Supply agreement: essential clauses
A supply agreement underpins the continuity of many operations. Properly defining deadlines, prices, quality and responsibilities usually prevents disruptions in supply.
What a supply agreement is for
It is the instrument that organizes the continuous or periodic supply of goods or inputs between companies. Unlike a one-off purchase, it usually presupposes a longer-term relationship, with successive deliveries. Its central function is to provide predictability both for those who supply and for those who depend on the input to operate.
Essential clauses
Some points are usually considered central to reduce risks and misunderstandings:
- Subject matter, technical specifications and quality standards
- Delivery deadlines, quantities and supply schedule
- Price, adjustment and payment terms
- Liability for flaws, defects and returns
- Term, renewal, termination and penalties
Quality and receipt
The rules on conformity and acceptance of the products tend to prevent frequent disputes. Defining inspection criteria, deadlines for complaints and the procedure in case of non-conformity usually protects both parties. It is also common to address warranties and the manner of replacing items that do not meet the agreed specifications.
Continuity and unforeseen events
Since supply underpins the operation, an interruption can cause significant losses. For this reason, it is customary to provide for mechanisms to deal with delays, variations in demand and events beyond the parties' control. Clauses on price adjustment and revision in exceptional scenarios also deserve attention, as the economic balance is usually sensitive over the long term.
Frequently asked questions
Does a supply agreement need to have a defined term?
Not necessarily. It may have a fixed term or be in force for an indefinite period, according to the parties' interest. In agreements for an indefinite period, it is usually important to provide for prior notice rules for termination, in order to avoid abrupt interruptions that harm the operation of either party.
Is it possible to adjust prices during the agreement?
In general, yes, provided it is set out in a specific clause. It is common to establish indices or objective criteria for adjustment, especially in longer-term agreements. Revision rules for exceptional situations may also be provided for. The conditions depend on what is negotiated and on the circumstances of each relationship.
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