Key takeaways

• Reseller arrangements are a commercial reality in technology procurement, but they should be approached with caution. Wherever possible, customers should avoid them altogether. 
   
• Where they are unavoidable, it is critical to ensure that either the Original Vendor or the Reseller is fully accountable for the relevant products and services, and that the customer’s key legal and commercial protections remain intact. 
   
• This article outlines the key risks, common reseller models, and what customers can do to protect themselves.

Reseller arrangements are increasingly common in technology procurement, yet they are frequently misunderstood by customers. A reseller arrangement involves one party (the Reseller) purchasing or ordering products or services from the original developer or owner (the Original Vendor) and reselling them to customers for a profit. While these arrangements offer financial and operational benefits for Original Vendors and Resellers, they are generally designed to minimise risk for those parties and pass it on to the customer as much as possible. Getting a reseller arrangement wrong can leave a customer without meaningful recourse to either the Reseller or the Original Vendor, or subject to unexpected obligations under contracts it has not seen or negotiated.

Chapter 6 of the 2nd Edition of Maddocks’ Technology Procurement Handbook examines the key risks associated with reseller arrangements and provides an overview of the most common reseller models, from most to least favourable for customers. Below, we outline the key lessons.

Why reseller arrangements create risk for customers

Reseller arrangements expose customers to additional risk and uncertainty that generally do not exist in a direct procurement relationship. Major technology vendors often rely on channel partners to reach customers, creating a complex web of relationships that can complicate procurement and erode contractual protections. Where possible, customers should seek to procure directly from the Original Vendor and should in particular avoid procuring critical or high-risk products and services (such as cloud solutions that store or process sensitive data) via resellers.

Common risks in reseller arrangements include uncertainty about:

• who owes obligations to the customer: the Reseller, the Original Vendor, or (in the worst case) neither;
   
• whether the Original Vendor's end-user licence agreement (EULA) or other standard terms apply to the customer and whether they override the terms of the reseller agreement;
   
• whether critical legal and commercial protections (such as privacy, confidentiality and security obligations) will apply to the Reseller and/or the Original Vendor;
   
• whether the customer has adequate remedies if products or services are defective or misrepresented;
   
• whether the customer may face additional payment obligations (e.g. to the Original Vendor directly, in addition to the Reseller); and
   
• whether the customer is protected if the Reseller becomes insolvent or fails to pass payments on to the Original Vendor, potentially jeopardising the customer's rights to the products and services.

Common reseller models 

There is no 'one-size-fits-all' approach to reseller arrangements. Where a customer cannot procure directly from the Original Vendor, the following models may be adopted - presented in order from most to least favourable for the customer: