What clauses should you include in a supplier contract to protect your interests? (2024)

Part of the top 4 basics for a contract:Scope - What do you want me to do?Timing - not included above but often the most important - When do you want me to do it?Payment - How much will you pay me?Termination - What happens if I/you don’t do what we are supposed to do?And then - as the other contributors say below - the rest is (important) detail.

The large majority of disputes with services contracts is due to the scope of work not being clear enough. The vendor thought they had agreed to do A, the customer thought they were going to get B. So as a lawyer, it's good to lean into it a bit. It's not enough to say "that's a commercial point, the business should review that". It's better to try to truly understand what the business is hoping to buy and then sense check the scope of work is clear enough.

In my experience, one of the areas that lack emphasis in technology contracts is Service Level Agreement clauses (SLAs). A contract isn't worth the paper it's written on, if it cannot be adequately enforced. SLAs provide an effective way of ensuring that technology platforms perform as intended by the parties, and where technical issues arise there should be minimal downtime, timely notice, repair or work-around. In those rear instances where extensive downtime occurs on a platform that results in monetary losses to the business, a formula for compensation (or liquidated damages) should be cared for in advance.

I don’t think you can avoid vague terms. You could try, but you would end up spending way more much time than the deal is worth. Instead focus on (a) clarity, (b) avoiding ambiguity, and (c) identifying when it is worth it to replace vague terms with more definite standards.

A properly defined Supplier Document Register with defined early and late deliverables, as well as templates for spare parts interchangeability forms. Also include expectations regarding document content quality and detail.You don't want documents needed for CSU/Operations Readiness to be delivered at the end or have to go back and forth with them on the technical content quality or granularity in their documents.

The payment provision must actually say that the customer must pay for the stuff that the vendor provides. It’s unreal how many agreements miss the basic obligation and dive into details of payment. The obligation to pay should not be conditioned on an undisputed invoice. If it does, and the customer disputes the invoice, then there’s no obligation to pay at all, so a court can’t adjudicate the claim. The payment provision should address how to dispute an invoice and what the consequence of disputing an invoice is. For example, must the customer attempt to calculate the amount not disputed and pay that part? If the amount is very large, must the customer escrow it?

Specify whether the buyer or the supplier shall bear the responsibility for taxes levied on goods or services delivered, such as Withholding Tax, VAT, Custom Duties and the sort.By clearly outlining the tax distribution, this clause aims to avoid disputes and ensure that both parties understand their respective tax obligations throughout the contractual relationship.

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Clear terms on limits of liability and indemnity. Accountability for change and directions to proceed, along with rock-solid commitments to delivery to agreed dates with understanding on configuration.

Consider providing discounts or other perks for yearly advance payments - it's obvious that advance payment is more beneficial for cash flow. Agree that this payment schedule will be implemented from the second year onwards. Include a clause that permits service suspension if payments are overdue beyond a specified duration (to maintain equilibrium) - this isn't inherently assumed by law.

From a supplier standpoint, retain title in the goods until payment in full is made; therefore, creating a security interest in those goods and identifiable proceeds under the Uniform Commercial Code, which can be a significant leverage point if things go bad with your buyer.

It's important to make sure that all parties to the contract know under what circ*mstances either can legally terminate the contract. If one party Isn't living up to the performance required under the terms of the contract the other will not only be able to terminate in order to find a party who will meet their needs, but perhaps be able to mitigate damages caused by the original party or even be compensated for having to look elsewhere to have their contractual needs met.

Exit clause is the most important clause of any contract, it outlines the conditions and circ*mstances which allow either party to exit the contract or terminate the contract. These grounds may include failure to meet performance expectations, contract breach or nonperformance, mutual agreement, insolvency, and change in circ*mstances or change in law.

Instances of termination should be enumerated and, should be drafted with clarity. One should remember not to draft anything which is arbitrary.

Siempre resulta altamente recomendable que exista una cláusula de terminación del contrato, así sea que la misma opere por vía de resolución o rescisión anticipada, y a la vez pueda ejecutarse de manera unilateral (es decir, por una de las partes) y/o de manera bilateral (por ambas partes). Un aspecto estrechamente vinculado a esta cuestión se da al analizar lo que en el derecho romano se denomina "exceptio non adimpleti contractus" (excepción de cumplimiento).

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Clearly defined termination terms is one of the most effective deterrent to the non or under performance.Secondly, this provides the flexibility to get rid of non-productiv engagements

Compliance requirementsI'd definitely include some compliance obligations, since contractual propinquity with an organisation with either a track record or ongoing matter related to pawky, underhand issues, or other violations of international law such as sanctions can derail us as well, easily

The agreement must explicitly specify the intellectual property ownership created during the project. In my experience, the absence of well-defined intellectual property (IP) clauses in my contracts adversely impacted my project's timeline. This also applies to subcontractors contracts.

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The intellectual property rights clause within a contract serves as a crucial framework that delineates ownership, usage, and transfer of intellectual property generated or utilized during the contract's execution. It outlines the types of intellectual property involved, ownership details, licensing arrangements, rights' duration and scope, and confidentiality obligations. A well-defined intellectual property rights clause safeguards your competitive edge, mitigates the risk of infringement, and enables strategic leverage of innovations, ensuring clarity and protection in business collaborations.

Ownership of IP rights must be clearly established and, it ought to be clarified that after the contract is performed, ownership IP rights shall not be transferred (if that is so). Often, IP rights are violated in account of vagueness in the ownership clause.

I think this section is as important as difficult to implement.From supplier perspective is important to control and protect the IP and risk is to limit the product utilization in some aspects.From buyer perspective a limitation in IP might be seen as a barrier to a full access and potential of the product.Finding the right compromise is not easy but in the reality this section is almost never discussed but at the first product issue the problem is arising and difficult to solve.

Be sure indemnity is not limited to the damages after everything is said and done but rather requires the party to step in and defend from the start.

Instances of liability should be listed, however, unforeseen circ*mstances should be mentioned and reflective of the intention of the parties + overall theme of the contract.

This is one of the most negotiated depending on the context/industry. However, parties should keep an eye on:1. Scope of liability, including direct and indirect damages arising from contract breaches, negligence, or product defects.2. Indemnification, i.e., protections against third-party claims. This may include covering legal fees and damages.3. Exclusions and limitations on liability, such as $$ caps or exclusions for certain types of damages (e.g., punitive damages).4. Insurance Requirements.5. Survival of Obligations where certain indemnity and liability obligations continue post-contract termination.6. Mutuality, i.e., reciprocal indemnity obligations, where appropriate.7. Risk Allocation, and capacity to insure against them.

The liability and indemnity clause within a contract plays a pivotal role in defining accountability and responsibility for potential losses, damages, or claims arising from contract-related activities. This clause outlines limits, exclusions of liability, indemnification obligations, insurance requirements, and mechanisms for resolving disputes. Crafting a robust liability and indemnity clause enables risk mitigation, limits exposure to potential losses, facilitates recovery procedures, and provides a structured framework for conflict resolution, safeguarding the interests of involved parties.

As a supplier, you must ensure that you do not assume unlimited liability. Always cross-check the indemnity and limitation of liability clauses. For instance, if a supplier is indemnifying for violations of applicable laws, it is crucial to ensure that breaches of indemnification obligations are not excluded from the limitation of liability under any circ*mstances.

These events are extraordinary occurrences beyond either party's control that hinder the fulfillment of contractual obligations. Examples include natural disasters (earthquakes, floods, hurricanes), acts of war, terrorism, civil unrest, government actions or restrictions, strikes, and significant disruptions like global pandemics. The clause should detail the obligations of both parties in such events, including timely notification and efforts to mitigate impacts. It should also address the suspension of duties during the force majeure event, the process for resuming performance post-event, and conditions under which the contract may be terminated if the event persists beyond a specified duration.

Certainly, The force majeure clause serves as a crucial safeguard within contracts, excusing parties from fulfilling obligations in exceptional, uncontrollable circ*mstances like war, natural disasters, pandemics, or strikes. This clause specifies the definition of a force majeure event, outlines notification procedures, verification processes, suspension, and resumption of obligations, as well as termination options. Its inclusion enables parties to navigate unforeseen challenges, avoid breaches, adapt to changing conditions, and preserve the contract's integrity by providing a structured approach to managing unforeseeable events.

Again nowadays this section is becoming more and more important due the circ*mstance we all know (wars, economic changes, inflation, pandemic etc).In contracts this section was very generic but now all companies are paying a lot of attention. As of today the good cooperation between parties helped to solve most the issues, but this is only because all players were new to all these continuous issues.Now buyers are trying to get covered even from force majeure and for is really important to pay attention to this contract section as well.

In view of the COVID 19 Pandemic, it is mandatory to be careful while drafting the Force Majeure clause in the contract. The FM clause should be unambiguous and clear.

En mi experiencia en ambos ladosTambién se deben considerar maquilas y/o mano de obra, estas deben venir con un aviso de 24 hrs y una fecha promesa de entrega.

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1) No annual increases during the term2) Termination for Convenience language3) Tiers to increase discounts as you increase spend.

Continuos ImprovementEvery contract requires some kind of CI language to help offset inflation costs as much as possible, collaboration between company and supplier is key to achieve this and keep a healthy long term relationship

The big one for me is making sure 'auto-renewal' doesn't take you by surprise. Especially with SaaS tools, it often happens that a tool is no longer used, but then it automatically renewed.. so you have to pay another year. So either negotiate it out, so renewing is a pro-active move, or make sure you put the date you need to terminate ahead of auto-renewal in your calendar!

In my experience it’s very important to clarify with the supplier how you are going to manage the changes in the prices. During the past 3 years we have been experiencing instability in the markets. So it’s important to set a formula or clarify which will be the cost drivers to discuss the increases or reductions.

Escalation clause is critical, especially when signing the long term contracts. E.g raw materials, energy, labor cost etc can vary substantially Year over Year and can cause dent to bottom line. Yearly review based around agreed indices beforehand can safeguard and keeps it transparent.