In Short
- Supplier contracts are legally binding agreements that set out the terms under which a supplier provides goods or services to your business, including pricing, delivery schedules, quality standards and payment terms.
- Well-drafted supplier contracts help businesses manage risk, ensure consistent supply, maintain quality control and provide legal remedies if the supplier fails to meet their obligations.
- Key terms to include are specifications of goods or services, pricing and payment terms, delivery obligations, quality standards, liability provisions, termination rights and dispute resolution procedures.
Tips for Businesses
Review all supplier contracts carefully before signing to ensure terms align with your business needs. Negotiate key provisions such as delivery timeframes, quality standards and termination rights rather than accepting standard terms. Maintain a centralised system for tracking supplier contracts, renewal dates and performance obligations. Regularly review your supplier relationships to ensure contracts remain fit for purpose as your business evolves, and consider updating terms when renewing agreements.
Summary
This article explains supplier contracts for business owners in the United Kingdom, covering key terms, common issues and best practices for managing supplier relationships. LegalVision is a commercial law firm that specialises in advising clients on commercial contracts.
With many businesses now operating internationally, numerous UK suppliers have extended their services to clients into global markets. Therefore, for companies to tackle the risks they face when they are trading cross-border, strong international supplier contracts are vital.
International contracts should be carefully planned, considered, and drafted. They can introduce niche legal and commercial risks that go beyond those found in domestic contracts.
This article considers the role of supplier contracts in managing risks and how contracts can help protect UK suppliers who trade internationally.
Download this free Supplier Contracts Checklist to ensure your contracts will meet your business’ needs.
The Importance of Commercial Agreements for Suppliers
A supplier contract sets out key legal and business terms of the relationship between a supplier and customers. For example:
- what the supplier must deliver;
- timeframes; and
- how the customer must pay for the products or services.
Supplier contracts play an important role in managing risk. A carefully drafted and negotiated agreement can help:
- clarify and manage expectations;
- allocate responsibility for tasks; and
- reduce the chance of disputes arising or escalating once the commercial relationship is underway.
Clear agreements are especially important when suppliers or customers operate overseas or when goods or services cross borders. Different legal systems and business practices can lead to differing assumptions, so a written contract helps ensure both parties are aligned and expectations are managed.
Key Issues to Cover in Your Contracts
Supply agreements should clearly describe the goods or services you provide, including:
- specifications;
- quality standards;
- service levels; and
- technical or compliance issues.
If the scope of services is unclear, it can cause disputes about whether you have met your contract obligations.
Payment Terms
Payment terms are also important to focus on, particularly to ensure you are paid on time. Contracts should specify:
- the amount owed;
- any invoicing schedule or payment deadlines; and
- what happens if a client makes a late payment or does not pay at all.
For international arrangements, you may need to include bespoke matters such as currency, exchange rate risk, bank charges, and applicable taxes in your contractual obligations.
Delivery Obligations
Delivery terms should be clearly set out so all parties understand what is expected. If timing is important, the contract should say this and explain what happens if deadlines are missed, including how issues will be handled.
Termination
Termination provisions also play a crucial role in protecting your business from risks and providing an exit route, if you need one. Clear termination rights allow businesses to exit contracts that no longer work or make commercial sense.
Liability and Risk
Contracts should also clearly allocate liability and risk; this is critical for any commercial agreement. Liability limitation and exclusion clauses should clearly explain which losses the supplier will not cover and set a cap on liability, so the supplier’s financial risk is not unlimited.
Continue reading this article below the formInternational Considerations for Contracts
International supplier contracts can present bespoke legal issues that do not usually arise in domestic deals.
Contract
One key issue is which law applies to the contract. When commercial parties are in different countries, the contract should clearly state this. Many UK businesses choose English law because it is:
- well-established;
- predictable; and
- well-suited to commercial agreements.
Jurisdiction
Jurisdiction clauses raise a separate but related question. This determines which courts have the authority to hear a dispute. If a UK supplier has to go to court overseas, disputes can be slower, more expensive, and harder to manage. For this reason, UK suppliers will often prefer disputes to be handled by the English courts.
Enforcement
Enforcement creates another practical concern for UK suppliers. Even if a business wins in court, it may still be difficult to enforce that judgment against an overseas client. As such, it is important to take legal advice when drafting agreements to address the potential risks of international disputes.
Other Key Issues
Confidentiality obligations commonly appear in international contracts. This restricts how the parties use or disclose confidential information and often continues beyond the contract’s end. Differences between legal systems can affect how obligations are interpreted. Therefore, careful drafting around what is confidential information and which rules apply is vital to avoid disputes.
Businesses may also need to address other international issues, such as:
- including customs duties;
- import and export controls;
- sanctions;
- tax obligations; and
- local regulatory requirements.
A UK supplier may need to comply with mandatory local laws in countries where it trades, so it may need advice on how international laws affect its duties and contracts.
Significantly, you may also need to consider vital compliance with data protection laws, such as where personal data is transferred as part of a contractual arrangement.
How to Approach Contract Negotiations
Commercial pressure may push your business to agree on international contracts quickly. This can be particularly relevant where you are looking to enter or achieve growth in a foreign market. However, suppliers should be careful and take a cautious approach to contract negotiations with international clients.
For instance, they may ask you to follow strict local laws that are not practical to meet, or to change which country’s law applies and which courts can hear disputes. This can significantly affect how a dispute is handled and your options if you need to take legal action.
Taking Legal Advice to Help Prevent Risk
Legal advice can help suppliers understand potential risks in international trading operations and how to manage them contractually.
A commercial lawyer can:
- review your international contracts;
- identify problem areas; and
- suggest amendments for risk prevention.
This support is especially important for international supply contracts. Businesses may need clear advice on:
- which law applies;
- which courts can hear disputes;
- how judgments can be enforced; and
- whether any local laws must be followed.
Taking advice from a commercial solicitor can help reduce potential disputes and help businesses trade internationally with significantly reduced risk. A commercial solicitor can also guide you on whether your UK business may need to seek local law advice in the regions in which you operate for compliance purposes.
Key Takeaways
Supplier contracts play an important role in helping manage both legal and commercial risk when a business is trading internationally. Clear contracts can help businesses avoid disagreements and help to provide resolutions if problems arise.
Overseas supplier contracts require additional care and attention. Businesses should seek legal advice from both UK and foreign lawyers if necessary when considering niche issues such as:
- governing law;
- jurisdiction;
- enforcement; and
- local legal requirements.
LegalVision provides ongoing legal support for supplier businesses through our fixed-fee legal membership. Our experienced lawyers help businesses manage contracts, employment law, disputes, intellectual property and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Governing law determines which country’s legal rules apply to a contract. It affects how the contract is interpreted and can be highly relevant in disputes. Choosing a familiar, predictable legal system such as English law can reduce uncertainty and costs and is often the preferred route for UK suppliers.
International agreements can involve issues relating to unfamiliar legal systems and mandatory local laws. Legal advice from a UK solicitor can help ensure your UK agreement is watertight and identify whether you need to take local legal advice in the countries where you plan to operate.
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