Legal advice on a long-term supply agreement with a foreign aerospace company

We reviewed the key terms and legal risks of a Master Terms Agreement and a Purchase Agreement that a Korean manufacturer was about to enter into with a foreign aerospace company.

The main issues were a price adjustment structure under which the supplier would bear cost increases other than raw material prices over a long-term supply arrangement, and whether development and initial investment costs could be recovered.

Also at issue were obligations to maintain inventory and make short-notice deliveries, the costs to be borne for failing to meet delivery dates or quality standards, and the scope of additional liability for damages.

We analyzed the price adjustment and cost data submission provisions of the agreements to assess the long-term cost burden and the risks of disclosing supply chain information.

We also reviewed the buyer's ordering obligations, the terms for reimbursing initial development costs, and the inventory and delivery obligations, and analyzed whether fixed charges for breaches of delivery dates or quality standards could be claimed alongside separate claims for damages.

We identified the key contractual risks, including limits on price adjustments, uncertainty in recovering initial investment costs, inventory and delivery obligations, and possible expansion of liability for damages.

In particular, we gave our pre-signing review comments by separating the legal risks requiring dedicated management from the operational burdens that commonly arise in manufacturing and supply agreements.