IACCM Contract Management Forum

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2017-02-15 17:30:24

Asset ownership - Contract advance - help please!

Hi. I am located in the UK. We have recently won a contract to supply outsourced services. As part of the agreement we agreed to providing capital investment which will be depreciated on a straight line basis over the life of the contract. Under this arrangement purchase the assets and pay for any associated works and we also retain title ownership.

However, the client needs to demonstrate an increased turnover for central funding reasons and has asked us to provide the sum of the capital investment as a contract advance which our sales team have already agreed to. The ownership of the assets will therefore sit with the client, but they want us to physically place the orders and make the purchases for them on their behalf and pass the costs through directly by invoicing them.

My senior legal counsel is not comfortable with this arrangement as we will become liable for the assets and associated works. I'd like to present a solution as we seem to be at an impasse with the client and our operational colleagues. I'd be really grateful of any ideas or examples based on experience of similar situations.
 •  Seiersen Enterprises  •   2017-02-15 19:03:58
An arrangement that I have seen work in this type of deal is to amortize the value of the investment over the life of the contract as you plan. If the contract were to be terminated prematurely, the residual value of un-depreciated assets would form the basis of an early termination fee.
I hope this approach helps you find the right deal.
 •   2017-02-21 22:16:26
It actually looks pretty standard. The contract should specify what the provider's and the client's respective responsibilities are with regard to the assets, including intellectual property protections.
 •  UBS  •   2017-02-24 14:21:24
You could propose placing orders for assets as an authorised agent of the customer through a contract which the customer directly holds with one or more suppliers.
The customer would receive the invoices directly from the supplier with the result that you do not take on the risk of holding additional cost. You could get involved with invoice validation if necessary / integrate with your service offering.

As per your other comments, you can easily protect yourself from commercial liability in the event of termination.
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