Suppliers need to ‘copper-bottom’ driverless contracts

While there will be many business opportunities for automotive senior tier suppliers with the expansion of autonomous technology, there will also be some very serious risks.

That’s because carmakers will be trying to protect their brand’s reputation when things go wrong by chasing down the weakest link in the technology.

Volvo has already set out its stall by telling TU-Automotive at the Geneva Motor Show 2017 that it will expect to compensate victims of any flaw in its driverless car technology. That said, the carmaker will then chase down the exact component or software responsible and the supplier will be asked to pick up the bill.

Gail Gottehrer, partner Akerman LLP, said this could expose a higher level of risk for auto suppliers. She told us: “It is going to be complicated for all the suppliers because you will have the issue of who had what kind of responsibility. In the US at least, you can work through the contract which is important because when you allocate the risk through a contract you can insure it. So when you are supplying a major part, you know there is going to be risk.

“If you are dealing with a carmaker such as Volvo, they can tell people ‘take it or leave it’. Their agreement terms will tell the supplier he will be responsible for all these things if something happens. So when Volvo gets sued, because it’s the only brand the victims will know, they won’t know the suppliers, they will say ‘you will indemnify me. You will be brought into the case and you will pay any hit that Volvo gets and you will need adequate insurance’.”

It’s that potential for a huge claim that will pose a massive challenge for many of today’s auto suppliers. Gottehrer explained: “This is a problem because we see a lot with people saying ‘we’ll cover you’ but then they do not have sufficient money. So companies like Volvo will demand a certificate of insurance that can cover the risk and if the supplier can’t provide that it won’t do business with that supplier.

“In this way, a carmaker will only be dealing with the higher level suppliers because not everyone will be able to satisfy the requirements.”

She also applauded Volvo’s mission to sidestep the twilight zone of Level 3 where the autonomous feature will request human involvement in certain situations. Because, while the XC90s to be trialled in both Gothenburg and London can be manually driven, their Level 4 technology could take over the whole trip if required. Gottehrer said: “Of course, no carmaker wants to be the test case that had the runaway robot car that killed ‘little Suzie’. So, by skipping Level 3 and guaranteeing they will not be litigating with individuals, it’s brilliant. That way the victim comes away saying ‘oh, it’s not evil Volvo and look at these people stepping up when they didn’t have to’. Then to go through the chain and make up the money that way by pointing the finger at other people who, in fairness, deserve the blame for it and it keeps everyone on their toes. So many people supplying new technologies will be working a bit harder because they will know the carmakers such as Volvo will be coming after them.”

Cyber security will also raise its ugly head in this autonomous environment. “Another component is you are going to see cyber security guarantees,” said Gottehrer. “What kind of technology, privacy security is built into the components?  The perception with the public, perhaps over blown somewhat, is that these cars can be easily hacked so the carmaker must make sure the supplier’s device is not the easy point of entry to an otherwise safe vehicle. With so many IoT devices these are going out with little or no password security and that’s a risk to a carmaker.”

Yet, despite the complexities of the latest autonomous technology, from a legal point of view, the question poses a comparatively simple question. “Ultimately,” said Gottehrer, “it will all come down to a simple contract dispute but the challenge will be working out whose fault it was.”

Here, Gottehrer believes the car could become the star witness in any contentious court case. She explained: “This, I think, will come down to technology so you will end up with the car being able to testify. It will have so much sophisticated technology that it will be able to tell what part failed or what led to the incident at least with some level of certainty that will be enough to trigger coverage or to have a jury point to at somebody other than the carmaker who reasonably relied on a supplier’s technology to be effective and it wasn’t.

“So this will be a straight business-on-business dispute and the more you scope out every new situation that will occur contracts will be written tighter this will be the best protection for automakers to keep innovating and keep moving forward.”


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