Q&A: Supplier contracts

Supplier contracts don’t need to be complex, but it’s worth involving a solicitor to draw up the agreement to ensure all contractual obligations are met by both parties, advises Marie Kell of Andrew Jackson solicitors

Why do I need to draw up supplier contracts?

Having a written contract clearly sets out the roles and responsibilities of both parties, which is helpful when it comes to monitoring the relationship’s success. It can also act as proof if a supplier’s performance is falling short. A contract can be a vital piece of evidence if the relationship sours and things get legal.

What are SLAs?

Basically, SLAs (service level agreements) define the service a supplier must deliver. They are contractual obligations, which are usually built into supplier contracts as specific clauses. Put enough time into deciding the particulars of an SLA and work with your supplier when doing so, so that expectations are realistic.

What should an SLA include?

Details of the service provided, expected standards, timings, responsibilities of both parties, legal compliance requirements, payment/credit terms, monitoring and dispute resolution guidance, confidentiality and non-disclosure agreements and clear guidelines on termination. If a supplier fails to deliver, usually the buyer receives compensation. If the problem persists, then the buyer may have legal grounds for getting out of the contract.

Surely my supplier and I can come to a verbal agreement?

What happens if you have a disagreement? Proving ‘who said what, when’ is likely to be impossible. Having a written contract removes any confusion or misunderstanding about responsibilities.

Do I need to involve a solicitor in drawing up a contract?

Getting it looked at by a solicitor means the document is more likely to cover all the bases and stand up in court if needs be. Although you, the buyer, will probably have to pay for the contract to be written, it won’t cost a huge sum, plus it should be easily adaptable for use with other suppliers. Importantly, such a contract can save your business money in the long run.

How important is it to monitor and update supplier contracts?

They should be regularly monitored to make sure both sides are upholding their side of the bargain. That means you must pay up on time. Major supplier contracts should be looked at once a year at least.

What would give me the right to terminate a supplier contract?

If a supplier’s performance consistently falls short of their contractual obligations, then terminating a contract becomes more cut and dried. Even so, you must give them the opportunity to put things right. If a cheaper or otherwise more preferable supplier comes along, you can’t simply walk away. You are bound by the terms of your agreement, providing the supplier is delivering on their promises.

But what if I really want to terminate a contract?

Consult the contract and read all clauses covering termination. Find out whether there are penalties for early termination. Hopefully, when drawing up the contract, you will have been able to include an exit clause. If not, and the penalties are significant, you’ll probably have to sit tight until the end of the term. If you can successfully prove the supplier has failed to deliver on their contractual obligations, that’s a different story. Suppliers also have to weigh up the costs and hassle of pursuing a claim if they want to dispute it. A watertight contract will include guidelines on termination. In some cases, the existing supplier will try to retain your custom by improving the deal. It doesn’t have to turn nasty.

A new supplier has refused to sign a contract, saying his word is good enough...

You have no way of knowing that. If the terms of your contract are fair, ask yourself why the supplier refuses to sign. It doesn’t inspire confidence in their ability to deliver. If you plan to spend a lot of money with one supplier, you need to be sure you get the quality and service you need. It might be best to explore your options.

You may also be interested in:

• Q&A: Supply contract disputes
• How I found and manage my suppliers
• Q&A: Non-disclosure agreements