Running a service or product based business at times can be stressful, especially if you constantly need the supply of goods in order for your business to operate. Having a fixed supplier that constantly delivers these goods saves a large amount of time and money based on various things agreed on in a specific contract. A fixed supplier also allows the business to form financial estimates in terms of profit based off the amount of goods coming in, and expenses based off the fixed amount they would spend to get these goods in. Knowing what a supply contract is is essential to most business owners, and this Legal Kitz blog will take you through factors to consider and what to expect when engaging in a supply contract.
What is a supply contract?
A supply contract, also known as a supply agreement, refers to a specific contract between two parties detailing the various terms and agreements of the purchase of goods from a supplier. A contract of this nature is often used by departments within an organisation when working to acquire goods and services for their organisation. These contracts are often necessary when working to acquire discounted prices for a bulk of goods or services, and other relevant benefits that the supplier can agree to provide for a specific period of time.
What is included in a supply contract?
The supply contract can generally include clauses surrounding when products are delivered, various terms and forms of payment and any other aspect of the relationship that the two parties have agreed to be necessary. Notwithstanding, what is included in this contract can vary from one industry to another, however, there are a few elements that are common within most contracts, eg. pricing schedule. Various elements include:
1. Pricing
The first thing your supply contract should include is the pricing agreement that your business has agreed on with your supplier. This area would include any relevant information such as how the goods will be paid, any specific price per unit, if there is any form of discount included as a result of the purchase in bulk, as well the consideration of any form of inflation within the price of goods purchased.
2. Volume
This section of the contract will specifically address the volume of goods to be supplied, as well as any form of relevant information regarding delivery. That contract between the supplier and the business would also state whether a minimum amount is required, as larger volume orders generally include discounts, whereas lower volume orders fit storage issues more at times. When agreeing on terms regarding the volume of goods to be ordered, how your items will be stored should always be considered in addition to necessary costs that may be associated with this. The amount of time needed by the supplier to deliver these items should also be considered, as well as at what cost, and what should occur if there are any regular delays in delivery or unavailable stock.
3. Exclusivity
It is important to determine whether the supply relationship, including discounts and goods supplied is to be exclusive. For instance, if a there is an exclusive agreement between the business and the supplier that a specific style of footwear is to be supplied to them, then the supplier should not supply that same product to any other business, as it is bound by the contract.
4. Duration
This section highlights how long the business and the supplier have a specified agreement, and to as whether there is an option to renew and continue the arrangement between two parties once the contract has ended. Open-ended arrangements may also be sorted out, which generally means that either party can terminate the contract by following the specific steps in the termination clause. This is whereby a party typically gives notice beforehand and ensures all financial obligations have been settled.
5. Quality, Recalls and Unusable products
Any form of goods bought should be safe, of acceptable quality and fit for the purpose of purchase. The contract should contain a provision in which the supplier confirms that the products supplied meet all requirements of the Australian Consumer Law. This means that if the business complains that any form of defect is found, the business can take action and ensure the supplier is liable.
6. Labelling requirements
Any form of labelling requirements for the product should be agreed on in this section between the business and the supplier. These labels may require information such as a detailed ingredient or component list, notification of potential allergens or certification.
7. Dispute resolution
This section should state whether there is a dispute resolution process, ensuring that both parties have or have not agreed to a specific process. This provides a level of certainty when dispute takes place between both parties.
Conclusion
In conclusion, binding a supply contract as a business owner provides your business with a form of stability in terms of stock, and allows you as a business owner to form financial estimates. The various elements included in the supply contract also state what is expected from both parties in terms of the agreement, and this generally includes pricing matters, volume and stock, exclusivity of the agreement, duration of the agreement, quality levels, labelling requirements and how various disputes between parties will be resolved. These are all essential to ensure that there is a healthy business relationship between the business and the supplier, and ensures that both parties benefit from this agreement.
Legal advice
If you require assistance with a supply contract or need an agreement reviewed, you should seek legal advice. Legal Kitz business specialists can assist with ensuring that your matter is as time and cost efficient as possible. We provide a FREE 30-minute consultation to set you in the right legal direction. Click here to book a FREE consultation with one of our highly experienced solicitors today or contact us at [email protected] or by calling 1300 988 954. Additionally, our sister company Business Kitz offers a subscription plan that includes 150+ commercial agreements and HR policies and procedures. Check out how our subscription plan could benefit your business here.