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Framework contracts’ form and content facilitate dealing with risk in direct food retailer- manufacturer relationships. ‘Form’ refers to the contract’s purpose, length, legal standing and involved actors. ‘Content’ refers to the contract clauses and attached documents. Retailers and manufacturers rely on framework contracts, because the:

“…purpose of the contract is to equip parties for [dealing with] the next incident. …Contracts are mostly made for ‘bad times’. Even if some put it in the drawer, they take it out once an incident strikes” (ID 8).

In addition to ‘equipping parties for dealing with the next incident’, framework contracts equip retailers and manufacturers for dealing with unknown incidents:

“Framework contracts are created for the future, for long periods of uncertainty. We speak of uncertainty here in ‘Knight’s’ sense. You can address some incidents, but you cannot address uncertainty with equal precision” (ID 33).

Framework contracts address the uncertainty of future interactions by providing a set of modularized, mutually agreed and continent rules, which function as a ‘modus operandi’ (ID 33) or a ‘corset’ (ID 13) enhancing the predictability of future interactions. This is evident in two industry lawyers’ descriptions of framework contracts:

“The framework contract has the quality of not being too specific and yet providing a common ‘modus operandi’ [Latin: ‘way of operating’]. … Essentially, you can see framework contracts as private codifications” (ID 33). “The main function of drafting framework contracts between trading partners is to create a corset for potential future contingencies.… They create a common ground ex-ante to have a calculable security over how to resolve conflicts” (ID 13).

As the term ‘framework’ itself suggests, such contracts provide a contingent: “…frame, without specifying in detail every possible issue. This gives me the opportunity to define a framework without robbing myself of flexibility and packing my customer and suppliers in such a narrow corset that none of us can move. With framework contracts, we can address variable raw material prices, variable product volumes, and variable transport volumes. Where we need an ‘emergency response’ we have pre-defined processes, because you cannot start thinking about how to mutually resolve a problem when it is an emergency” (ID 8).

The precision and detail in framework contracts depends on how much the parties know about potential incidents:

“The more concretely you anticipate an incident, the better you can address it. In the food business, it is crucial to address how product recalls are handled.

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You can and must be very specific about that. At the same time, the contract should be flexible, like when you agree to revise the contract annually. The advantage is that in areas where you feel uncertain, you can make corrections later” (ID 13).

Framework contract clauses reported in Table 8.1 confirm that anticipated incidents are addressed in detailed clauses: For example, the contract between retailer Gamma and Manufacturer M2 addresses variability in delivery in detail (Section XIII); breach of confidentiality (Section XVII); variable product quality (Sections II; III, IV; V; VI) and negative test result publication by ‘Stiftung Warentest’ (Section XII). Given that variable product quality is a prime concern for both parties, the framework contract moves beyond product specifications: Sections I, II and V address product quality variability that might originate beyond the contracting party’s direct operations. Moreover, in contrast to GTC, framework contracts address risks idiosyncratic to the relationship: for example, the contract between Gamma and Manufacturer M2 addresses idiosyncratic risks emerging from contracting retailer-brand products (see Sections I, II, VII.2, XI.2, XI.3 and XVII.3).

In addition to clauses addressing anticipated incidents, framework contracts include force majeure, re-negotiation, and dispute resolution clauses to facilitate dealing with ‘uncertain areas’. For example, in the case of Gamma’s agreement with Manufacturer M2, the force majeure clause is not replicated in the framework contract, but is included in Gamma’s GTC. The force majeure clause states that:

“§14.1 Force majeure frees both parties for the duration of the incident/disruption and depending on the impact of the disruption from contractual duties. Both contracting parties must inform each other to the best of their abilities about the type, scope and duration of the disruption and to mutually adapt the contract in good faith” (Gamma’s GTC, 2011).

The above example illustrates that force majeure subsumes incidents that may be unknown yet detrimental to the companies’ business performance. To offer effective guidance:

“[a]helpful force-majeure clause will include: (a) specification of incidents considered ‘force majeure’; (b) both parties’ duty to inform each other as early as possible; (c) both parties’ duties to come up with solutions on how to get out of the situation; (d) that both parties agree to work together on getting out of the situation. […] The main thing in force majeure clauses is to set priorities, some general rules for behaviours, preferences, information and co-operation duties, which help to make the response more palpable in advance” (ID 13).

Apart from force majeure, the re-negotiation clause allows for contingent contract terms adaptations based on market or regulatory developments.

The comparison of framework contract content between retailer Gamma and Manufacturer M2, and between Manufacturer M2 and Supplier S2.2, demonstrates that framework contracts

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facilitate transferring risk impact from the party with higher bargaining power, similar to the use of GTC. For instance, the framework contract (Table 8.1) between retailer Gamma and Manufacturer M2 transfers risk impact to Manufacturer M2, who agrees to:

a) Cover product liability and recall costs (Sections I, V, IX, X),

b) Bear litigation costs, civil and criminal law implications (Section XII) and third-party claims (Sections IX, X)

c) Gamma’s rights to contract termination (Sections XVII).

In response, Manufacturer M2 replicated the framework contract clauses in their interaction with Supplier S2.2, who agrees to:

a) Cover all product liability and recall costs (Sections VII, VIII) b) Bear all costs arising from third party claims (Section VIII) c) Manufacturer M2’s right to contract termination (Section XIV).

Transferring risk impact serves the objective of safeguarding tangible and intangible resources: Transferring recall costs and defining compensatory payments directly safeguards financial resources. Additionally, both framework contracts specify clauses protecting the companies’ property rights over resources, such as brand ownership (see Gamma’s contract, Table 8.1: Sections I, II, VII and XVII and in Manufacturer M2’s contract: Sections II, IX, XII), product recipes, packaging and pricing calculations. Both contracts contain clauses to protect the companies’ brand and company reputation: in the case of the retailer-manufacturer contract by reserving the retailer’s right to immediate contract termination and ‘dissociation’ from the supplier (Section XVI.3, XVIII) and the retailer’s right to intervene and stay informed on interactions between Manufacturer M2 and third parties such as governmental authorities (Section V.2), media (V.2) or the consumer protection group “Stiftung Warentest” (Section V.2, XII). The reputational impact of Stiftung Warentest’s potentially negative product tests is of such concern that Gamma dedicates a clause regulating the interaction with this third party only.