Preferred, Provider, Supplier, Customer, Partner, Vendor

Contractual term that purports to confer some sort of special status on a counterparty. Thus, for example, a buyer of goods or services, in an effort to negotiate a more favorable deal might propose that the supplier have “Preferred” status.

The problems with preferred status start with the issue that on its own it is so nebulous as to be potentially meaningless – what is the difference between the Preferred and the ordinary? How does the Preferred know that it has received the benefit of the preference? It is possible to try to define the preference, but this usually only works with fairly standard goods or services – so that one can then provide that the Preferred will receive the business if prices are equal, or if the Preferred’s price is say 110% of the under-bidder (the weakness in such a clause being that one needs to be able to verify the under-bidder’s price.)  Can Preferred status be reconciled with non-disclosure agreements between a buyer and its suppliers?  Does the indirect exchange of pricing information raise competition and antitrust issues – could it be alleged to facilitate price-fixing?

Other preferred provisions are less problematic – Preferred will receive new product first, preferred demands will be satisfied before another customer, preferred will always be afforded a full opportunity to bid, etc. However, unless the meaning of Preferred can be closely defined in a manner that is verifiable, Preferred status is probably meaningless.

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