What Are The Key Clauses In A Supply Agreement?

A supply agreement is a contract between a supplier and a buyer that outlines the terms under which goods or services will be provided. It ensures both parties understand their obligations and protects against disputes. Several key clauses are necessary to make sure the contract is enforceable and clear.

Key Clauses in a Supply Agreement:

Parties Involved:

This section identifies the supplier and the buyer, clearly stating their legal names and contact information.

Scope of Supply:

Describes the goods or services to be provided, specifying quantities, quality standards, and any specifications or requirements.

Price and Payment Terms:

Defines the cost of the goods or services, payment methods, due dates, and any applicable taxes, along with terms for late payments and interest.

Delivery and Shipping:

Outlines the delivery terms, including delivery schedules, shipping methods, and the risk of loss or damage during transit. This section may refer to Incoterms (International Commercial Terms).

Warranties:

Details any warranties provided by the supplier regarding the quality, performance, or condition of the supplied goods. It specifies what actions the supplier will take in case of defects.

Intellectual Property:

Defines the ownership and use of intellectual property (IP) related to the supplied goods or services, ensuring neither party infringes on the other's IP rights.

Termination Clause:

Specifies the conditions under which either party can terminate the agreement, including breaches, non-performance, or mutual consent.

Force Majeure:

Describes circumstances (like natural disasters or events outside either party’s control) that may delay or excuse performance of obligations under the contract.

Dispute Resolution:

Includes provisions for resolving disputes, such as mediation, arbitration, or litigation, and defines the legal jurisdiction for any disputes.

Confidentiality:

Ensures that any proprietary information shared between the parties during the supply relationship remains confidential.

Governing Law:

States the jurisdiction and legal system that will govern the supply agreement.

Example:

If a company enters into a supply agreement with a manufacturer for supplying raw materials, the agreement may include:

Scope of Supply:

The manufacturer will supply 1,000 tons of raw steel per month.

Payment Terms:

The price per ton will be $500, with payment due within 30 days of delivery.

Warranties:

The steel provided will be free from defects in material and workmanship for 12 months.

Force Majeure:

If a flood disrupts the supply of steel, both parties are excused from performance during the interruption.

This structured format ensures that both parties clearly understand their responsibilities and what happens in case of any dispute or unforeseen circumstances.