Q&A: Supply contract disputes

An angry businessman tears up a supply contract following a dispute

Supply contracts set out key terms and conditions, but what should you do when a supplier's performance falls short of the mark? Alan Grisedale, partner at Muckle LLP, answers some key questions about dealing with supply contract problems

What should I do if a supplier breaks our contract terms?

Carefully check the terms and conditions, which normally state the action that can be taken for termination upon breach of contract or other penalties. Then (if appropriate), speak to your supplier, outline your concerns and tell them you are considering ending the contract for breach of contract. They may be able to rectify the problem quickly and could offer you a better deal to keep your business.

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Is it better to talk before making it a legal matter?

Yes - ask your supplier if they would be willing to meet to review the contract and talk through issues. Explain how their goods or services have fallen short. They're likely to want to put things right and may offer you a better price or package to persuade you to stay with them.

Can I seek compensation for money I've lost?

If you've raised your concerns previously yet remain dissatisfied, your solicitor may be able to advise you how to terminate the contract for breach, and without incurring penalties. Alternatively, your solicitor could write to the supplier informing them that you have sought legal advice about termination. This may force your supplier to improve. A solicitor may even be able to negotiate some compensation for you or more favourable terms.

I've made late payments a few times, does that affect things?

Late payments might prevent the supplier from providing their goods or services on time. It can certainly put a strain on your relationship, which could lead to less favourable terms in future. While paying late doesn't automatically prevent you bringing a complaint, it puts you in a weaker position. Subject to the terms, the supplier may argue that your late payment is itself a breach, and seek to terminate your agreement. They might even seek damages.

They have promised to improve, but haven't, can I tear up the contract?

Check the terms and conditions. If the supplier has fundamentally breached the contract you may be able to terminate it immediately. If they have lowered the standard of their products or services without necessarily breaching the contract, you can't terminate immediately, but will be able to at the end of the term by giving the necessary notice.

I've found someone cheaper, but face penalties for early termination?

Depending on the terms of the contract, you probably won't be able to get out of the contract without incurring some penalty. Speak to your supplier. They may be able to lower their price - saving you the disruption of switching suppliers. Alternatively, closely monitor their performance to ensure they're not in breach, which could give you cause to terminate.

My supplier wants to increase their prices.

Unless the supplier has included a clause that allows them to increase the price, they won't be able to do so within the contract term unless you agree. Depending on the product or service being provided, the contract may include terms and conditions that allow a price increase in line with a particular index - such as the retail prices index - or when raw material costs rise.

What if I break the terms of the agreement?

The supplier could take legal action against you for breach of contract, which could effectively mean you'll be liable for payment of sums due under the contract by way of damages. Check the terms and conditions of the contract for details on termination and the penalties that may be incurred for breach or early termination. Always seek legal advice before terminating a contract early - it lessens the risk of making a decision you'll end up having to pay for.

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