Direct Account Carve out Clauses in Industrial Master Distribution Agreements
Direct account carve-outs require verifiable volume floors, explicit legal entity schedules, dynamic split-margin fee structures, and immediate setoff remedies.
Original Equipment Manufacturer Exemption
Meaning
Distribution contracts often include specific carve-outs that preserve the manufacturer’s right to supply large industrial customers directly. An original equipment manufacturer exemption is a contract clause that removes high-volume accounts that use the products as components in their own manufacturing from the distributor’s exclusive sales rights. This exemption allows the manufacturer to deal directly with these accounts to offer customized terms and volume pricing.
It represents a boundary between the distributor’s commercial market and the manufacturer’s industrial sales.
Territory Exclusivity
Distributors often negotiate for exclusive rights to sell a manufacturer’s products within a specific region. However, the original equipment manufacturer exemption limits this exclusivity by reserving the right to sell directly to designated industrial accounts. This limitation prevents the distributor from claiming commissions on these large-scale sales.
Pricing Variance
Direct transactions with these industrial users often involve custom specifications and deep volume discounts that a distributor cannot support. The original equipment manufacturer exemption allows the supplier to set prices below the distributor’s standard wholesale cost. This flexibility helps the manufacturer win large contracts against rival producers.
Direct Channel
By maintaining direct control over these accounts, the manufacturer can provide close engineering and technical support. The original equipment manufacturer exemption ensures that the supplier can manage these complex, long-term relationships without the involvement of a third-party distributor. This direct communication accelerates product development cycles and ensures that technical issues are resolved quickly.