3 Pitfalls in Contracts with Suppliers from Germany
Most business owners in Lodz assume that a contract with a German partner is a guarantee of honesty and clear rules. Reality can be different, especially when small provisions on penalties for delays come into play, which cannot be avoided with current border jams or raw material shortages. Marek Krasiński explains how to read these documents so as not to lose margin on a single order.
Contractual penalties calculated from the value of the entire order
The biggest mistake we see at Consilium Krasiński is agreeing to contractual penalties calculated from the total contract amount, rather than the value of the delayed batch of goods. Imagine a situation from September 2024: a small pressing plant near Lodz sent a transport worth 12,400 euros. Due to a machine failure, 5% of the goods arrived with a two-day delay. The German contractor charged a penalty of 2% of the entire order for the amount of 150,000 euros, because that's how the general provision in the framework agreement was formulated. Instead of earning, the company had to pay 3,000 euros for the business.
German law BGB (Bürgerliches Gesetzbuch) is quite precise but allows for a lot if both parties sign off on a specific paragraph. The standard we always fight for during negotiations for our 47 regular clients is limiting the penalty to a maximum of 5% of the value of the specific, delayed delivery. If your trading partner insists on a '0.5% for each day of delay from the total order' provision, it is a red flag. Such a mechanism can eat up your profit faster than you can send a corrective invoice.
It is also worth paying attention to the term 'Vertragsstrafe'. In German courts, fighting to challenge it is difficult and expensive. Often it is better to propose a provision on compensation under general rules at the start, where the contractor must prove real loss resulting from your delay. In one project we conducted in March this year, changing this one word saved a transport company 4,200 euros when they were stuck on the A2 highway near Berlin for nearly 14 hours.
Penalties calculated from the entire order are the simplest way to give away your margin for free.
The trap of jurisdiction of the court in Hamburg or Munich
A provision stating that any disputes are resolved by the court at the location of the ordering party's headquarters seems standard. For a company from Lodz, however, this means that in case of problems with payment for an invoice for 8,300 euros, you will have to hire a lawyer in Germany. Rates for an hour of a lawyer's work across the Oder start from 240 euros net. Added to this are the costs of sworn translations of every email and transport document, which in an 11-month dispute generates costs exceeding the value of the invoice itself.
At Consilium Krasiński, we always suggest that clients fight for a so-called arbitration clause or at least choose a court in Poland if possible. If the German doesn't agree, we try to enter a specific city closer to the border, for example, Frankfurt an der Oder. It's seemingly a small thing, but the costs of travel and logistics for 3-4 hearings make a difference. Remember that big players use the cost barrier, knowing that a small supplier from Poland will not risk 15,000 euros on a lawsuit to recover a 10,000 euro debt.
We have a case from February 2024 behind us, where a Polish furniture manufacturer let go of a receivable of 5,600 euros precisely because of a provision about the court in Stuttgart. An analysis of legal costs showed that just starting the case would consume 3,200 euros in entry fees and advances. This is a brutal lesson that can be avoided at the stage of signing the first piece of paper. We tell it like it is: if you can't afford a trial in Germany, don't agree to the court there without fighting for better terms.
Short deadlines for reporting defects in goods
German contractors love to include paragraphs in contracts about immediate inspection of goods (Rügepflicht). They often give only 48 hours from the moment of unloading. For a Polish manufacturer who sends complex components, this is a trap. If defects come out during assembly at the final customer after 5 days, the German can legally refuse payment, claiming the complaint is late. We sit at the table with you to negotiate a minimum of 7 to 14 days for reporting obvious defects.
Provisions on so-called hidden defects are particularly dangerous. In standard contracts received by companies from the Lodz region, this period is often shortened to 6 months, even though the law provides for longer periods. In May 2024, we helped a client who supplied castings to a factory near Dresden. We managed to extend this period to 18 months, which proved crucial when problems with material hardening emerged after a year of use. Without this provision, the company would have to cover the costs of replacing the entire circulation, which would have amounted to about 14,500 euros.
Also, pay attention to how the moment of delivery is defined. Is it the moment the car enters the yard, or the moment the CMR document is signed? These few hours of difference can decide whether a complaint will be considered timely. At Consilium Krasiński, we check these details with a watch in hand. We don't promise miracles, but we make sure you're not at a disadvantage just because someone on the other side has a faster legal department.
Unilateral right to change specification
A frequent point in long-term production contracts is a provision allowing the German partner to change technical guidelines 'to a reasonable extent'. The problem is that for them, changing the paint color to one that costs 12% more may be 'reasonable', while for you it means a loss of profitability for the entire contract. In 2023, we conducted negotiations for a company from Pabianice, where we deleted this provision, introducing the requirement for a written annex and re-valuation for every change above 3% of production costs.
Without a clear price indexation mechanism, such freedom for the contractor is a sentence for a small company. Germans are very meticulous in enforcing quality, but they can be flexible in interpreting costs on the supplier's side. If you sign a contract without a clause on the increase in raw material prices (e.g., steel or energy), you can get stuck in a contract that generates losses with every manufactured element. Currently, for our clients, we enter simple mechanisms based on market indices, which cuts off discussions about the 'justification' of increases.
The final element is the issue of the form of communication. Germans often write 'written form' under pain of nullity. If you agree on something with the production manager over the phone or WhatsApp, in light of the contract, it does not exist. In July 2024, one of our friendly companies lost a 2,150 euro surcharge for additional work because they didn't have confirmation on paper with a stamp. We teach our clients that in relations with foreign giants, only what can be printed and placed on the judge's table counts.
Agreements over the phone with a German do not exist. Only paper and hard evidence count.
