Equipment spares

Wednesday, August 1st, 2012

Beware the one-time purchase of equipment spares

Imagine that one year ago, your organisation purchased a major piece of capital equipment with a predicted life of seven years, assuming a 14 hour working day, six days a week, for 48 weeks of the year. The supplier, a Japanese company offered you ‘essential spares’, which were purchased at a value of £70,000. During the negotiations the English agent explained that his Principal had a superb track record in supporting their equipment. The equipment
was purchased and the year has largely been trouble free. On one occasion urgent  engineering support was required from the supplier. They responded within 8 hours and fixed the problem.

You have just received an e-mail form the English agent. It reads “This is to inform you that with immediate effect we are giving you the opportunity to purchase on a one-off basis all the spares you estimate you will require for the remainder of the predicted life of the equipment. You have 2 weeks to place your purchase order. Once we have received your order we will  advise the prices and delivery time. Thereafter we will not be making available any more spares for this equipment.”

Time to read the contract! This never went through the purchasing department and was handled by the Engineers and Finance. You are struck by the jurisdiction clause that reads, “This Agreement shall be governed by and construed in accordance with the laws of Japan.” Another clause headed “Long term availability of spare parts”. This reads: “In the event that Supplier decides to withdraw spare parts and product support Supplier shall advise Buyer of such decision. In this event Buyer shall within a specified period determined by Supplier have the right to place a one-off purchase order for spare parts. Supplier shall endeavour to satisfy Buyer’s requirement but shall be under no obligation to do so. Prices and delivery lead time will be advised by Supplier in the event an offer is made. Buyer shall have 5 working days to accept or reject Supplier’s proposal.”

When you check the contractual position you are advised that the Chief Engineer signed the Supplier’s contract with no amendments to the above.

This is a salutatory lesson. You may wish to check the risks that may exist in your  organisation in the event that spares and product support are withdrawn.

Those of our readers who are interested in the law and contractual matters would benefit from reading Aeolian Shipping SA vs ISS Machinery Services Ltd [CA] 2001.