Distributors hope for reform in 1998
A host of legislative issues may affect channel members in the year ahead
By Ken Brack; John R Johnson -- Industrial Distribution, 1/1/1998
Washington, D.C.--With 1998 upon us, what are the legislative issues that might most affect distributors? Product liability, inside sales reform, cooperative purchasing, the Fastener Quality Act and health benefits are all on the table for Congress in 1998.Of biggest concern to most distributors are inside sales reform and product liability, as well as the FQA, scheduled to finally take effect on May 31. Inside sales reform is probably the most optimistic form of government relief in 1998. Product liability, on the other hand, was probably the biggest disappointment for 1997. Although solid progress was made in this area, the failure to take the nearly two-decade old effort across the legislative finish line was a major letdown.
Here's a look at the key issues for the year:
Product liability remains at or near the top of many distributors' legislative list. Legislation introduced last year got bogged down in arguments mostly over technical issues, but the National Assn. of Wholesaler-Distributors and industry leaders remain cautiously optimistic for 1998.
The legislation would limit the liability of manufacturers and distributors in cases involving defective power tools, hand and machine tools, and covers just about all equipment used in manufacturing and construction. Some specific measures of most interest in the proposal are:
* Abolishing joint or "deep pocket'' liability for non-economic damages (such as pain and suffering) in product liability cases.
* Establishing a "statute of repose'' that shields sellers of workplace durable goods more than 15 years old.
* Limiting punitive damages in product liability actions against a seller with fewer than 25 full-time employees to twice the amount of compensatory damages, or $250,000, whichever is less.
* Enacting a fault-based standard of product seller liability that reduces exposure of distributors, retailers, rentors and lessors from lawsuits resulting from product-related accidents and injuries.
Reforms such as a 15-year limit on product liability actions would "grossly lower prices for products across the country,'' says Cliff Cheatwood, president and chief executive officer at Arkansas Mill Supply Co. in Pine Bluff, Ark. "There's got to be some limits.''
Despite their need for relief from expensive liability insurance, some distributors remain skeptical any breakthrough will occur during an election year. "It's so old everybody's tired of talking about it,'' says William Derville, president of General Tool & Supply Co. in Portland, Oreg. "Right now, everybody's just so busy running their business.''
However, Jim Anderson, lobbyist for the NAW, is optimistic that product liability reform can pass this year.
"We had hoped to get it completed in 1997, and we continue to believe it's doable in 1998," says Anderson. "This remains a difficult, complicated and controversial issue, but we are making every effort to reach a consensus. There are discussions taking place regarding technical issues, which we hope will bear fruit. If they do, I believe this can move forward fairly rapidly [in 1998]."
Distributors also hope to see inside sales reform pass this year, which would allow them to pay those salespeople salaries similar to the outside sales force, rather than paying overtime for extra hours. The current law gives retailers like Home Depot a competitive advantage over traditional distributors because they do not have to pay retail salespeople overtime, Cheatwood says. Bipartisian legislation was introduced in the House in November that spells out the overtime exemptions, and this month the House Committee on Education and the Workforce was set to consider the bill, NAW reports.
"Distributors are saying this is afforded to other salespeople and we consider ourselves professionals and would like to be afforded that same opportunity,'' says Becky Relic, senior director of government relations at NAW. "This would also allow companies to pay more people on some sort of commission system.''
Derville says the measure is long overdue. Without reform, training for inside sales personnel may be at risk in tougher economic times, he says.
"We have to pay people to go to sales meetings after hours, we have to prioritize that,'' he says. "We don't restrict [overtime] a lot, but it's one of those things if there was a downturn in the economy we'd watch and have to cut back.''
Tom Meyer, president of Montague Tool & Supply Co. in Montague, N.J., says the change would not punish inside sales personnel but provide more incentives to attract quality people. "I think it'll be good for the salespeople...We're looking for an opportunity to [offer them incentives],'' he says. "I'd prefer to have the option to treat them like outside salespeople. We're looking for the opportunity to incenticize them properly, so if they wanted to work an extra six hours a week to learn about their trade we wouldn't necessarily be liable for [paying them]."
Many distributors will also be watching closely to see if Congress attempts to resurrect the Cooperative Purchasing Program, which was repealed last year before ever being implemented. Industry leaders say the program would set up unfair competition and consider the repeal their major legislative success of 1997. As proposed it would allow state, county and local governments to buy products directly from manufacturers at the same discounts enjoyed by the federal government. Distributors say that would create an unfair playing field and fear they could not compete with "most favored prices'' charged by manufacturers. Job losses and the closure of some distributorships is predicted if the plan is implemented.
Under the program, which was slipped into a law meant to streamline bureaucracy, the General Services Administration would be authorized to open the Federal Supply Schedule to non-federal government agencies. The measure was repealed as part of an appropriations bill that President Clinton signed in October after NAW complained along with pharmaceutical and medical industry groups. However, lawmakers are expected to file legislation this year to establish cooperative purchasing.
"The repeal, while a welcome victory, doesn't necessarily mean this one is gone forever," says Anderson. "The administration has made it clear they like the idea of a Cooperative Purchasing program."
Bob Kraisner, president and chief executive officer of Strong Tool Co., a Cleveland, Ohio distributor, says distributors have their hands full keeping up with a "reinvented'' supply channel and don't need that competition from government.
"I don't want to see them impair the transformation of distribution because that wouldn't be in the economic interests of the U.S.,'' he says. "We want to be the low-cost distributors. If the government is going to procure goods as an end user themselves, they should have to operate like any other end user in the marketplace.''
Many fastener distributors and manufacturers are anxiously awaiting new regulations that were expected to be issued early this month, as the long-awaited Fastener Quality Act nears implementation.
The National Institute of Standards and Technology, which writes the regulations, received more than 120 comments during the fall. At press time, Subhas Malghan, chief of NIST's standard conformity programs, said he expected to begin publishing regulations early in January and believes there is an adequate number of laboratories to certify fasteners.
Once the regulations are issued, more workshops are expected to be held around the country to explain what exactly each rule says and how the fastener industry should comply.
A number of amendments to the rules are being considered. Those include addressing the automotive industry's interest in having quality assurance programs that use statistical process control recognized under the FQA; permitting fasteners produced before the effective date of the law to be tested and certified as complying; allowing the removal of head markings as part of an OEM standard or as a significant alteration when requested by a customer for cosmetic purposes.
Another proposal seeks permission for fastener manufacturers or accredited labs to certify copies of chemical test reports on raw materials.
Ed McIlhon, president of Iowa Industrial Products in Cedar Falls, Iowa, expects everyone in the industry will scrutinize the new regulations.
"If they open any windows that show repeal as a possibility, we'll try to climb through it,'' he says. I
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