You can’t do business alone. Whether you need packaging for your produce or a key ingredient for your hand cream, you will be dealing with suppliers. While it’s best practice to use your own well drafted agreement, that won’t always fly, particularly with your bigger suppliers. It’s crucial to review supply agreements carefully to ensure they meet your business’s needs and protect your interests.
In our next blog we’ll give you pointers for reviewing the commercial and operational terms. In this blog we’ll look at the clauses lawyers tend to take an interest in including term and termination, risk management, confidentiality and intellectual property and dispute resolution. So without further ado, here’s some key considerations to keep front of mind.
1. Term and termination
The term may be for a fixed period, may auto renew (diarise relevant dates for these two) or may be indefinite. If it is indefinite – consider whether it would be in your favour to use a fixed term to provider a clearer process for renegotiation.
You would expect the termination clause to outline:
- clear grounds for termination (if your supplier isn’t holding up their end)
- reasonable notice periods so you aren’t scrambling to find an alternative supplier
- how outstanding obligations or liabilities will be handled if the contract is terminated
2. Risk management
Indemnities & limitations of liability
A regular sticking point. In general terms, the starting point is that without these clauses, each party will be liable to the other if they breach the contract or are negligent. When you are reviewing a supplier’s agreement, be very careful – the inclusion of these clauses will likely benefit the supplier.
An unbalanced indemnity (in the supplier’s favour) may leave you effectively acting as the supplier’s insurer.
Supplier’s may seek to limit their liability to you: by a dollar amount, by imposing time limits or by limiting your remedies, including excluding their liability to you all together. Watch out for terms like release, hold harmless, disclaimers and waivers.
Insurance
It is sensible to insist that your supplier have product liability (goods) and general (public and property) liability cover from a reputable insurer, and check that insurance is place at the outset, and throughout the term of the agreement. That is, have the supplier produce to you certificates of insurance.
If the supplier will also be providing services, add professional indemnity insurance to the list. And by law, both parties will usually require workers’ compensation insurance.
Also take the time to review your business’s insurance – is it sufficient for your operations and contractual obligations (such as contractual indemnities)?
Force majeure – strange words that can have a big impact on your business
A force majeure event should be well defined to prevent confusion and disputes. In simple terms, it is an event beyond the control of the parties (like floods, wars or Covid). Your supplier may look to include industrial events like strike action which you may consider within their control.
Unless there’s an obligation on you to take the goods, force majeure clauses are likely to benefit the supplier. The terms should clearly set out the process to follow and which obligations may be impacted. To protect your interest and avoid being stuck with an unfulfilled contract push for a short notice period and the right to terminate after a reasonable period.
3. Confidentiality and IP
Will your business be sharing proprietary information with the supplier? The supplier may need to use that information for the purpose of supplying you – the agreement should include provisions that limit the use and disclosure of your information beyond that purpose.
Will the goods involve any intellectual property rights? Ensure that the agreement includes provisions for protecting your intellectual property, including dealing with the ownership of intellectual property created during the supply process (in your favour).
4. Dispute resolution
And finally, disputes do happen. A clear dispute resolution process, starting with discussions between sufficiently senior members of the parties and escalating to mediation or arbitration may help resolve any disputes in a timely fashion that arise during the term of the agreement. Arbitration is an alternative to court processes.
As the name suggests, this isn’t advice, it’s just a story. If you’re reviewing a supplier’s terms and conditions, or looking to develop or improve your own, please get in touch to discuss how we may be able to assist you.
