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As a business customer, your supplier relationships must run smoothly. When engaging a supplier to deliver products or services, you should enter a contract or supply agreement to protect your business from risk. For example, you should have contractual terms setting out remedies if the supplier does not deliver what you expect. This article will explore how a standard supplier agreement can protect your business as a customer.
What is a Standard Supplier Contract?
A contract is a critical legal document setting out the terms on which you will do business. When working with suppliers, your business can prepare a standard supplier contract.
You can draft a supplier agreement in your favour and set out essential terms, including:
- which products or services the supplier will deliver;
- any particular standards or service levels expected from the supplier;
- remedies for your business if the supplier fails to meet your expectations; and
- termination rights, allowing you to exit the agreement.
A lot can go wrong if a supplier does not perform their obligations. For example, delays from a crucial supplier could put your business at risk. As such, your business must consider the key risks you can face when engaging a supplier. Accordingly, you can sign supplier contracts to protect your business from those risks.
Depending on your bargaining power, you can ask all suppliers to sign your standard supplier agreement. Some suppliers may reject this or seek to negotiate your agreement. You can work with a commercial contracts lawyer if you require negotiation support when engaging with suppliers.
Use this checklist to ensure your supplier contracts contain all necessary terms.
How Can a Standard Supplier Agreement Protect Your Business?
A standard supplier agreement can protect your business from risk in various ways. Below are some of the key ways.
1. A Supplier Agreement Will Protect Your Business From Risk.
By using your own supplier agreement, you can protect your business as much as possible.
For example, you can set clear rules and restrictions on how a supplier can use your business brand and other intellectual property rights.
You can also include payment provisions per your company’s standard payment terms.
You can include various provisions in your supplier contract to protect your business from risk, which a supplier may not ordinarily include in its agreement.
For instance:
- a clause requiring the supplier to maintain specific levels of insurance to cover its potential liabilities under your contract if things do not go as planned;
- provisions holding the supplier to the highest level of service and requiring them to comply with best industry practices; and
- provisions offering you significant remedies if the supplier fails to meet any key performance dates or deadlines, including the right to end the agreement.
2. A Supplier Agreement Will Help Encourage Good Contract Management.
Using a standard supplier agreement will allow you to set your standards and expectations from all of your suppliers. A supplier contract can clearly set out a framework for your commercial relationship and what you expect, meaning both parties understand their obligations.
You can set any quality standards you require from the supplier. Setting your contractual expectations makes you less likely to encounter mismatched understandings with your suppliers, which can be particularly useful and help prevent disputes.
You can also set standards around the ethics and conduct you expect from your suppliers. For instance, provisions requiring them to comply with anti-bribery and corruption and data protection laws. This will help demonstrate your accountability and compliance with these laws, showing you apply the same standards to your supply chain.
Overall, a supplier agreement that you prepare will encourage good contract management (particularly if your business works with several suppliers).
3. A Supplier Agreement Can Afford You Valuable Remedies
If a supplier does not meet your expectations, using your own supplier contract can afford you various legal remedies.
For example, your supplier contract can include various remedies such as:
- allowing you termination rights if the supplier breaches their obligations; or
- allowing you a refund from the supplier, or an obligation for them to redeliver the services.
Usually, a supplier’s contractual terms are heavily in their favour and limit a customer’s remedies. By using your own standard contract, you are more likely to protect your business from risk.
You can also include a dispute resolution process in your supplier agreement to resolve any problems and potential disputes that arise during the contract. Such a process can help avoid escalating disputes and going to court, which should always be the last resort.
If you prepare a standard supplier agreement that suppliers take issue with, you can work with a commercial contracts lawyer to support you with negotiations. A commercial contracts lawyer can help you devise a strategy for negotiating contractual terms with suppliers.
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Key Takeaways
When working with suppliers, you must protect your business from the risks it could face. For example, risks around data loss or the supply services being deficient. You can safeguard your best interests by using your standard supplier agreement. For example, a standard supplier agreement can set your expectations, avoid misunderstandings, and allow you remedies if the supplier’s services are not up to standard.
If you need help with a supplier agreement, contact our experienced contract lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers who can answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.
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