are missed, and whether missing them releases the exclusivity or ends the contract.
• Prices and discounts. Price lists, adjustments, rebates and the limits competition law places on resale price setting.
• Brand and advertising. Licence to use, approval of materials and what happens to them on termination.
• Customer base. Who builds it, who keeps it and what may be done with it after termination.
• Termination. Grounds, notice, buy-back of inventory and treatment of orders already placed.

Commercial agency: a characterisation to settle early

In Colombia a contract titled distribution can end up being treated as a commercial agency depending on how it is performed in practice. The difference is not one of labels: the Commercial Code grants the agent payments on termination that do not apply to an ordinary distributor. We therefore review the contract and the operation, and flag when the risk of the relationship being characterised as agency is real, so that the decision is taken before signature rather than in court.

Supply

In supply the focus shifts: what is protected is continuity. A supply contract earns its keep if it answers what happens on the day the supplier fails to deliver.

• Orders, lead times, partial deliveries and penalties for default.
• Quality specifications, inspection, acceptance and rejection of goods.
• Price, adjustment formulas, currency and exchange risk where goods are imported.
• Product warranties and liability for claims by the end consumer.
• Force majeure, shortages and priority among customers when the supplier cannot serve everyone.
• Minimum volume commitments and the consequences of missing them.

Exclusivity and competition law

Exclusivity, territory and non-compete clauses have limits. The Colombian restrictive practices regime —Law 155 of 1959, Decree 2153 of 1992 and Law 1340 of 2009— conditions what can be agreed, particularly between competitors or where one party holds a dominant position in its market. We review these clauses before signature, because a badly designed exclusivity is not merely unenforceable: it can open an investigation.

What you receive

• The contract drafted or reviewed, with the termination and inventory clauses settled in writing.
• An assessment of the risk that the relationship is characterised as a commercial agency, where relevant.
• Practical guidance for performance: what to document and what to avoid so as not to create obligations the contract never agreed.
• If the relationship is already ending, the exit strategy and the communications that support it.