Contracts and service agreements are critical commercial tools for conducting professional commerce and establishing business connections. Without adequately stated and negotiated contracts, misunderstandings might arise, client and provider (customer and supplier) expectations may diverge, and a variety of difficulties may present themselves. While the practise and spirit of shaking hands on a verbal transaction between two business acquaintances is beneficial for establishing a strong trading connection, it is prudent for substantial supply arrangements to be documented and agreed upon, typically through signatures.
Apart from the process of explicitly defining and communicating the expectations of supplier and client, supplier agreements also aid in the event that one or both of the original deal-makers leave, leaving other individuals to make sense of what may or may not have been negotiated between the two parties. In this article, Supplier Contracts and Agreements, we take a look at these issues in more depth.
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When are supplier contracts and agreements used?
Supplier contracts and agreements come in a variety of shapes and sizes, but they all have the same core principles. These contracts are referred to by a variety of terms, including supply agreements, service agreements, services agreements, management contracts, service contracts, trading agreements, supply contracts, details of supply, details of services, schedule of services, and services schedules.
What matters is not the name of the contract; what matters is what it includes and how the contents are phrased. This is why it is prudent to employ a solicitor or lawyer in the preparation of substantial contracts that contain considerable legal responsibilities and potential liabilities.
Service contracts and supply agreements are used in a wide variety of commercial and trading arrangements and connections, including the following:
- Provision of services between organisations
- Provision of services by an organisation to a private consumer
- Contracting for services directly
- Service subcontracting
- Arrangements for licencing between two organisations or entities
- Franchise agreements between a franchisor and a franchisee or franchisees for the rental provision of products and/or services by a service provider to clients, who may be corporations or private individuals
- Provision of equipment in connection with lease or other finance arrangements, as well as a variety of other types of supply and commercial trade partnerships
- These types of trading and supply partnerships exist across all industry sectors and might entail the provision of any form of service or product.
It is critical to discern and recognise the distinction between providing services to business or institutional clients and providing services to private consumers.
Private consumers (which frequently includes commercial partnerships and lone traders) generally have a higher level of legal protection than corporations and institutions when it comes to contracts and obligations.
What should be included in a supplier contract?
Along with a description of the things to be supplied, most supplier contracts include the following:
- The parties’ names and addresses;
- Their respective timelines;
- Their respective responsibilities;
- Their respective price and payment details, including schedules and invoicing processes; and their respective performance standards and evaluation processes.
- Terms of confidentiality
- Refunds and terms of compensation
- After-sales service level you require
- Contractual terms and conditions, such as those applicable to renewal or termination.
Additionally, it may include precise supplier contract terms or clauses, such as specifying the supplier’s right to retain possession of the products until they are fully paid for, or clauses restricting the seller’s contractual obligation – taking into account the purchaser’s statutory rights.
Both parties should agree on the scope of the contract. Depending on who has bargaining power during the contract negotiation, the terms and conditions may be the purchaser, the supplier’s, or a combination of the two.
What should you consider when drafting the contract?
When drafting a supplier agreement, it is a good idea to include the following:
- Write the contract in a way that protects your interests and, if feasible, pass to the supplier legal liability for any problems.
- Notify the supplier in writing of your intended use for their supplies and request written confirmation that what they are selling you is appropriate.
- Explicitly inquire about any hidden issues and maintain a written record of all assurances given.
- Include in the contract what will happen if there are any problems with the goods or services – for example, will the supplier replace individual faulty goods or the entire batch, and within what time period. Agree on penalties for failure to meet delivery times or quality standards, such as a future discount.
Additionally, you should provide any dispute resolution or contract termination procedures that must be followed if either party is dissatisfied with the relationship or wishes to terminate the contract.
It is important to monitor the performance of the supplier
Is the supplier performing as required by the contract?
Is your relationship with them positive, and how attentive are they to your inquiries, requests, and complaints?
Are you receiving the greatest services or goods available to match your needs, or could something better be found elsewhere?
Examine the market to determine what else is available, and consider incorporating that information into any negotiations with the provider about contract renewal.
It is also important to monitor the financial implications of the contract
Are you still getting a decent price or could you find a better one elsewhere?
Are there any provisions for payment review? You may be entitled to a discount or reduction as a result of your long standing business relationship. If the provider has not performed as expected, you may be entitled to a refund or credit for the supplier’s poor or non-performance.
Ensure that you understand the payment conditions and have an internal mechanism in place to adhere to them; otherwise, you risk incurring interest penalties or, in extreme circumstances, contract termination.
What entitles me to terminate a supplier contract?
If a supplier’s performance repeatedly falls short of contractual requirements, contract termination becomes more straightforward. Even so, you must give them a chance to make amends. If a more affordable or otherwise superior supplier becomes available, you cannot simply walk away. You are obligated by the terms of your agreement, as long as the supplier keeps their commitments.
What is the process involved in terminating the contract?
Consult the contract and thoroughly read any termination terms. Determine whether there are any penalties associated with early termination. Hopefully, you were able to incorporate an exit provision when drafting the contract. If you do not, and the consequences are severe, you will very certainly have to wait until the end of the term. If you can effectively demonstrate that the provider failed to meet their contractual responsibilities, the situation changes. Suppliers must also assess the expense and inconvenience of disputing a claim. A legally binding contract will include termination provisions. In some circumstances, the present supplier will improve the contract in order to maintain your business. It does not have to become confrontational.
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We have a proven track-record of helping clients with their supplier contracts and agreements. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
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