A supply management contact is an agreement between a product supplier and a purchaser. It’s an important document that ensures proper manufacturing and provision of goods for the seller.
No provision or section in the contract should be overlooked, as it can become a source of risk if drafted incorrectly. That’s why each party should pay attention to defining the terms and conditions.
How to draft a supply management contract that works for your business? Take a look at these tips to know.
1. Introduction of Parties Section
The first section that defines:
- Contract date – typically, the date you sign the contract
- Parties to the contract – names of companies and addresses
- Types of companies – e.g. “limited liability company”
- Their role (e.g., “the supplier” and “the buyer”).
“This Supply Management Contract is signed as of [the date of signing] by and between [name of company and type], with its headquarters at [registered company address], “the Supplier,” and [name of company and type], with its headquarters at [registered company address], “the Buyer.”
Carefully check the identity of the other party before signing the contract. It’s important to do research before starting doing business – check their reputation, previous clients, etc.
2. Recitals Section
An introductory section that explains the intentions of each party, the purpose of the contract, and provides additional details about the involved companies.
A supply management contract may include these types of recitals:
- Party-related recitals describing relevant business activities of the parties
- Contract background or context information. These are the details and events that led the parties to start the contract
- Compliance-related recitals indicate if a party has already complied with some of the requirements included in the contract.
An example of recitals explaining party intentions:
The Supplier produces and supplies to the Buyer [products] indicated in Annex A attached hereto on the terms and conditions set forth by this Contract, and
The Buyer intends to purchase [products] provided by the Supplier in accordance with the terms and conditions of this Contract.
Useful read: The effect of Covid-19 on contractual obligations.
3. Term Section
Defines the time period during which the contract is valid.
In this section, write:
- The duration of the contract
- Renewal conditions
- Termination conditions.
“This contract shall be effective as of the date signed and continue for [agreed validity time]. The Contract shall renew automatically at the end of [agreed validity time] for additional [extended validity time] unless one of the Parties provides notice of termination in writing at least [time period] before the end of the Contract.”
Useful read: 16 outstanding tools to make writing easier in 2020.
4. Products and Minimum Quantities Section
There are two paragraphs in this section: one describing the products the buyer purchases from the supplier, and one indicating the minimum amount of product units.
The Buyer purchases [products] listed in Annex A on the terms and conditions set forth by this Contract. The Supplier shall supply the products at the prices indicated in Annex B to this contract. The price includes all applicable taxes.
Often, supply management contracts include price information in the product paragraph like here. Be sure that the document contains the price you want – it’s a way for you to handle competition in your niche.
“During [agreed validity time], the Buyer hereby agrees to purchase a minimum of [product amount] of products listed in Annex A from the Supplier.”
Professional legal writers from thesis sites suggest that, in some cases, the parties also add maximum purchase quantities if necessary. This condition helps to control spending for the Buyer.
5. Failure to Buy Minimum Quantity Section
This section describes conditions for the Buyer if they fail to buy the minimum product amount. Typically, it’s a fine paid within a pre-agreed period.
“If the Buyer fails to purchase the minimum product quantity defined in the previous section, the Buyer shall pay the Supplier [amount] of liquidated damages within [time period], in a form and manner as agreed by both Parties.”
6. Failure to Supply Minimum Quantity
Defines conditions for the Supplier if they fail to produce and provide the minimum amount of products.
“If the Supplier fails to supply the minimum product quantity, the Supplier shall pay the Buyer [amount] of liquidated damages within [time period], in a form and manner as agreed by both Parties.”
7. Inspection and Product Acceptance Section
To ensure proper product quality upon delivery, a supply management contract outlines the conditions under which the Buyer accepts them. The most important thing for the Buyer is to indicate the deadline for notifying the Supplier about defects if necessary.
“The Buyer will inspect every delivery of [products] and shall notify the Supplier of any defects within [time period]. The Buyer will ship the products back to the Supplier, given that the Supplier pays all shipping charges and fees.”
8. Product Delivery Section
Defines the location of product delivery to the Buyer.
“The Supplier will deliver [products] to [location indicated by the Buyer] within [time period]. The Supplier assumes all risks related to product quality during the delivery at the Buyer’s location.”
9. Termination Section
Here, you should list all conditions under which the agreement may be legally terminated.
“This Contract may be terminated:
- By either party, at any time, on the grounds of [description of the pre-agreed reason] and after sending a written notice to the other party.
- By either party, at any time, for any breach of the conditions of the present Contract, provided that the breach is not restored within [a pre-agreed time period].”
Make sure to list all conditions under which you’d agree to end the contract to protect your business.
Before starting to write a supply management contract, agree on the most important goals with the other party. Have them in writing, just in case.
If you’re the buyer, decide on product quantity and time period to ensure that your business has enough supply. If you’re the supplier, agree to a product amount that you can realistically deliver within the designated period.
Amanda Sparks, professional marketer, and blogger, head of content department at Essayguard. She works as a marketer for 7 years and is passionate about developing innovative and customer-friendly solutions for brand growth. Amanda blogs for pleasure and in her free time she writes on her personal website Top Down Writer about the issues in education.