Supply of Goods Agreements

• Certainty. A properly-drafted contract sets out the obligations of each party clearly and ensures you operate on a harmonised basis with your customers or suppliers. Not only will this simplify your working relationship, but this will also reduce the risk of contractual disputes at a later date.
• Flexibility Businesses with standard terms for the supply of goods can adapt these on a customer-by-customer basis, allowing for the added value of customisation while retaining the time and cost benefit which standard terms afford during the contracting and negotiation process.
• Limit risk exposure. As a supplier, you will protect your position through the inclusion of enforceable limitations on your liability, including those warranties in respect of the quality of the goods which you provide to your customer. You also ensure you are compliant with the legislation and regulations which apply to the sale of goods. As a customer, the agreement will offer a clear path for recourse in the event of a dispute.
• Ensure business continuity. For a supplier, the supply agreement with assist the forward planning of the use of product manufacturing lines, keep out competition and allow for stockpiling in low seasonal demand periods with the knowledge of sure sales. For a customer, entering into a bespoke agreement offers the security of supply and exclusivity of supply. The supply agreement will clearly set out the term and termination rights of each of the parties and protect the party’s positions in the event of unforeseen circumstances, such as labour or goods shortages, strikes, war or a pandemic.
• Cost Advantages. With the security of a long-term supply contract, a supplier can look to cover any high product start-up costs. On the customer’s side, the contract may offer bigger price discounts and rebates or preferential ordering and delivery timescales.

Standard terms and conditions can help streamline the contracting process by reducing the time and cost spent on the negotiation of the contract. Businesses that operate on standard terms can ensure that they are contracting on a harmonised basis for the majority of their contracts, which alleviates the administrative burden of monitoring various contracting terms for each transaction.

A business’ standard terms and conditions will ensure a more favourable position during the supply of goods. For example, a supplier would look to limit the warranties it provides to its customers as to the quality of the goods supplied under the contract.

A pro-customer supply contract will contain terms to benefit the customer’s position, including:

• An obligation on the supplier to maintain minimum stock levels in order to guarantee it can meet your order;
• obligations on the supplier to maintain and provide evidence of industry accreditations and safety certifications of its products;
• attractive credit and payment terms;
• warranties from the supplier and manufacturer as to the quality of the goods being supplied;
• intellectual property licences or an assignment of such rights;
• restrictions on the supplier’s ability to review or increase the price of its goods during the term;
• generous or no limitations on the supplier’s liability for loss or damage arising from the supply of the goods to you.

Contracts for the supply of goods are subject to the Sale of Goods Act 1979 (SGA), which implies conditions into contracts for the sale of goods. These implied terms include terminable rights for the customer that the goods will correspond with their description or sample, will be of satisfactory quality and fit for their purpose. It is common to exclude or vary these implied terms in a supply of goods agreement.

Where two businesses contract on standard terms, the Unfair Contract Terms Act 1977 (UCTA) will apply to such agreements and renders unenforceable certain practices to try to reduce risk under a contract, such as unreasonably attempting to restrict or exclude liability for losses caused by negligence.

Other relevant areas of law which will need to be considered before entry into an agreement for the supply of goods will include competition law and data protection law.