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Supply Contracts

Supply Contracts

In the supply of goods or services, the arrangement might involve simply a set of standard terms and conditions (particularly in the case of a routine transaction). However, where a closer buyer/seller relationship is envisaged, there may well be a supply contract covering ongoing aspects of the relationship complemented by standard terms and conditions governing individual consignments.

Supply Contracts 

Under certain circumstances it may also be appropriate to have a supply contract governing ongoing obligations. These may well relate to a commitment from the seller to supply, or the buyer to acquire, all or a certain proportion of the buyer's requirements. Such a contract may also be appropriate if the buyer wishes to ensure a consistent source of supply or the seller wishes to ensure an adequate demand if the goods are bespoke.

A supply contract under these circumstances may well cover the following:

  • the extent to which the seller or the buyer is committed to supplying or buying total requirements;
  • in return for this commitment (the party making this commitment will invariably expect to benefit from a special price or terms as the case may be);
  • the parties’ obligations as to placing and confirming orders;
  • the specification of the goods or services;
  • other rights and obligations of the parties which are to apply throughout the course of the arrangement;
  • the seller's warranties and liability for the goods or services (see below);
  • the duration of the contract;
  • how it may be ended; and
  • the consequences of termination.

Seller's Warranties and Liability

A key issue in the Supply Contract is the extent to which the seller offers appropriate warranties and accepts liability if something goes wrong. A buyer would normally expect to receive express warranties from the seller as to goods or services to be supplied.

In addition, with agreements for sale of goods by businesses, there are terms legally implied as to satisfactory quality, fitness for purpose and conformity with the sample or description. These terms can be excluded or limited by the seller in the agreement unless it is unreasonable for him to do so. What is unreasonable will vary in each case but unequal bargaining positions may allow the buyer to argue that the exclusion/limitation is unreasonable and hence unenforceable.

With agreements for supply of services by businesses, there are terms legally implied as to the use by the service provider of reasonable care and skill, that a reasonable time to do the work is taken and that charges are reasonable.

The buyer would normally also wish the seller to accept legal responsibility (liability) for loss or damage arising from his breach of contract, negligence or otherwise. In addition, the buyer may seek an indemnity under such circumstances to cover any resulting loss it may suffer. The seller cannot exclude or limit his liability for damage for personal injury or death caused by his negligence under any circumstances. However, a seller can, and will, normally exclude liability for consequential damage.

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