A good supplier agreement is to designed to keep you out of court. It can also help you win a lawsuit if there is a dispute. If you have an ongoing relationship with a supplier, a well-drafted agreement is crucial. One especially thorny issue is creating a way to easily end a contract. If you have an arrangement with a supplier, there is normally an umbrella agreement which is succeeded by purchase orders.
Here is what you need to know when drafting an umbrella agreement:
- Gauge the volume and frequency of the supplies you will require. You should specifically identify the goods that are to be delivered. You should also leave room for anticipated problems, such as a downturn in the economy which could limit your ability to purchase goods.
- Is the contract exclusive or non-exclusive? Suppliers usually favor exclusive agreements.
- Negotiate a termination clause.
- Negotiate a way to limit liability. If you are supplying goods like food, you don’t want to be held liable for damages for lost profits if you fail to make a delivery on time.
- Term of the agreement. You should be wary of entering into an agreement for over 3 years. Who knows what your business will look like a decade later?
- Confidentiality. You probably don’t want your competitors to know the terms of your agreement. Any information gleaned from a supplier agreement can be used for competitive advantage.
- Identify each order and state that it is subject to the umbrella contract.
- Create a purchase order that you can re-use. It is best to leave time and quantity blank.
- Date the purchase order.
Be aware that problems with supplier agreements is a major source of litigation. I recently litigated a case between a supplier and a franchisee which was a result of a poorly drafted umbrella agreement that cost the franchisee $250,000.00.
If you questions regarding supplier agreements, contact me at the Law Office of Frederic R. Abramson at 212-233-0666.